Suicide Club

• FTX was brought before a bankruptcy court in Delaware to decide whether or not to open an independent investigation.
• The US Trustee argued in favor of an investigation on allegations of fraud, misconduct, and mismanagement.
• FTX argued that an external investigation is a waste of money and poses a risk to the cybersecurity of the exchange.

FTX Bankruptcy Hearing

Background

FTX was brought before a bankruptcy court in Delaware to decide whether or not to open an independent investigation on the firm’s collapse.

US Trustee Calls for Investigation

The US Trustee, through their lawyer, Juliet Sarkessian, said an independent investigation is mandatory under federal law in all significant bankruptcy cases where the DOJ requests one. The trustee told the judge that the goal of the FTX debtors is recovering as much as possible and that they need to be aligned with the goals of the neutral examiner tasked with investigating malpractice.

FTX Argues Against Examiner

FTX attorney James Bromley argued that an examiner would merely duplicate work already done by law enforcement agencies and FTX creditors. He added that allowing new investigators to access FTX systems puts the cybersecurity of their ongoing investigation at risk.

Judge Dorsey Asks Parties To Reach Agreement

Judge Dorsey did not rule on the matter but asked FTX and the US Trustee to try to reach an agreement on the scope for a potential examiner review. He said an examiner should be appointed if appropriate.

Conclusion

The outcome of this hearing will impact how FTX moves forward with its debts and customers’ claims as well as any potential investigations into malpractice by FTX management during its collapse.

• Senators and House members held hearings to investigate Silvergate Capital, the parent organization of Silvergate Bank, about its connections to FTX.
• Senators John Kennedy, Roger Marshall, and Elizabeth Warren wrote a letter to Silvergate demanding information about the demise of the crypto exchange FTX.
• Silvergate was given until Feb. 13 to respond to questions from Congress over its role in the FTX scandal.

Recently, the US Senate held hearings to investigate Silvergate Capital, the parent organization of Silvergate Bank, about its connections to FTX, the crypto exchange that experienced a liquidity issue and filed for bankruptcy in November 2022. The Senators wanted to know how Silvergate handled the transfer of customer assets to Alameda, and whether FTX had misappropriated customer funds.

In response, Senators John Kennedy, Roger Marshall, and Elizabeth Warren wrote a letter to Silvergate demanding information, and questioned the institution’s earlier comments which they found “evasive.” The letter gave Silvergate until Dec. 19 to respond, but the bank declined to fully answer due to the prohibitions on releasing, “secret supervisory information.”

In response to this, the Senators urged the Justice Department to look into the collapse of the crypto exchange and consider bringing certain people to justice, including Sam Bankman-Fried, the former CEO of FTX. Further, the Senators requested that Silvergate respond to questions from Congress over its role in the FTX scandal by Feb. 13th.

The US Senate’s investigation into Silvergate’s involvement in the FTX scandal is ongoing. It remains to be seen what the outcome of the investigation will be. However, it is clear that the Senators are taking the situation seriously and are committed to getting to the bottom of this issue.

•BlockFi’s financials have leaked, showing a $1.2 billion exposure to FTX and Alameda.
•The leaked documents were released by mistake and contained more information than previously shown.
•Poor management at FTX has negatively impacted BlockFi, and its financials show a connection of $415.9 million worth of assets linked to FTX and $831.3 million to Alameda.

Crypto lender BlockFi has been under heat since the collapse of the exchange platform FTX. Recently, financial documents that were not meant to be released have leaked, providing more information than was previously known.

The documents revealed that BlockFi had a total exposure of $1.2 billion to FTX and Alameda, two crypto exchanges that have since gone bankrupt. According to reports from CNBC, the financials were released by mistake and were taken down by BlockFi as soon as they were discovered.

The leaked documents showed that BlockFi had a total of $415.9 million worth of assets linked to FTX and $831.3 million to Alameda. This has been further confirmed by advisors to the BlockFi creditor committee, M3 Partners. They explained that the upload of the documents was an error.

This is not the first time that BlockFi has released redacted documents. On November 24th, they provided one related to the creditor committee’s objection that BlockFi was planning to pay key employees $12.3 million in retention payments. This report was challenged as BlockFi is under limited operations and doesn’t have the resources to service such a commitment.

Unfortunately, the documents reveal that BlockFi has been significantly impacted by the collapse of FTX. Poor management at the exchange platform has caused BlockFi to suffer, leading to a large exposure of $1.2 billion. It remains to be seen how BlockFi will move forward and how it will mitigate the losses it has suffered due to the collapse of FTX.

• FTX and its advisors have found about $5.5 billion in liquid assets, including $1.7 billion of cash, $3.5 billion of crypto assets, and $0.3 billion of securities.
• Despite the large sums discovered, customers may still not get fully reimbursed due to a substantial shortfall of assets.
• The Debtors have identified an estimated $1.6 billion worth of digital assets belonging to FTX.com.

