Shut down
DraftKings calls a halt to NFT adventure
Gambling operator shuts Reignmakers and Marketplace offshoots.
Compliance flub lands Coinbase UK $4.5m fine.
Another crypto bro charged with fraud.
Digital assets as a new form of property.
SEC tweaking Binance token compliant.
This is my stop, this is the end of the trip.
Brought to a halt
Shuttered: DraftKings has shuttered its Reignmakers and Marketplace NFT offering with immediate effect citing recent legal developments. Recall, the company was dealt a blow by a Massachusetts court which refused the company’s motion to dismiss a class action that contends the NFTs the company sells via its Marketplace subsidiary represent securities.
The company said in a notice to its NFT customers that “this decision was not made lightly and we believe it is the right course of action.”
DraftKings said this week that holders of Reignmakers digital game pieces would be given the opportunity to relinquish them in exchange for cash.
Sold as seen: The legal action brought by plaintiff Justin Dufoe claims DraftKings knew the NFTs they advertised and sold were securities under federal and state securities laws but failed to register them.
Dufoe said he and other customers purchased DraftKings NFTs at the company’s first public offering with the aim to “realize profits.”
The suit said this would be achieved by selling their NFTs on the secondary market platform that DraftKings owned and managed solely.
They were, therefore, “entirely dependent” on DraftKings’ efforts when they purchased the NFTs and later sold them on Marketplace.
DraftKings Marketplace has been charged with violating the Securities Act of 1933, the Securities Exchange Act of 1934 and two Massachusetts general laws.
Let’s never speak of this again: DraftKings launched the Reignmakers and Marketplace offerings at the height of the mania around NFTs in the summer of 2021 by offering “curated NFT drops” via a relationship with the Autograph platform.
Despite the boom-era timing, DraftKings insisted the move wasn’t jumping on a bandwagon. “DraftKings Marketplace will sit at the center of this technological and cultural phenomenon,” said co-founder and president Matt Kalish at the time.
Later that year, CEO Jason Robins said Marketplace was a good way for DraftKings to reach new customer segments.
Quietly buried: The last mention of the product came over two years ago when Robins said the company now had a “proprietary end-to-end in-house NFT factory.”
Crypto education and media customized for you.
Bite-sized learning you can apply straight away in real life. Learn the fundamentals and master crypto while processing through LearnCrypto’s learning program, gain practical skills and explore content that is relevant to you.
Navigate crypto with confidence.
Loose change
Got a reservation: Legislation to establish a US strategic Bitcoin reserve has been introduced by Republican Senator Cynthia Lummis. The Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide Act, or the BITCOIN Act, aims to bolster the US dollar’s strength and address the national debt, she said.
“The wait is over. This is our Louisiana Purchase moment,” Lummis wrote on X.
Proposals include plans for a strategic reserve in Bitcoin, establishing secure vaults managed by the Department of Treasury, and implementing a $1m purchase program to acquire 5% of the total supply of the top cryptocurrency over a five-year period.
Not on board is Nobel laureate and economist Paul Krugman, who said the Republicans plan amounted to a “government bailout of a scandal-ridden, value and environment-destroying industry”.
The Bank of England is seeking private sector feedback on its plan to experiment with a Central Bank Digital Currency, tokenized money, and programmable payments.
Russia’s lower house has passed a series of bills that make it easier to send and receive cryptocurrency in the country. President Vladimir Putin is expected to sign off on the laws in the coming month, marking a turnaround on his previously hardline anti-crypto stance.
Russia has made no secret of its intent to use crypto as a way of circumventing Western sanctions in place since the invasion of Ukraine.
That’s all folks: The US Federal Reserve has wrapped up its enforcement action against doomed crypto-friendly bank Silvergate after dishing out a $43m fine. In a press release, the Fed said it had closed the case against the bank after a promise to liquidate reserves and pay back all deposits to customers was met.
Coinbase’s UK flub
The more you ignore me: The UK arm of mega exchange Coinbase has been fined $4.5m for allowing high-risk customers to trade crypto after promising regulators it wouldn’t.
The business, registered as CBPL, is not permitted to undertake cryptoasset activities, but does hold an e-money license.
In October 2020, it signed a voluntary agreement with the UK Financial Conduct Authority (FCA) not to onboard risky clients such as politically exposed persons and individuals on sanctions lists.
However, it did allow more than 13,000 individuals under this classification to trade, with more than $220m transacting through the accounts unmonitored for two years.
Now you listen up: Legal experts said the case was a clear example of why firms shouldn’t skirt over regulatory instructions, particularly concerning financial crime controls.
“It should be considered a warning to firms to consider their financial crime controls as hugely important, in particular in the crypto sector where there are increased money laundering risks,” said Kate Gee, partner and crypto litigation lawyer at Signature Litigation.
The FCA chastised the “lack of due skill, care and diligence in the design, testing, implementation and monitoring” of its controls, having previously identified weaknesses in the crypto exchange’s onboarding in the past.
“More generally for regulated businesses it reinforces an oft-recited truism: if your regulator tells you to stop doing something, take care to make sure that you do,” said Andrew Henderson, financial services partner at Goodwin law firm.
Meanwhile, in Australia Coinbase is grumbling about “ongoing regulation through enforcement”, billing recent supervisory activity not “helpful to the overall direction of the industry” in an interview with CoinDesk.
