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Bank of Russia Looks to Retcon Regulations Surrounding Digital Assets

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Successful Completion

A pilot program, sanctioned by the Bank of Russia, was developed, and recently completed, by Russian mining industry giant, Nornickel.

This pilot, which took place within the bank’s regulatory sandbox was structured as a means to test the veracity of the benefits surrounding digital assets, and the potential role they can play in finance.

 Pilot Capabilities

The pilot saw a platform developed by Nornickel, which provides its clients with various capabilities surrounding digital assets.  Through the use of ‘hybrid tokens’ the platform provides, but isn’t limited to, tokenization of…

  • Goods
  • Services
  • Securities

The goal hoped to be achieved through offering these services is two-fold, like most tokenization platforms.

  1. Provide companies easier access to financing opportunities
  2. Provide investors with an increase palette of investment choices.

Changes Incoming?

The Bank of Russia did not embark on this endeavour for the fun of it.  They have noted the potential role that digital assets will play in the future of finance, and are looking to prepare themselves accordingly.

As such, they have now submitted framework surrounding digital assets, in hopes of seeing new amendments made to Russia’s current laws governing crypto – Framework established during Nornickle’s time in the bank’s regulatory sandbox.

We have previously taken a look at a few of the laws governing blockchain in Russia, which the nation’s central bank hopes to see amended.  Make sure to peruse the following article to see the areas which stand to, potentially, be altered.

Russia Begins Regulatory Framework for Security Tokens

Commentary

As stated, the Bank of Russia, only today, released a statement on the successful completion of the pilot program.  The following is a translation of commentary provide by the bank.

Ivan Zimin, Director of the Financial Technology Department of the Bank of Russia, states,

“It was one of the largest sandbox projects. We have studied in detail the new business model and its compliance with the needs of the market. An important part of the service is the use of hybrid tokens, which make it easy to adapt to the needs of business and consumers and provide flexible solutions to attract investment. As a result of the piloting, the Bank of Russia proposed to include in the draft federal law “On Digital Financial Assets” the provisions necessary for the introduction and development of such solutions in the emerging market of digital assets, which were supported by the government agencies and business.”

Seeking a Friendly Hand

Establishing a clear framework surrounding digital assets is clearly of importance when gauging industry development.  As industry participants look to continue expanding their products and services, we have seen many begin seeking out nations which have had the foresight to implement such framework.

One company, recently covered, that is doing just that, is Smartlands – a UK based tokenization platform.  Smartlands recently announced that they would be basing their future moves on the Liechtenstein Blockchain act.

Smartlands Begins Realignment with Eyes on ‘Liechtenstein Blockchain Act’

Treading Lightly

While news of a potential implementation of government backed framework is, no doubt, welcome, Russia has remained skeptical of the cryptocurrency industry at large.  Tokenization of assets and financial instruments in a regulated manner are one thing, but cryptocurrency transactions are another beast entirely.

Russia has taken a trepidatious stance towards trading cryptocurrencies, as they link them to potential money laundering schemes.  This stance has been reiterated as recently as February 17, 2020 by the Bank of Russia, as they look to update ‘Directive 375-P’ – essentially a manual for identifying illicit financial activity.

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Joshua Stoner is a multi-faceted working professional. He has a great interest in the revolutionary 'blockchain' technology. In addition to this, he is a licenced Paramedic in Nova Scotia, Canada. As such, he can provide emergency care/medicine to any situation necessitating it.

Regulation

XRP Ripple Lawsuit re-filed, but not as a Security?

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Ripple XRP Lawsuit

This week, news broke that an amended complaint against Ripple has been filed by XRP investors. This news is the latest development in a two-year class-action lawsuit brought against the firm. Interestingly, investors chose to amend this lawsuit in order to add protections in the case that XRP doesn’t fall under securities regulations.

Importantly, the amended suit includes former XRP investor Bradley Sostack as the lead plaintiff. In this go-around, the plaintiffs brought additional claims against Ripple and its CEO, Brad Garlinghouse for violation of California business law. The report alleges the company blurred the differences between its enterprise solutions and XRP to further drive demand in the market.