FTX, a cryptocurrency exchange, and its affiliates have recently revealed that they have found about $5.5 billion worth of liquid assets, which includes $1.7 billion of cash, $3.5 billion of crypto assets, and $0.3 billion of securities. The exchange and its advisors have met with the officials and members of the Official Committee of Unsecured Creditors (UCC) in the exchange’s bankruptcy case.

Despite this large sum of liquid assets, FTX Debtors have clarified that there is still a substantial shortfall of assets, meaning customers may not get fully reimbursed. The Debtors have identified an estimated $1.6 billion worth of digital assets belonging to FTX.com, out of which $323 million was transferred out of the exchange by unauthorized third parties, $426 million is held in cold storage by Bahamian authorities, the Debtors hold $743 million in cold storage, and another $121 million is set to be sent to its cold wallet.

In addition, the Debtors have also identified about $181 million worth of crypto belonging to FTX US, with $90 million out of the discovered assets having been transferred out of the platform by unauthorized third parties. It is unclear if customers will be able to recoup their losses, as the Debtors are still working to identify more assets.

In the meantime, FTX is still in the murky waters, as customers and debtors wait for the exchange to identify and secure more liquid assets. Financial advisors and authorities are still in the process of verifying the assets that have been discovered, and it remains to be seen if customers will be able to get their funds back.

• Fidelity Investments-backed crypto exchange OSL has announced plans to cut down its workforce in order to reduce overhead costs and stay afloat.
• Other exchanges, such as Silvergate, Coinbase, ConsenSys, Huobi, Crypto.com, Wrye, Genesis and SuperRare, have also been reported to have downsized their staff.
• Binance, however, has announced that it currently has 700 open job positions.

The crypto winter continues to take its toll on the industry as Fidelity Investments-backed crypto exchange OSL has announced plans to lay off a portion of its employees. The Hong Kong-based exchange joins a growing list of companies struggling to stay afloat amid the bearish market conditions.

OSL, which provides digital asset services to institutional and high net worth investors, has yet to comment on the exact number of layoffs, but Hugh Madden, CEO of OSL’s parent company BC Technology Group, stated to Bloomberg that the company was looking to reduce overhead costs.

Silvergate, another crypto-related company, recently saw its shares plummet by 46% and subsequently announced it would be cutting 40% of its workforce, equating to 200 workers. US-based exchange Coinbase also took the same route, announcing the layoff of 950 employees due to skyrocketing expenses. Ethereum-focused ConsenSys is also considering slashing out 100 workers in response to the current market anxiety.

Other exchanges, such as Huobi, Crypto.com, Wrye, Genesis and SuperRare, have all had to downsize their staff in order to remain operational.

On the other hand, Binance has remained optimistic, announcing 700 open job positions across various fields, such as account management, software development, and blockchain evangelism.

It is clear that the crypto winter is having a lasting impact on the industry, but with the continued development of blockchain technology, it could be possible for the market to recover in the future.

• Four Bulgarians were charged with money laundering and fraud in connection with the crypto lender Nexo.
• The prosecutors conducted searches in Nexo’s headquarters and other related locations in Sofia, Bulgaria.
• Nexo denied any wrongdoing, claiming that the investigations and charges are part of a politically-motivated attempt to frame the company.

This week, a major investigation into alleged illegal activities was launched in connection with the crypto lender Nexo. Four Bulgarians were charged with money laundering and fraud, and the prosecutors conducted searches in Nexo’s headquarters and several other related locations in Sofia, Bulgaria. According to the prosecutors, Nexo has processed $94 billion worth of crypto in the last five years, and upon further investigation, it was discovered that several of these transactions violated E.U. and U.S. sanctions imposed on Russia and some were even linked to terrorism funding.

The head of Bulgaria’s National Investigation Service remarked that this is an unprecedented investigation and a joint effort made by U.S., British, and other authorities. The four charged Bulgarians had been active in the U.K., Switzerland, Bulgaria, and the Cayman Islands since 2018, and they were also found to possess several luxury properties in Dubai and the Bahamas, including yachts and artworks.

In response to the investigation and charges, Nexo has denied any wrongdoing, claiming that it is a politically-motivated attempt to frame the company. This suspicion is further encouraged by the fact that Nexo had previously decided to end operations in the United States and phase out products during the course of the following months due to over a year of failed negotiations with U.S. federal and state agencies.

The investigation is still ongoing, and the authorities are yet to make any comments on the possible outcome. However, it is clear that the investigation has brought in a lot of attention to the crypto sector, and it is likely to have a major impact on the industry.

• N3twork Studios, a blockchain game developer and publisher, has appointed former Tinder Chief Product Officer Josh Sell as its new Chief Operating Officer.
• Sell’s new position will see him assisting N3twork Studio’s team in hastening the production of its future Web3 RPGs, Legendary.
• In addition, he will play a role in the development of Legendary: Heroes Unchained and Triumph.

