Home > News > Business > Crypto.com sues SEC. Tether does not enjoy EU clarity
While Tether is having difficulty complying with European regulations, Crypto.com has filed a pre-emptive lawsuit against US securities regulators.
On October 8th, Crypto.com announced that its controversial chairman Gary Gensler with the Securities and Exchange Commission (SEC), after the digital asset exchange received a Wells notice on August 22nd. announced that they have filed a lawsuit against them. The Wells Notice states: The regulator has completed its investigation of the individual/entity and found sufficient evidence of wrongdoing to take enforcement action.
The 48-page lawsuit was filed by Crypto.com’s parent company, Foris Dax, in the United States District Court for the Eastern District of Texas, Tyler Division. The lawsuit focuses on Crypto.com’s argument that the SEC does not have jurisdiction over “secondary market sales of certain network tokens” offered on exchanges.
The “targeted network tokens” in question are SOL, ADA, BNB, FIL, FLOW, ICP, ATOM, ALGO, NEAR, and DASH, and the sale constitutes an investment contract based on the Howey test for identifying securities, the SEC said. is clearly thinking.
(The SEC has targeted some of the above tokens in previous enforcement actions, including those against Binance, Coinbase (NASDAQ: COIN), and the Kraken exchange, as well as a lawsuit alleging insider trading against former Coinbase staff and their employees. (Not necessarily all) The lawsuit filed against Ethereum-focused blockchain software company ConsenSys cites additional tokens not listed above.
Crypto.com told the court that the said tokens “are not securities, are being sold as part of securities transactions, and are acting as an unregistered securities broker-dealer or securities clearinghouse with respect to those sales.” We are asking them to declare “No.”
Crypto.com has adopted the position of Ripple Labs, which obtained a favorable ruling in federal court in July 2023 regarding the legality of retail customers purchasing Ripple’s XRP tokens on exchanges. However, the SEC has appealed that decision, and court decisions on other platforms reject the notion that only sales to institutional investors qualify as securities trading.
Crypto.com wants to force the SEC to disclose why its “target” tokens are securities while BTC and ETH are (allegedly) non-SEC-supervised products. . Foris Dax has filed petitions with both the SEC and the Commodity Futures Trading Commission (CFTC) “to confirm that certain virtual currency derivative products are regulated solely by the CFTC through joint interpretation.” CFTC Chairman Rostin Behnam has previously expressed his belief that BTC and ETH are commodities.
Similar efforts to file SEC lawsuits have not yielded the desired results. Last month, the U.S. District Court for the Northern District of Texas rejected ConsenSys’ bid to block the SEC. The court noted that the SEC’s Wells notice did not impose any “legal consequences” on ConsenSys, so it needed to cool its jets until it found something actually to complain about.
More than a year ago, the site speculated that Crypto.com would be the next target of US federal authorities. Part of this speculation stems from the exchange’s well-known struggles to maintain banking relationships, particularly in European Union markets, and its subsequent reliance on payment processors, which often points to the wrong direction for enforcement. It’s based on that.
Coinbase directs USDT to GTFO
In January 2023, Crypto.com banned Canadian customers from trading Tether’s USDT stablecoin. The delisting comes about 18 months after the Ontario Securities Commission (OSC) added USDT to its list of “prohibited cryptoassets,” although at the time USDT was the only name on that list. It was noteworthy.
At the time, USDT’s market capitalization was approximately $65 billion, but that total has now risen to just under $120 billion, suggesting that the Canadian delisting has not had much of an impact on Tether’s fortunes. Suggests.
But this might be the case. Coinbase recently confirmed plans to delist USDT and other stablecoins that are not compliant with the European Union’s new Market for Cryptoassets (MiCA) regulations. On October 3, EU customers received a message stating that Coinbase “will restrict services for stablecoins that do not meet MiCA requirements by December 30, 2024 for customers in the European Economic Area (EEA).” Reported that it was received.
Although MiCA’s stablecoin regulations came into force on June 30, many stablecoin issuers have yet to receive the EU stamp of approval. To do so, issuers must meet certain criteria, such as holding at least 30% of their fiat reserves in cash in EU banks, and for issuers deemed systemically important like Tether, this The requirement rises to 60%.
The first stablecoin issuer to receive an electronic money institution (EMI) license from an EU member state was Circle, the issuer of Tether rival USDC. It’s worth noting that Circle’s USDC partner is none other than Coinbase, and Coinbase’s heads-up with EU customers showed that these customers can convert USDT to USDC or Circle’s euro-denominated stablecoin EURC. I will.
USDC’s market capitalization is less than 30% of USDT’s, but the gap is likely to narrow if Tether continues to be locked out of major markets such as the EU. And with new reports arriving every week about Tradfi institutions issuing their own stablecoins, the world may experience a black-and-white, good-versus-evil separation of stables: Tether There is no doubt that people in the world are now wearing black hats.
