The crypto sector kicks off 2023 with fines, lawsuits, questions, and seizures

The turbulence of the crypto market has kept the news cycle buzzing, with stories breaking every day about scandals, scams, and regulatory enforcement. Here’s a roundup of what we saw go down in the crypto world this week.

Coinbase ordered to pay $100 million: New York state financial regulators have been investigating crypto exchange Coinbase’s anti-money laundering controls.

• The regulators alleged that Coinbase didn’t conduct sufficient background checks on customers before allowing them to open accounts. They claimed the failures made the exchange more susceptible to financial crimes like fraud, money laundering, and drug and child sex trafficking.
• The regulators said that Coinbase’s operations could not keep up with its rapid growth, which caused a backlog of thousands of unreviewed transactions.
• The exchange reached a settlement with the regulators in which it agreed to pay a $50 million fine and invest an additional $50 million over two years into upgrades to its compliance processes.

Coinbase has faced its share of regulatory scrutiny, including from the Securities and Exchange Commission, which accused it of selling unregistered securities. Coinbase vowed to take compliance requirements seriously to help rebuild confidence in the digital asset sector. That’s a good move, as regulatory enforcement will likely intensify.

US federal officials seized millions of shares of Robinhood linked to FTX: The US Department of Justice seized $465 million (56 million shares) worth of the trading app Robinhood’s stock tied to defunct crypto exchange FTX.

• The stock was ruled to not be part of the bankruptcy estate and therefore not required to be frozen like other assets associated with FTX accounts.
• The shares are owned by Emergent Fidelity Technologies, an entity that is 90% controlled by FTX founder Sam Bankman-Fried (SBF). But three parties are trying to lay claim to the assets: crypto lender BlockFi, which accepted a bailout payment from FTX to prop itself up; FTX creditor Yonathan Ben Shimon; and SBF.

A forfeiture proceeding will likely determine claims to the stock. All eyes will be on this case as it will lay the groundwork for future regulation of the digital asset industry.

The SEC questioned Binance’s bid to purchase Voyager Digital’s assets: The SEC filed an objection to Binance.US’s proposal to acquire bankrupt crypto firm Voyager Digital’s assets due to a lack of necessary information.

• The SEC is asking for more information on how Binance plans to fund the acquisition, what Binance’s operations will look like after the acquisition, and how Binance’s consumers’ assets will be secured throughout the acquisition before it grants approval.
• The agency also wants to see the exchange’s contingency plans if the deal is not completed by its proposed deadline of April 18.
• Some in the industry speculate that Binance.US can’t afford to complete the acquisition without potentially tapping into the Binance global funds. The proposal is worth over $1 billion.

The additional questions around the deal aren’t surprising, as Binance has been dealing with increased scrutiny from regulatory watchdogs since the collapse of FTX. Executives from the exchange are facing investigations into potential financial crimes, but the exchange as a whole seems to be standing strong, weathering $3 billion in withdrawals over a 24-hour span.

Former Celsius CEO sued by New York Attorney General: CEO of bankrupt crypto firm Celsius Alex Mashinsky was accused by the NYAG of defrauding investors of billions of dollars by providing false and misleading statements about the health of Celsius Network and encouraging consumers to make deposits at the firm.

• Celsius filed for bankruptcy in July 2022 after freezing customers assets in the weeks before.
• The goal of the lawsuit is to ban Mashinsky from doing business in New York state and to require him to pay damages and restitution.

Regulators are slowly starting to take action on regulating the crypto industry, though they still have to tackle many uncertainties. At the federal level, there’s contention over which regulatory agency has ruling authority over the assets. But New York is moving quickly, as shown by the Celsius lawsuit, its guidance on crypto activities, and its takedown of SBF.

This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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