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Cryptonite December 2022

Regulators wake up

Shyam Sunder

Jan 15, 2023

It’s time for Cryptonite - our monthly roundup of all things crypto - with Tejaswi Nadahalli.

You can follow Tejaswi on twitter @nadahalli and he blogs at tejaswin.com

Once the tide of easy money started turning, we are finding out who was swimming naked the whole time.

Charles Gasparino @CGasparino

BREAKING: Prosecutors are telling lawyers connected to @SBF_FTX fraud investigation the case is so sprawling that it could exhaust resources of the southern district since it includes potential bribery, campaign contribution violations, market manipulation on top of theft & fraud

One of the problems is that lobbyists are paid much better than regulators.

John Paul Koning @jp_koning

Disgusting. In Australia, FTX lobbied against a third-party custody requirement, saying it would "place customer funds at a higher level of risk," when in actuality third-party custody would have prevented 30,000 Australians from losing their savings. afr.com/companies/fina…

And the media couldn’t say “no” to their advertising dollars.

Eric @ Grabien @Grabien_Eric

@RudyHavenstein @CNBC @SullyCNBC I made a full video of CNBC pumping SBF, so they don’t even have to do any work. Just put this on air and press play!

So, we had the Fed at 0% forcing savers to reach for yield, VCs who were willing participants in Ponzis, regulators who were asleep at the wheel and the media cheerleading these crooks.

And now, the blame game begins. Better late than never, I guess.

In a complaint filed on Thursday, the attorney-general’s office claimed Mashinsky acted as a “modern-day Robin Hood”, promising customers returns of up to 17 per cent via its Earn programme — which paid interest on cryptocurrency deposits — and urged users to stay invested even as the hole in the platform’s balance sheet grew larger. “Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” New York attorney-general Letitia James said in a statement. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”
Celsius founder Mashinsky sued for fraud by New York attorney-general (FT)

If “making false and unsubstantiated promises and misleading investors” is a crime, then pretty much all of the defi/NFT complex should be in jail.

web3 is going just great @web3isgreat

SEC charges Gemini and Genesis for allegedly offering unregistered securities January 12, 2023 web3isgoinggreat.com/?id=sec-charge…

SEC charges Gemini and Genesis for allegedly offering unregistered securities The SEC filed charges against Genesis Global Capital and Gemini, two crypto firms that collaborated to create Gemini's embattled Earn lending program. According to the SEC, their lending program constitutes an offer and sale of securities and, as such, should have been registered. Other companies, such as (now bankrupt) Celsius, have in the past shut down similar products in the US due to concerns over regulatory action; it's not clear why Gemini thought their product would pass muster. On November 16, Gemini halted withdrawals from Earn after Genesis halted withdrawals after FTX collapsed. Since then, Gemini and Genesis have been engaged in a very public battle, with Gemini's founders accusing Genesis and its parent company of misconduct and demanding the return of the $900 million in Gemini customer funds.

Also, the fact that crypto “depositors” will not be first-in-line during a bankruptcy process was flagged years ago. Yet, people continued to pour money into these schemes.

kadhim (＾ｰ^)ノ @kadhim

Significant moment in the Celsius bankruptcy as Judge Martin Glenn rules that $4.2bn of crypto deposited by customers to earn interest belongs to the estate, not the users: cases.stretto.com/public/x191/11…

The collapse of so many crypto exchanges and platforms has allowed us to see up close for the first time the utter lawlessness that fuels crypto. Free from the burdensome yoke of regulation that the non-crypto world has to deal with, the likes of FTX have been free to do as they please, allegedly misappropriating billions of dollars of customers’ funds and committing fraud on a vast scale. (FT)

web3 is going just great @web3isgreat

Coinbase settles with New York regulators, set to pay $100 million January 4, 2023 web3isgoinggreat.com/?id=coinbase-s…

Coinbase settles with New York regulators, set to pay $100 million Coinbase agreed to a $100 million settlement with the New York State Department of Financial Services over charges that the company violated anti-money laundering laws by performing insufficient background checks. Coinbase will pay a $50 million fine, and has committed to spending another $50 million to strengthen its KYC program. Early last year, Coinbase was ordered by regulators to hire an outside monitor to oversee compliance. Under the settlement agreement, Coinbase will be required to continue the monitoring for at least another year as it works to improve its compliance.

