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AriseBank CEO Pleads Guilty to $4.2 Million Securities Fraud Involving ICO
Jared Rice Sr., founder of crypto bank AriseBank, pleaded guilty to one count of securities fraud Wednesday in federal court
The Dallas News reported Thursday that Rice, who was arrested last year, admitted to scamming investors out of $4.2 million by selling AriseCoin tokens and promising that customers would receive Visa credit cards and accounts insured by the Federal Deposit Insurance Corporation (FDIC).
Neither the cards nor the FDIC accounts existed, though Rice accepted both crypto and fiat during his ICO, which the U.S. Securities and Exchange Commission (SEC) halted in January 2018.
According to his plea agreement, the U.S. government and Rice have agreed that the defendant should spend 60 months in prison. He faces a maximum sentence of 20 years, a $5 million fine, three years’ supervised release, restitution and forfeiture.
The plea deal is dependent on federal judge Ed Kinkeade, of the U.S. District Court, Northern District of Texas, signing off on the 60-month sentence.
The FBI arrested Rice last November, after the U.S. Attorney’s Office in the Northern District of Texas charged him with three counts of securities fraud and three counts of wire fraud.
Rice has already settled a civil charge with the SEC, paying $2.7 million in disgorgement and another roughly $190,000 in penalties. His former chief operating officer, Stanley Ford, settled similar charges with an identical monetary fine.
Neither admitted or denied the SEC’s charges, though both have agreed to lifetime bans from serving as officers or directors of public companies, as well as a lifetime ban from participating in digital securities offerings.
Alleged BTC-e Operator Alexander Vinnik Seeks Extradition to Russia
Alleged BTC-e exchange operator Alexander Vinnik, who is accused of laundering billions of dollars, is officially seeking extradition to Russia.
According to a report from local news source e-Kathimerini on Thursday, Vinnik, a Russian national, has filed an appeal in a Piraeus city court for release or extradition to his home nation for humanitarian reasons.
Vinnik was arrested in Greece back in July 2017, after police alleged that he had laundered at least $4 billion in cash through a bitcoin platform since 2011. He was detained for money laundering, conspiracy and transacting in cash obtained through illegal means.
Since his arrest, Vinnik’s extradition has been sought by the governments of the U.S., Russia and, more recently, France.
To date, Vinnik has maintained that he is innocent of all charges. He once said: “I do not consider myself guilty … The fact that I worked for BTC-e and did my job, and it’s not justifiable to accuse me of it.”
Vinnik has been on a hunger strike for 90 days, according to the report from e-Kathimerini, and was transported to the court by ambulance.
Vinnik’s lawyers say his life is “at risk” and maintain that the charges against him are “unfounded,” e-Kathimerini writes. They have also criticized the Greek justice system for detaining him for “more than the maximum 18 months permitted for pre-trial detention.”
The U.S. Department of Justice levied a $110 million fine against BTC-e and a $12 million penalty against Vinnik back in July 2017. If convicted in the U.S., Vinnik could face up to 55 years in prison.
Earlier this month, WEX, the apparent successor to the shuttered BTC-e exchange, was again tied to illicit funds gained through ransomware attacks. “Big Four” consulting firm PwC said that two Iranians who have created the SamSam ransomware variant are tied to WEX and may have used it to launder millions in illegal earnings.
Bakkt raises Series A at valuation topping $700 million
Bakkt, ICE’s yet-to-launch crypto exchange, is being valued at around $740 million following its Series A funding round, sources close to the project tell The Block.
The exchange raised $182.5 million last year, pitching a futures trading platform geared at institutions. Its approximate $740 million post-money valuation means ICE may have sold up to 25% of shares to external investors like Galaxy, Pantera, Microsoft and Starbucks – the latter having contributed no capital in return.
What’s brewing: Inside the Starbucks-Bakkt partnership
Post-money valuation is a company’s value after outside financing and/or capital injections are added to its balance sheet. In this instance, it also includes the equity allocated to Starbucks related to their partnership.
Now, a key question is how investors will make their projected returns based on their $740 million post-Series A valuation given the current regulatory barriers and a five-month delay in launching. Indeed, Bakkt’s proposed fee of $0.50 per contract is rather small, some equating it to less than 1 basis point. The next cheapest U.S. trading option is currently at 8 basis points.
“From a cash-flow perspective, Bakkt will not be earning much based on their proposed contract fees, so they really need a lot of volume,” said one source.
As such, the source noted, execution post-launch will need to be near-flawless to cover its spending, particularly high in recruitment and following its first acquisition.
“A lot of things will need to line up for investors to receive returns that they would typically expect for a Series A.”
Investor “get-out” clause and future valuations
Crucially, if Bakkt cannot deliver on its plan to garner institutional adoption – or find other cash-flow sources – investors have equity redemption rights provided by ICE, according to their SEC filing. Page 60 notes “non-ICE partners in Bakkt hold a put option to require us to repurchase their interests subject to certain terms.” Delays in execution may allow investors to realise this exit and trigger their put.
According to one source, Bakkt could now feasibly increase its pre-money valuation to $1 billion at its next raise. It could then sell a series of similarly-priced preferred shares without diluting itself much; in other words, raise substantial capital without giving up too much equity.
However, investors will be looking at evidence Bakkt can match its share-price predictions before granting it unicorn status.
