Some of the latest legal updates in the crypto space include the South Korean Financial Intelligence Unit (FIU) investigating crypto exchange OKX for operating without proper registration, after alerts from the Digital Asset Exchange Association (DAXA). OKX also faces scrutiny for promoting its 'Jumpstart' token sales platform to South Korean investors through indirect methods.
Meanwhile, in the United States, legal inquiries into conflicts of interest are underway with regards to the criminal cases against former crypto CEOs Sam Bankman-Fried of FTX and Alex Mashinsky of Celsius, with the government seeking a Curcio hearing to assess potential conflicts. Additionally, TradeStation Crypto has settled with the SEC and state regulators for $3 million over allegations of offering an unregistered interest-bearing lending product.
OKX Faces Scrutiny in South Korea
South Korea's Financial Intelligence Unit (FIU) is currently investigating the crypto exchange OKX amid accusations of operating without proper registration. This scrutiny comes after the Digital Asset Exchange Association (DAXA) flagged OKX's activities to the FIU, sparking a probe into the exchange's operations. The investigation follows a December 2023 call from DAXA and the FIU to South Korean crypto users, requesting information on any unlicensed crypto exchanges within the nation.
OKX, previously known as OKEx, has been accused of targeting South Korean investors with its 'Jumpstart' token sales platform without complying to the necessary registration protocols. Despite lacking a Korean-language website, the exchange is alleged to have used South Korean influencers on Telegram to promote its offerings.
South Korean laws mandate that exchanges have to secure registration before offering crypto services to its citizens. Any failure to comply with these regulations could lead to severe repercussions, including penalties from the nation's financial watchdogs. Adding to the regulatory environment, on Feb. 7, South Korea's Financial Services Commission announced strict penalties for crypto-related criminal activities, with people dealing in illegal profits of more than $3.8 million facing the possibility of life imprisonment.
OKX has been faced with a few hurdles as, on Jan. 23, OKX's native token, OKB, experienced a big price drop, plummeting by about 48% from $46.80 to $25.10 within minutes. This flash crash led to a $6.5 billion erasure in diluted market capitalization, though the price was able to recover later on.
Legal Conflicts Arise in Crypto CEOs' Fraud Cases
The United States government has initiated a legal inquiry into potential conflicts of interest involving the criminal cases against former crypto CEOs Sam “SBF” Bankman-Fried of FTX and Alex Mashinsky of Celsius. Concerns were raised by prosecutors about the involvement of lawyers Marc Mukasey and Torrey Young, who have made appearances in both of these cases. The government's action, prompted by letters to the judges on Feb. 6, seeks a Curcio hearing to explore these potential conflicts.
The letters highlight a complex web of financial transactions between Celsius and Alameda Research, FTX's sister firm, suggesting that loans repaid by Alameda to Celsius with customer funds could create conflicting interests in the legal strategies of Bankman-Fried and Mashinsky. The prosecution suggests that Bankman-Fried might argue that Celsius and similar lenders were not defrauded, a stance that could be at odds with Mashinsky's potential defense. Mashinsky has, in part, attributed Celsius' collapse to actions by Alameda Research.
This legal entanglement comes after the indictment of Bankman-Fried in 2022 after FTX's downfall, leading to his extradition from the Bahamas to the United States and subsequent conviction on seven felony counts of fraud. Despite speculation about the cancellation of a second trial initially set for March of 2024, Bankman-Fried awaits sentencing on Mar. 28. Meanwhile, Mashinsky faces his own legal battle, indicted on seven felony counts related to fraudulent activities at Celsius, with his trial scheduled for Sept. 17. He remains free on $40-million bail.
TradeStation Crypto Settles With SEC and States
In other legal news, TradeStation Crypto, a trading platform, recently agreed to a settlement with the United States Securities and Exchange Commission (SEC) and a collective of state regulators for not registering an interest-bearing lending product. The settlement involves a penalty of $3 million, to be divided between the SEC and 26 states, stemming from allegations that between August 2020 and Jun. 30, 2022, TradeStation Crypto offered a product allowing U.S. investors to deposit or purchase crypto assets in exchange for the promise of interest payments.
The SEC highlighted that TradeStation had full control over the use of these assets to generate revenue for interest payments, ultimately deeming the product an unregistered security. However, TradeStation Crypto did not admit to nor deny these findings.
The North American Securities Administrators Association (NASAA) also revealed that TradeStation Crypto reached a settlement with regulators in 26 states after a yearlong investigation coordinated by NASAA. Notably, the NASAA's collaboration with the SEC played a crucial role in closing down another interest-bearing product offered by Nexo in 2023.
In the aftermath, TradeStation Crypto announced its decision to stop offering its services and products in the United States by Feb. 24. The platform is a subsidiary of Monex Group, a Japanese conglomerate with interests across brokerage, asset management, and cryptocurrency exchange operations.
Monex Group has been actively investing in the cryptocurrency sector, including expressing interest in acquiring FTX Japan and acquiring a big stake in Canadian 3iQ Digital Holdings, known for launching Bitcoin and Ethereum spot exchange-traded funds in Canada. Additionally, Monex Group's plans to list its Japan-based Coincheck cryptocurrency exchange on the U.S. Nasdaq through a merger with Thunder Bridge Capital Partners IV, initially scheduled for July 2023, have been rescheduled to July 2024.
