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LedgerX Claims Ex-CFTC Chairman Slowed Approval Process Because Of Personal Bias

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LedgerX Claims Ex-CFTC Chairman Slowed Approval Process Because Of Personal Bias
LedgerX Claims Ex-CFTC Chairman Slowed Approval Process Because Of Personal Bias

Cryptocurrency derivatives firm LedgerX alleges that former United States Commodity Futures Trading Commission (CFTC) chairman Christopher Giancarlo obstructed the approval of its amended Derivatives Clearing Organization (DCO) registration because of personal bias against the firm’s CEO Paul Chou.

LedgerX made the allegations in two letters obtained via a Freedom of Information Act request. The first letter — dated July 3 — states:

“We have strong reason to believe that this unreasonable delay that is in clear violation of the Commodity Exchange Act is related to the Chairman’s animus towards a blog post written by our CEO.”

Per the report, while Giancarlo did not answer the outlet’s request for comment, Chou confirmed that the letters are real, accurate and are only some of the messages sent by the firm to the CFTC. LedgerX claims that in January Giancarlo called one of its board members, explaining:

“[Giancarlo] told him that he was going to make sure our DCO order was revoked within two weeks, due to a blog post written by myself the previous year implying that preferential treatment was being given to larger companies so he could ‘cement his legacy.’ This refers to the ICE / Bakkt approval, which was running into issues that were frustrating the chairman.”

While the topics in the letter are quoted, it is unclear which blog post exactly he refers to.

Per the outlet’s report, LedgerX was asked by the CFTC to acquire insurance and conduct a SOC 1 Type 2 audit. Furthermore, the company claims that one of the CFTC staffers tried to interfere with LedgerX’s audit. The company also reportedly notes that some auditors were “saying they had never seen this kind of thing before.” Chou claims that he later received apologies

“Previous chairman wanted to revoke LX license bc Bakkt efforts not moving along. Having no legitimate reason to revoke our license, staff resorted to contacting our independent auditors to tamper with audit to give commission reason to revoke license. Staff admitted & apologized.”

In the second letter, dated July 11, the firm also notes that its application has been pending for nearly 250 days — now it is over 300. Per the report, the CFTC has now had180 days to approve or deny an application under federal laws.

The letters also note that the CFTC’s swap data repository requirements force LedgerX to report to the Intercontinental Exchange’s ICE Trade Vault, and the latter company has already launched its own competing service — Bakkt. In the July 3 letter, LedgerX claims to have an audio recording of a call with ICE, adding:

“Later, we have on voice recording, when ICE staffers thought they had muted their side, that they were instructed to delay support for our SDR reporting so that we could not start trading — something we consider incredibly anticompetitive. We filed a formal complaint regarding this anti-competitive aspect which was not answered at all. A division head later admitted, in person, to our COO that I was correct in stating that certain entities were being preferentially treated by the Chariman’s office.”

Lastly, Chou also told the outlet that he has been excluded from the CFTC’s Technology Advisory Committee. He said:

“They didn’t tell me why but I think it’s pretty obvious why they did it. […] One of the issues they were going to talk about… was custody and LedgerX is essentially the only member that does custody right now so we were about to send Juthica.”

At the end of July, the CFTC has reportedly confirmed that LedgerX’s physically-settled bitcoin futures product has not yet been approved by the Commission.

Scam News

US ICO SCAMMER SENTENCED TO 18 MONTHS JAIL

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US ICO SCAMMER SENTENCED TO 18 MONTHS JAIL

Maksim Zaslavskiy, a computer programmer from Brooklyn and the first person in the United States to be convicted of running a fraudulent initial coin offering (ICO) has been sentenced to a year and a half behind bars.

As Law360 reported on Nov. 18, the Brooklyn businessman received a prison sentence of 18 months for running two scams ICO’s, both of which were advertised as being backed by collateral — diamonds and real estate, respectively — that did not exist. Zaslavskiy pleaded guilty in November 2018 to conspiracy to commit securities fraud.