The Australian Securities and Investments Commission has opened a raft of cases against crypto entities this year, having sued Binance and investment platform eToro among others alleged to have weak financial crime controls.
Australia is finalizing draft legislation for licensing and custody rules for crypto asset providers, and has said it has no plans to ease off on enforcement.
Over and clout
Clout Chasing: The founder of BitClout, a decentralized platform intended at monetizing social media via a blockchain, has been charged with fraud by US federal authorities.
The Securities and Exchange Commission (SEC), alongside the US Attorney’s Office for the Southern District of New York, accused Nader Al-Naji of selling $257m in unregistered securities through BitClout’s native token, BTCLT.
Prosecutors claim Al-Naji ripped off investors by embezzling $7m in customer funds which were spent on luxury items like leasing a Beverly Hills mansion and cash for family members.
The SEC complaint accused Al-Naji of lying about the inner workings of the BitClout project, falsely claiming it was decentralized when it was secretly under his control.
“As alleged in our complaint, Al-Naji attempted to evade the federal securities laws and defraud the investing public, mistakenly believing that ‘being “fake” decentralized generally confuses regulators and deters them from going after you’,” said Gurbir Grewal, director of the SEC’s Division of Enforcement.
Al-Naji’s wife, mother and related business entities were also listed in the complaint as relief defendants, having allegedly received investor funds.
A little bit of alteration
Change my mind: The US Securities and Exchange Commission (SEC) is seeking to alter its ongoing lawsuit against Binance and related entities concerning the legal status of tokens traded on crypto exchanges.
According to court filing, the SEC has already informed the defendants, Binance, Binance.US and the exchange’s currently incarcerated founder Changpeng Zhao, of its intentions.
Third-party tokens are digital assets issued by various companies other than Binance, that were available for trading on the world’s largest crypto exchange.
The 10 tokens named in the complaint, which the SEC alleges are unregulated securities, are SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI.
The SEC did not indicate what aspect of the complaint it might seek to amend, and has forced corrections from multiple news sites reporting it planned to drop the 10 from its suit.
In June 2023, the regulator identified at least 68 tokens as securities, with the central argument of its cases against various exchanges that digital tokens must be registered as securities in order to be traded.
That’s where you’re wrong: The CEO of Ripple, another crypto token developer currently battling the SEC in court, took to social media to accuse the agency of hypocrisy for altering its approach to the Binance case.
Brad Garlinghouse said the SEC was unable to follow its own rules, and had applied them “haphazardly”, and accused the agency of holding a political agenda.
Stuart Alderoty, chief legal officer at Ripple, noted that many of the tokens Binance is accused of illegally offering were not included in the Coinbase case.
Garlinghouse meanwhile said he expects a decision in the long-running battle between Ripple and the SEC over the company’s XRP token to conclude “very soon”.
Crypto tangibles
To each his own: England’s Law Commission, which reviews legal reforms, has advised the government to categorize all crypto assets as a new form of personal property.
The Commission has published a report highlighting inconsistencies in the current categorization of personal property and its legal implications on crypto assets.
Personal property is classified under two aspects in common law; tangible property as a possession, and intangible property, or things in action, such as debts.
The Commission says a third category should be created, which makes property rights related to crypto assets clear and enforceable under law.
“We conclude that the flexibility of common law allows for the recognition of a distinct category of personal property that can better recognize, accommodate and protect the unique features of certain digital assets (including crypto-tokens and crypto assets),” it said in its final report on digital assets.
Do this my way: The commission has issued a draft bill on the matter, now with the UK government for consultation, which it says will strengthen the legal framework for digital assets in England and Wales.
“Although it is recognised that digital assets are capable of attracting property rights at common law in the UK, statutory confirmation will provide greater legal certainty,” said Anne Rose, co-lead of blockchain group at Mishcon de Reya.
“This is a pivotal moment, as it provides legal clarity and strengthens the protection of digital asset owners,” added Gvantsa Baidoshvili, managing partner at GB & Partners Law Office in Tbilisi, Georgia. “The UK’s approach sets a precedent that could influence other jurisdictions, promoting a cohesive global digital asset market.”
Bahamas back in the game
It’s DARE: The Bahamas, former home of infamous crypto exchange FTX, is ready to get hurt welcome digital asset innovators again.
Lawmakers have finally published the Digital Assets and Registered Exchanges Act, 2024 (DARE 2024), after working on the laws since the scandalous collapse of FTX in November 2022.
“Building upon the foundation laid by the DARE Act, 2020, the legislation introduces comprehensive reforms designed to address the evolving landscape of digital assets and cryptocurrency markets,” said the Securities Commission of The Bahamas.
Last year, Prime Minister Philip Davis said the Act will include measures to clarify the regulation of stablecoins, introduce more robust investor and consumer protection mechanisms, and presumably attempt to reboot the island’s credibility as a finance hub.
Davis cut the ribbon on FTX’s opulent headquarters with the exchange’s founder Sam Bankman-Fried in 2021; earlier this year the multi-million dollar office space hit the market as part of the firesale of property assets across the Bahamas unloaded to help the company repay some $16bn to defrauded investors.
Events calendar
Aug 1: Coinbase Q2 call
Aug 7: Robinhood Q2 call
Aug 13-14: Blockchain Futurist Conference, Toronto
Sep 11-13: Permissionless II, Austin
Sep 25-26: European Blockchain Convention, Barcelona
An +More Media publication.
For sponsorship inquiries email scott@andmore.media.