Hedge Your Bets

Originally, the lawsuit alleged that Ripple raised millions of dollars through the unregistered sales of XRP to US retail investors. Now, according to a court document filed on March 25, investors decided to attempt another approach. Perhaps, fearing that XRP could escape securities regulations, the new suit goes after the firm for violations of California business laws.

To this extent, the sixth claim for relief states that the firm participated in false advertising, while a seventh claim, further accuses the firm of unfair competition in violation of California regulations. Also, the claim states that Ripple reportedly limited the supply of XRP to drive price appreciation.

Garlinghouse Under Fire

Specifically, the allegations claim that Garlinghouse made numerous conflicting claims to investors. In multiple instances, he stated that he was holding XRP for long-term gains. However, researchers pointed out that these statements were false. Throughout 2017, Garlinghouse sold millions of XRP via cryptocurrency exchanges. In fact, a review of the XRP ledger indicates that Garlinghouse sold over 67 million XRP in 2017 alone. Additionally, on multiple occasions, he dumped his XRP within days of receiving it from Ripple.

XRP Ripple Lawsuit

XRP Ripple Lawsuit

SEC vs Ripple XRP

The lawsuit cites statements made from Ripple about XRP being a utility token essential for international payments. Additionally, the firm and CEO made statements in which they described the cryptocurrency sales are primarily to market makers. This last point could prove to be a major problem for Ripple as 60 percent of XRP is owned by Ripple, and until now, only saw use solely for fundraising efforts.

The Ripple XRP Saga

The XRP securities saga started when a group of disgruntled investors lodged a complaint with the SEC back in 2018. Since that time, the case has seen numerous amendments as both Ripple and the plaintiffs adjusted their strategies. Ripple hoped to get the case dismissed early on,  but U.S. District Judge Phyllis Hamilton in the Northern District of California ordered in February the suit could proceed to trial.

While the news did seem bleak for Ripple, at that time, Judge Hamilton also stated that the company did not violate California state law. Consequently, both the false advertising and personal liability against Ripple’s CEO Brad Garlinghouse were dropped in that instance.

Now, Ripple worries that the plaintiffs will utilize unlimited amendments to falter the XRP market. Given the new legal approach that the plaintiffs have taken to towards the company, there may be some validity to their concerns.

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Regulation

BSTX Experiences Proposal Delay, as SEC Seeks Further Commentary

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Postponed

The SEC has recently released an update on a proposal put forth in 2019 by the, yet-to-launch, Boston Security Token Exchange (BSTX).  Despite being considered since last May, the proposal has been postponed.  The purpose of this delay is to allow for public commentary.

Final Decision

This move, delaying the final decision, comes after months of deliberation on the proposal put forth by the BTSX.  From the time of the initial filing, we have covered developments surrounding the BSTX on multiple occasions.  The following articles shed light on this timeline, and what the BSTX is trying to achieve.

Boston Security Token Exchange (BTSX) Seeks SEC Rule Change

SEC Seeks Input on ‘Boston Securities Token Exchange (BSTX)’ Proposal

Changes Proposed

While not all-encompassing, the following are a few of the key points put forth by the BSTX in their proposal for change.

  • Asset ownership recorded using a private blockchain
  • Trading enabled through use of BSTX tokens
  • Whitelisted Clients

Commentary

In their most recent extension, the SEC noted that it was done in hopes that the public would come forth, and share their stances towards the proposal.  They stated,

“The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal.”

Expressing Trepidation

Presumably, what prompted this delay is multiple responses received during the first commentary period.  While there were only two received, each expressed trepidation towards what the BSTX is trying to achieve.

