Weekend Highlights: SBF Appears in an Interview for BBC Ahead of House Hearing, US Senator Faults Gensler for SEC’s Regulatory Failures, and More
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The whereabouts of Do Kwon, one of Terraform Labs’ co-founders, have remained unascertained since the mid-May crash of the cryptocurrency project. Prosecutors in South Korea, where Kwon is wanted for his putative involvement in the cave-in of the ecosystem, which commanded a $40 billion market cap in the month leading to its catastrophic collapse, have had a hard time pointing out his exact location. The 31-year Stanford Uni graduate now-turned fugitive faces several allegations, including violating the Capital Markets Act.
The last known location was Serbia
Yonhap news agency reported on Sunday that Kwon flew to Serbia sometime last month via Dubai after fleeing Singapore in September. Another local news outlet Chosun Media corroborated the claim that the Terra creator had been residing in Serbia in November. There is no evidence that Kwon, who was in September placed on Interpol’s Red Notice, still being in the Southeastern European country, according to Choi Sung-kook from the Seoul Southern District Prosecutors’ Office.
Nonetheless, South Korea’s Ministry of Justice is working on a cooperation arrangement with the Serbian government. An arrest warrant to detain Shin Hyun-Seong, the other co-founder (and executive at Chai), requested by the South Korean prosecution team on Nov 29 was on Dec 3 dismissed by Seoul Southern District Court’s presiding judge Hong Jin-Pyo. The former Terra CEO and other early investors face potential fraud charges in addition to violating the Capital Markets Act and the Electronic Financial Transactions Act. The prosecution team suspended the statute of limitations on Kwon’s case based on his off-the-grid and strange movement, which has raised suspicions, hinting that he is looking to evade authorities.
Kwon, on his end, has maintained the stance of not being on the run. He previously suggested that the probe being conducted by South Korean prosecutors is politically motivated. In a Sept 28 statement to WSJ, a spokesperson of Terraform Labs (the development company responsible for Terra) accused the prosecutors of demonstrating unfairness and “failure to uphold [Kwon’s] basic rights” as stipulated under Korean law.
Former FTX CEO summoned before House on Dec 13 after skipping previous scheduling
In the US, attention in the regulatory scene has remained on Sam Bankman-Fried in the post-FTX landscape. Up to seven class action lawsuits have been filed against the former FTX CEO since the financial crumble of the exchange. Last week, the US House Committee of Financial Services summoned the disgraced founder for a hearing set to be held on Dec 13. In a tweet extending the invitation, the Committee’s chairwoman Maxine Waters emphasized the necessity of SBF appearing directedly on Tuesday to speak before the Members of Congress. A Dec 8 memo on the ‘Investigating the Collapse of FTX, Part I’ hearing shows that the acting executive John Ray III is also expected to appear before the House as a witness before the former FTX boss.
SBF pledges to give everything to settle with creditors in latest apology
As far as fraud goes, SBF recently insisted on his innocence in Dec 10 interview for BBC from his Bahamas residence. Bankman-Fried said he intends to do everything he can to reimburse FTX users and other affected victims while acknowledging that the thought of potential arrest troubles him.
“I didn’t knowingly commit fraud, I don’t think I committed fraud, I didn’t want any of this to happen. I was certainly not nearly as competent as I thought I was,” he told BBC reporters.
The Terra crash and more recent FTX exchange bankruptcy have exposed flaws within the cryptocurrency sector, most notably a need for urgent and proper regulation.
US Senator picks holes in SEC chair’s crypto sector regulation strategy
On Saturday, Republican Senator Tom Emmer shared critical remarks on the current Securities and Exchange Commission regime led by its chair Gary Gensler in a series of tweets. In reference to a Mar 16 bipartisan blockchain Caucus letter to the SEC chair, the Minnesota Senator appeared to slag off the SEC for being “haphazard and unfocused” in its approach.
“We now know Gensler’s crypto information-gathering efforts were ineffective. He declined to provide Congress with the information requested in the letter, which would’ve informed Congress of the apparent inconsistencies in Gensler’s approach that caused him to miss Terra/Luna, Celsius, Voyager, and FTX,” he wrote.
Emmer, who previously laid into Gensler’s regulatory and oversight approach specifically over the digital assets market in a Nov 25 tweet, concluded the post demanding that Gensler appears before Congress.
“Gensler has repeatedly dodged Congress at the expense of investors (hasn’t publicly appeared before the House Financial Services since Oct 5, 2021), leaving us to learn about the SEC’s crypto investigations, like the one into FTX, through the media.”
In the post, Emmer also raised concern about the opaque nature of the commission, noting that the lack of transparency on its oversight agenda has done more harm than good. He deplored the muddled state of things, saying, “Congress shouldn’t have to learn about [the commission’s approach] through planted stories in progressive publications.” The ongoing Ripple case has been the biggest area of interest of Gensler’s commission. The case reflects the focus of the SEC’s efforts as a final verdict on where Ripple’s XRP (XRP) token stands will help better implement and enforce US securities laws.
Grayscale welcomes SEC’s reply as the next milestone in its litigation
The SEC recently filed its first legal reply in the lawsuit filed against it by digital assets investment manager Grayscale. The asset manager shared in a Friday communication that the commission filed a 73-page response brief to the lawsuit initiated by the former following the rejection of its application for converting its flagship Bitcoin Trust product to a spot bitcoin exchange-traded fund.
The SEC wrote in its defense that the disapproval of the proposed ETF product was a fair decision aligned towards consumer protection.
“The Commission’s disapproval of Grayscale’s proposed ETP does not reflect an impermissible, merits-based skepticism of bitcoin as an investment. Rather, it followed a straightforward application of the standard for reviewing ETPs mandated by the statutory text.”
Grayscale maintains that the US markets regulator has been inconsistent in its verdict on crypto-based exchange-traded products. Specifically, the asset manager argued that the commission is at fault for ‘approving Bitcoin futures-based ETFs while continuously denying spot Bitcoin ETFs.’ The final briefs on the matter have a due date of Feb 3, with the next brief expected four weeks earlier on Jan 13.
Hong Kong pursues a preventive course post-FTX
Meanwhile in Hong Kong, the domestic Securities and Futures Commission is reportedly drafting a guiding framework for crypto exchanges operating in the region. Broadcaster RTHK revealed in a Monday report that the financial markets regulator is preparing regulatory obligations for licensed virtual asset exchanges. The commission has plans for a public consultation whose launch date wasn’t disclosed. Last week, the Legislative Council in Hong Kong approved a bill to enforce licensing requirements on digital asset trading platforms. The bill will take effect June 2023 – as opposed to an earlier March date – ushering in a new system that requires VASPs to have a license permitting them to conduct crypto business in Hong Kong.
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Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.