N3twork Studios, a blockchain game developer and publisher, has recently announced the appointment of Josh Sell as its new Chief Operating Officer (COO). Josh was previously the Chief Product Officer of Tinder and has now decided to join N3twork Studios for the exciting opportunities available.

Josh will be working closely with N3twork Studios President Matt Richetti in managing the daily operations of the studio. Furthermore, Josh will be playing a major role in the development of two of the studio’s upcoming projects, Legendary: Heroes Unchained and Triumph.

Before joining N3twork Studios, Josh was part of the team at Tinder and supervised a number of releases. Most notably, he was the brain behind the popular Explore Tab which helped singles all around the world to discover more matches. In his most recent project, Josh co-founded the Web3 gaming firm Midnight, where he helped to develop the business’ interoperability strategy.

Josh commented on his new role by saying, “There is a tremendous chance for success here. Before joining, I tried the product(s) and fell in love with them.”

The development team at N3twork Studios consists of more than 80 professionals who have years of experience in the gaming industry. They have worked on some of the highest-grossing free-to-play games from big names like EA, Kabam, Zynga, Glu, Disney, and others.

It is an exciting time for N3twork Studios with Josh Sell joining the team as the COO. With such an experienced team and the right leadership, the studio is sure to make a big impact on the gaming industry in the coming years.

• Silvergate Capital, the parent organization of Silvergate Bank and Operator of the Silvergate Exchange Network, is facing a class action suit for law and security violations in the US.
• Antonio Martinez and Alan Lane were named as the case’s defendants and co-conspirators in breaking the US Security and Law Act of 1934.
• The organization is accused of providing false information concerning their activities and procedures, resulting in the transaction of $425 million towards South American money launderers.

Silvergate Capital, the parent organization of Silvergate Bank and Operator of the Silvergate Exchange Network, is the latest company to face legal issues over law and security violations. On the 12th of January, reports emerged that the organization had been accused of securities and law violation after allegedly being engaged in money laundering. The class action suit was filed in the US District Court of Southern California and marked all the organization’s purchases from the 9th of November 2021 to the 5th of January 2022.

Leading the case against Silvergate Capital are Antonio Martinez and Alan Lane, who have been named as the defendants and co-conspirators in breaking the US Security and Law Act of 1934. The complainants have argued that the two officials and the entire organization failed to detect money laundering instances that accumulated up to $425 million, for which the firm is answerable. Furthermore, the filed legal documents stated that the defendants provided positive data concerning the organization’s activities and procedures, which, on the other hand, had zero rational biases, and appeared to be misleading. As a result, Silvergate traded at inflationary stages as a repercussion of the misinformation and falsehood in the class period.

The accusations against Silvergate Capital revolve around the allegation that the organization actively transacted $425 million in favor of South American money launderers. It is believed that the officials at the company were fully aware of the lies that they were providing to the public, yet they continued to do so in order to maintain the inflated trading rate.

Silvergate Capital is now facing a difficult situation as the US Security and Law Act of 1934 forbids such practices and could result in severe consequences if the company is found guilty of the accusations. The company is yet to issue a statement on the matter, and it remains to be seen how the case will play out in the future.

• Thai regulators are investigating Zipmex’s local branch over its earn program due to suspicions that the business misrepresented the interest payments it made.
• The regulator accused Zipmex of running an earning program without approval and cited section 26 of Thailand’s Emergency Decree on Digital Asset Businesses.
• Zipmex’s activities came under the radar of investigative authorities after it released a disclosure letter dated November 30.

The Securities and Exchange Commission of Thailand is looking into the local branch of Zipmex, a digital asset exchange, due to suspicions that the business misrepresented the interest payments it made in its earn program. The regulator has accused the company of running an earning program without approval, a violation of section 26 of Thailand’s Emergency Decree on Digital Asset Businesses. Penalties for such infractions can include fines and imprisonment.

According to a letter sent by Thai regulators and addressed to Zipmex’s Thailand unit boss Akalarp Yimwilai on Dec. 28, the company used Babel Finance to manage clients’ digital assets in the earning program. Zipmex’s activities came under the radar of investigative authorities after it released a disclosure letter dated November 30, which stated that the company had gone beyond what it had first stated about the program. While Zipmex initially claimed that it was just using funds set aside for marketing to pay for the earning program, the disclosure letter showed that the company had also deployed and managed customer funds, which would have required regulatory approval from the Thai government.

The Thai watchdog also raised concerns about ZLaunch and perhaps ZipLock as staking services, and that Zipmex’s license had not been granted in accordance with the country’s existing laws and regulations. The regulator has requested that Zipmex provide more details about its accounts, such as the terms of service, transaction history, user information, and other essential documents.

It is unclear at this point how the investigation will proceed, or what the outcome may be for Zipmex. However, it is clear that Thai regulators are taking a closer look at digital asset exchanges. This could mean the introduction of more stringent regulations to ensure the safe and secure operation of such businesses in the country.