More than 1,000 investors duped

Zaslavskiy made it seem as if the ICO was led by experienced real estate professionals, backed by United States property investments, luring in more than 1,000 investors who invested at least $300,000 in the scam ICO during the summer of 2017. Richard P. Donoghue, U.S. attorney for the Eastern District of New York, said in a statement:

“Zaslavskiy committed an old-fashioned fraud camouflaged as cutting-edge technology. […] This office will continue to investigate and prosecute those who defraud investors, whether involving traditional securities or virtual currency.”

According to Crain’s New York Business, Zaslavskiy’s attorney, Mildred Whalen of the Federal Defenders of New York, had argued to federal Judge Raymond Dearie that Zaslavskiy attempt to refund the duped investors. However, PayPal reportedly froze his accounts over concerns that ICO payments were made with stolen or fraudulent credit cards.

When Zaslavskiy told the federal Judge that “at no point, I am a thief,” Dearie replied, “You are a thief. You took something that didn’t belong to you under false pretenses,” adding:

“This is a very unusual case for a lot of reasons. It involves new technologies and new currencies. But there is nothing new about lying or flagrant fraud.”

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German Watchdog Issues Warning Over Bulgarian Crypto Broker

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German Watchdog Issues Warning Over Bulgarian Crypto Broker

The German federal financial supervisory authority (BaFin) has issued a warning to investors over the activity of Bulgarian crypto broker 5 Capital.

According to a report by Finance Magnates, the German watchdog said that 5 Capital offers European investors a contract for difference (CFD) products that allegedly include exposure to crypto-assets.

Crypto businesses and exchanges in Germany are required to apply for a license to BaFin by the end of 2019 as apart of compliance with new anti-money laundering regulations being adopted by the country. While derivatives that reference crypto-assets are not included in the same regulatory category, they are restricted by the European Securities and Market Authorities (EMSA) in regards to retail investors.

According to the report, BaFin has been increasingly wary of the cryptocurrency industry, issuing regular warnings to investors about the potential risks associated with bitcoin. While 5 Capital is based out of Sofia, Bulgaria, the company will have to apply for a license and be in full compliance with BaFin by the end of the year in order to continue operating in Germany.

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Russian Intelligence Agency FSB Linked to $450 Million in Missing Bitcoin

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Russian Intelligence Agency FSB Linked to $450 Million in Missing Bitcoin

Russia’s Federal Security Service (FSB) has been linked to the disappearance of $450 million in bitcoin from the controversial crypto exchange World Exchange Services (WEX).

Controversial Exchange WEX/BTC-e

In late 2018, Russian-based crypto exchange WEX collapsed amidst accusations of money-laundering the disappearance of hundreds of millions of dollars in bitcoin and other crypto assets. According to a BBC report published Nov. 15, the Russian FSB intelligence agency may have played a role in misappropriating the lost funds.

WEX was previously known as BTC-e before being shut down in 2017 by international authorities for its alleged involvement in money-laundering activities. Alexander Vinnik, the exchange’s alleged operator, was arrested at the time and accused of laundering more than $4 billion in cryptocurrency since the exchange’s launch in 2011.

A PwC report earlier in the year said,

WEX is most notably known for its alleged involvement in the laundering of some $4 billion, transferring of funds to facilitate operations of the threat actor tracked by PwC as Blue Athena, and being responsible for cashing out 95% of all ransomware payments made since 2014.

FSB Crypto Fund

According to the BBC report, WEX/BTC-e co-founder Alexey Bilyuchenko says he was forced to hand over information about customer’s digital wallets to members of the FSB in 2018, which the intelligence agency allegedly used to obtain more than $450 million in user funds.

The BBC claims to have obtained audio recordings from individuals discussing the importance of bringing WEX under FSB control, including one man the BBC identifies as Konstantin Malofeev, a pro-Kremlin Russian billionaire currently under U.S. sanctions.

Bilyuchenko reportedly received multiple calls threatening to close the WEX exchange if he did not comply. According to the report, the WEX co-founder was taken to FSB offices in Moscow over the course of three days in April 2018, where he handed over flash drives containing details on accessing exchange user funds.

Bilyuchenko says he was told that WEX client money would be transferred to the “FSB Russia Fund.” Several months after handing over the data, WEX froze customer funds and withdrawals, before completely shutting down in late 2018.

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