Technology to the rescue
In an effort to create a sense of “this is OK,” Tether CEO Paolo Ardoino mentioned Coinbase’s announcement in an interview on October 4. Ardoino declared that Tether is “developing a technology-based solution that will be unveiled in due course and will be customized to meet the needs of the European market.”
Ardoino did not specify specifically what this “solution” would include, including whether it would be MiCA compliant. But some long-time Tether critics say this “ultra-vague” statement will temporarily appease European USDT holders with “hand-waving nonsense” that does nothing to solve Tether’s EU problems. I immediately jumped at the idea that it was intended for just that.
Ardoino has previously protested MiCA’s “very restrictive measures,” which he said pose further risks by funneling large amounts of stablecoin reserves into a single bank basket. I’m thinking. If banks operating under a fractional reserve system fail after lending out a large portion of these reserves, the contagion can be rapid and ruthless.
To be fair, this is not a minor concern, as the collapse of Silicon Valley Bank (SVB) in March 2023 amply demonstrated. Circle has $3.3 billion in cash parked with SVB, and the news causes USDC to lose its 1:1 peg to the dollar until the Federal Reserve agrees to bail out SVB’s customers.
Examples of illegal use
One thing is for sure: Tether’s MiCA’s main concerns about depositing cash in EU banks cannot be solved by technology, as EU banks likely want nothing to do with Tether. That’s true. In a report published a few months ago, the United Nations uniformly classified USDT as a “criminal coin” because it is widely used to launder profits from criminal activities, particularly “pig butchering” scams and other illegal activities. reached.
The latest report from the United Nations Office on Drugs and Crime further twists the knife, stating that “stablecoins, specifically Tether (USDT) on the TRON blockchain, are linked to Asian criminal organizations engaging in cyber-based fraud and money laundering activities. It is the preferred option for.” A wide range of criminals from within and outside the region are participating. ”
The report develops a critical eye for the importance of the Telegram messaging platform to crime in Southeast Asia, stating that it “represents a key location where criminals and service providers congregate, connect and do business online, and the region’s illicit economy.” is promoting the growth of
This report explains how Telegram’s underground marketplace is essentially unable to function without USDT. Incidentally, Ardoino has been among the most vocal in complaining about French authorities’ arrest in August of Telegram founder Pavel Durov for refusing to hand over information about Telegram customers involved in child sexual abuse material. He was one of the people suing.
The report also states that “stablecoins now account for the majority of all illegal transaction volume, and by 2023 they were also used in 70 percent of crypto-related fraudulent transactions worldwide… It was the stablecoin with the largest total illegal transaction volume.” At least US$19.3 billion. ”
The report notes that while Tether sometimes freezes certain tokens in response to requests from global crime-fighting organizations, “data suggests stablecoin abuse continues to trivialize seizures.” “I am doing it,” he points out.
Sad Paolo just wants to help
Tether was caught off guard this summer when Consumers Research, a right-wing group that typically targets “woke” companies, launched a multimillion-dollar smear campaign against Tether. The campaign features TV ads, a website, and a digital billboard in New York’s Times Square touting Tether’s ties to terrorist financing, fraud, sanctions evasion, and “close ties to China.”
Asked about the campaign in an interview with Fox Business reporter Eleanor Terret published on October 8, Ardoino said he felt “sad” because Tether “helps hundreds of millions of people.” insisted. He wonders if these people include pig butchers, fraudsters, and money launderers who he believes are actually a big help for USDT in evading law enforcement. I leave it to the reader to draw the conclusion.
In September, Tether appeared to respond to consumer research by launching its own new website. The site praised Tether as a “pioneer in the stablecoin market that prioritizes financial transparency, resiliency, and cooperation with global law enforcement.”
Claims of “financial transparency” ring more than a little hollow, considering Tether celebrates its 10th anniversary this month and has yet to conduct a long-promised independent audit of its assets. .
Asked about his inability/unwillingness to open the books, Mr. Ardoino told Mr. Terret that he just wanted to do an audit. The problem is that the country’s “big four” accounting firms are said to be unwilling to bring Tether into public view due to the “unfriendly regulatory environment” in the United States.
Unfortunately, Terret did not press Ardoino on why BDO, the company that has been conducting Tether’s minimum quarterly attestations for the past two years, was not allowed to conduct a more comprehensive audit. Tether has a checkered history of allowing funds to flow in and out of accounts on a single day, so anyone can see its financial status at a glance. I can’t help but find answers that I don’t always find with Ardoino.
See: The Web3 World with Teranode and Edge-to-Edge Electronic Value Systems
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