Of the two responses received, thus far, one was received by a representative of Nasdaq.  It is stated,

“Nasdaq respectfully submits that the BOX proposal may place an unreasonable burden on competition because the blockchain (ledger) technology used to track ownership of the security token—the only aspect of this instrument that is unique—would not have a common distributed ledger. Rather, the distributed ledger would be exclusively available on BOX, thereby placing other exchanges at a competitive disadvantage that cannot be remedied by replicating the blockchain offering. Furthermore, the proposal appears to provide insufficient detail regarding: (1) digital securities infrastructure and technology pairing with the existing equities market infrastructure, and (2) its impact on the anti-fraud and customer protection provisions of the Act, as well as possible investor confusion. Nasdaq recommends that BOX submit additional detail addressing these concerns before the proposal is approved.”

Simply put, they break down their issues into two main points:

  • ‘The Proposal places an unreasonable burden on competition’
  • ‘The Proposal provides insufficient information to assess compliance with the Act or the costs to market participants.’

The commentary, put forth by Nasdaq, closes with a request for more information, stating,

“For the reasons described above, Nasdaq believes that BOX has provided insufficient information concerning the proposal’s impact on competition, how it complies with other aspects of the Exchange Act and Anti-Money Laundering statutes, and how BOX intends to avoid investor confusion. Nasdaq recommends that BOX submit additional detail addressing these concerns before the proposal is approved.”

Boston Security Token Exchange (BSTX)

Founded in 2018, the BSTX is a joint venture between BOX Digital, and tZERO.  The goal of the BSTX is to establish a regulated and full-fledged exchange, which offers support for digital securities.

CEO, Lisa Fall, currently oversees company operations.

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SEC Levies Various Charges Against ‘Teshuater’

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Halt!

The SEC has recently laid charges on yet another fraudulent company, which robbed investors of funds through a variety of means.

The charges laid are against a group of entities, which include:

  • Teshua Business Group
  • Teshuater
  • Larry Leonard
  • Shuwana Leonard

It is believed that the couple, Larry and wife Shuwana, used his standing as a former Texas Pastor, to prey specifically on the African-American community.

Alkaline Water

Over the past few years, and most prominently during the 2017 ICO boom, we have seen various projects touting their unique nature.  While everything from maple syrup, to lost treasure, has been touted as value backing for coins, one of the more ridiculous is Alkaline Water.

It is this Alkaline Water, which much of the fraud to have taken place, was based upon.  The Leonards’ touted their Alkaline Water company as being the first of its kind to be ‘black owned’.  They then attempted to raise money by selling stock, selling non-existent ‘TeshuaCoins’ purportedly backed by their reserve of water, and under the guise of a yet-to-be established BTC mining outfit.

Even if this entire endeavour was legitimate in their efforts to raise money, the underlying product is basically snake oil; A product with no proven benefits was being peddled as an asset of value.

Big Money

Over the course of their journey, preying on unsuspecting investors, money was stolen through various means.

There were three main streams of income for the couple behind TeshuaCoin.

  • Capital generation through an ICO
    • $170,395.20 was raised out of a $20 million goal
  • Selling fake equity within Teshuater
    • Nearly $291,044.07 was raised through the issuance of fraudulent ‘stock certificates’
  • Investments for establishing a mining pool
    • $25,544.96 was stolen, with zero effort to establish said pool

Charges Laid

Naturally, as the fraud committed was not done so in a singular manner, there are various charges being laid against the couple and their group of companies.

These charges revolve around each of the aforementioned three ways that they decided to defraud investors.  Per their filing, SEC is seeking the following:

  1. Permanent injunctive relief
  2. Disgorgement of ill-gotten gains plus prejudgement interest thereon
  3. Civil penalties
  4. Equitable and ancillary relief to which the Court determines the Commission is entitled

Commentary

In their filing, the SEC summarizes the result of efforts made by Larry Leonard, Shuwana Leonard, and their companies, to defraud investors.

“Since at least 2017, Larry Leonard, individually and through Teshuater and TBG, along with his wife, Shuwana Leonard, targeted investors in the African-American community by promising oversized returns on various investments related to Teshuater, a business that bottled and distributed alkaline water. During the course of this scheme, Defendants raised nearly $500,000 from over 500 investors through materially false and misleading statements and omissions and other deceptive conduct.”

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