“If I was looking to buy a piece in the emergent regulated US digital assets derivatives game today, I would look at cheaper alternatives which are further ahead in execution,” one investor said. “They’ve paid too much.”
Bakkt declined to comment.
Swiss Parliament Votes in Favor of Crypto Regulations
Switzerland’s lower house of parliament has narrowly voted in favor of introducing cryptocurrency regulations.
Perhaps more importantly, proposals state that cryptocurrency trading platforms should be considered as financial companies, and thus should be policed by the country’s top financial regulator, the Swiss Financial Market Supervisory Authority (Finma).
A total of 99 members of the Federal Assembly’s lower house National Council supported a motion put forward by Giovanni Merlini, the member of parliament for Tessin (also known as Ticino). Merlini's proposed regulations will now be considered by the parliament’s upper house, the Council of States.
Per media outlet Netzwoche, Merlini argued that cryptocurrencies can be used by criminals in extortion and money laundering schemes, and thus should not be left unregulated in Switzerland.
The vote was relatively close, with 83 MPs opposing Merlini’s plans, and a further 10 abstaining. The move comes as something of a surprise – with the country’s finance minister earlier this week outlining a plan for somewhat more moderate crypto regulations.
Switzerland is considered to be one of the most crypto-friendly countries in the world, and its “Crypto Valley” in Zug is a veritable hub of all things cryptocurrency- and blockchain technology-related. Train passengers can even pay for their tickets in Bitcoin as of November last year, after a successful pilot project, for tickets worth up to USD 500 – as reported by Handelszeitung last year.
There was good news for crypto-enthusiasts elsewhere in Switzerland, however, with the country’s largest e-commerce retailer, Digitec Galaxy announcing it will accept crypto payment in Bitcoin and the following altcoins: Bitcoin Cash, Bitcoin SV, Ethereum, XRP, Binance Coin, Litecoin, Tron, OmiseGo and NEO. However, per media outlet Watson, customers wishing to pay in cryptocurrencies are only free to do so on orders worth 200 Swiss francs (approximately USD 200) or more.
This year could be a busy one for cryptocurrency regulations in Europe, with politicians in Germany, France, the UK, Russia and beyond all set to look at the way their financial bodies police cryptocurrency and fintech-related activities.
Payment Service Square is Hiring Crypto Engineers, Offers Salaries in Bitcoin
United States-based payment platform Square is hiring cryptocurrency engineers and is offering to pay them in digital currency, according to a tweet published by Twitter and Square CEO Jack Dorsey on March 20.
In the tweet, Dorsey announces that “Square is hiring 3–4 crypto engineers and one designer to work full-time on open source contributions to the Bitcoin/crypto ecosystem. Work from anywhere, report directly to me, and we can even pay you in Bitcoin!”
Dorsey further commented that the decision to pay employees in digital currency is based on the intention “to make the broader crypto ecosystem better,” thus contributing to the Bitcoin (BTC) community.
Dorsey also noted that this will be the first open source initiative independent from their business objectives as potentially hired engineers will entirely focus on “what’s best for the crypto community and individual economic empowerment, not on Square’s commercial interests.”
As previously reported, Square registered $166 million in annual Bitcoin revenue for 2018. The company achieved over $52 million in Bitcoin sales for Q4, surpassing Q3 by $9 million and Q2 by more than $15 million. However, clear profit from the Bitcoin operations, which involve Square’s consumer app Cash, remained low, as purchasing costs account for the vast majority of revenue.
Last month, Dorsey — a known Bitcoin advocate — again declared that he believes Bitcoin to be the Internet’s native currency:
- “[Bitcoin] was something that was born on the internet, that was developed on the internet, that was tested on the internet…It is of the internet.”
Facebook Seeks Counsel to Forge Blockchain Partnerships for New Products
Facebook’s blockchain recruitment drive continues, as the social network looks to hire a lead commercial counsel for its initiatives with the technology.
A new job posting at the company’s career page says the position will be responsible for “drafting and negotiating a wide variety of contracts related our blockchain initiatives, including partnerships needed to launch new products and expand such products internationally.”
Another part of the job is advising clients on legal risks, business strategies and other business issues. The commercial counsel will also structure Facebook’s relationships with key partners and the commercial aspects of the products and programs.
The candidate should be able to “manage numerous deals” and have a proven lawyer’s qualification: a J.D. degree and membership in at least one U.S. state bar are a must.
But the job also requires serious tech expertise: “5+ years of legal experience, including 4+ years of technology transactions experience,” particularly with blockchain or payments technology and related legal issues. “Strong interest in mobile and alternative payments” is preferred.
Facebook’s ambitions related to blockchain-enabled payments have been known for a few months: a February report by the New York Times revealed that the social media giant has been working on a token for payments across the company’s media platforms, which include WhatsApp and Instagram.
According to NYT’s sources, the cryptocurrency, expected to be released in the first half of 2019, will be a stablecoin pegged to a basket of several fiat currencies.
Another possible use of the blockchain tech Facebook might be looking at is an integrated identity solution, mentioned by the CEO Mark Zuckerberg in a recently posted video interview with Harvard Law professor Jonathan Zittrain.
“Basically, you take your information, you store it on some decentralized system and you have the choice to log into places without going through an intermediary,” Zuckerberg said.
Further signaling Facebook’s interest in this technology, it has posted more than 20 blockchain-related jobs this year.