Unfortunately, we haven’t seen the last of this because people still believe.

GCR @GCRClassic

The psychology behind bubbles is powerful. People refuse to easily abandon the idea that inspired the bubble. They buy dips and give up only after their faith has been deflated repeatedly. 2023 is likely to see more echo bubbles, including in the most hyped themes of last decade

GCR @GCRClassic

Financial Times with some interesting 2023 predictions https://t.co/LEwDZEADZI

While crypto was the mother of all scams, the scamming during the ZIRP era was not limited to crypto.

This one scammed JP Morgan with a made-up excel sheet of customer details and got caught when an employee observed that the list contained exactly 1,048,576 rows, the maximum permitted by Microsoft Excel. (courtlistener)

mike 🔊🦪 @aniceburrito

Trendy student loan application startup bought by JP Morgan for $175 million created 4 million fake users when they really only had 300k users. Pretty good

forbes.comJP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An AcquisitionJP Morgan is suing the founder of a Mark Rowan-backed startup it acquired, claiming the fintech, Frank, had sold the financial giant on a “lie.”

At least, JP Morgan will recover for this. @shl went after retail.

Matt Paulson @MattPaulsonSD

Gumroad is the ultimate example of startup B.S. 2012: Gumroad raises $8.1M in VC money. 2012-2019: Gumroad fails to achieve hockey stick growth. 2019: Investors take the write-off and sell Gumroad back to the founder for $1.00. (cont.)

Large swaths of “private” equity is mostly an elaborate ruse to hide volatility and help institutional capital beat completely made-up benchmarks so that the bureaucrats in charge can make bonus.

Bullfight Capital

Peter Pan and Neverland VC Returns

As we start 2023, the infamous phrase “software is eating the world” turns 12 and fast approaches its teenage years. After a glorious decade-plus run, I believe the typical angst, awkwardness and entitlement awaits many parts of the industry in its teenage phase. As the VC cloud ecosystem evolves from being a “do no wrong” innocent child into a mature a…

a year ago · 34 likes · 4 comments · Bullfight Cap

@shitmgmtsays@mstdn.social @ShitMgmtSays

Silicon Valley’s focus is all about potential—sales, TAM, ARR, so their singular need is to find someone who can sell. SBF, Musk, Holmes are nothing alike except that they mastered the art of bluster (or put another way: lying) and sales with no substance to back it

The gap between private and public valuations is wide enough to sail Evergreen through. We wrote about BREIT last week.

Julian Klymochko @JulianKlymochko

How do you think this plays out - lower line goes up or higher line goes down? It's a $68 billion question

Phil Bak 🎩 @philbak1

If the private fund marketers truly believed that public equity markets over react they’d be launching mean reversion strategy hedge funds. They don’t bc they aren’t stupid enough to believe it. They just think you are.

SPACs were, thankfully, a fairly short-lived grift.

Corry Wang @corry_wang

In retrospect, this was ridiculous: in 2021, Palantir invested over $700M in startups… on the condition they buy $700M in Palantir software. This singlehandedly drove a third of the company’s revenue growth!

wsj.comPalantir’s SPAC Bets Backfire, Hitting Company’s GrowthUnusual deals boosted growth but are now a risk to the software maker.

Elon remains the GOAT of cocking a snook at regulators. Milking the company dry while literally selling cars that kill people and trucks without airbags.

Insider Business @BusinessInsider

Elon Musk's lawyers subpoena head of Saudi Arabia's $620 billion wealth fund for Tesla 'funding secured' tweets case

trib.alElon Musk’s lawyers subpoena head of Saudi Arabia’s $620 billion wealth fund for Tesla ‘funding secured’ tweets caseText messages disclosed in April showed Musk raging at Yasir Al-Rumayyan for not supporting his efforts to privatize Tesla.

Collectively the brass at Tesla appear to have unloaded 126 million Tesla shares for more than $41 billion. Over the history of the company Tesla raised $32 billion in equity and earned cumulative profits of $9 billion. Cumulative cash flow from operations totals $32 billion. Book value foots to $41 billion. Insiders have sold shares worth more than equity capital raised, cumulative profit (regardless of how measured), or book value, which adds equity capital raised plus cumulative profit. The company has never paid a dividend. Who's winning here? (thread)