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California Judge Orders Accused Hacker to Pay Bail in Crypto

A Serbian and Italian national has been ordered to pay bail in cryptocurrency while he faces charges that he hacked the computer network of a San Francisco game company.

According to a news release from the United States Attorney’s Office, an FBI investigation found that an individual, later alleged to be Martin Marsich, had illegally breached the gaming firm’s network, gaining access to around 25,000 accounts through which users could buy in-game items.

As well as allegedly using stolen information to buy and sell in-game items, Marsich is also accused of selling access to the accounts on dark market websites, in total causing claimed losses of $324,000 to the company. The firm apparently closed the affected accounts after the intrusion was discovered, the report says.

The accused made an initial appearance at a federal court in San Francisco on Aug. 9, after reportedly being arrested at San Francisco International Airport while trying to board a flight to Serbia.

At the hearing, Magistrate Judge Corley said Marsich could be released to a halfway house on the condition that he hands over bail of cryptocurrency to the value of $750,000.

According to a report from The Daily Post, Assistant District Attorney Abraham Simmons said it was likely not the first time cryptocurrency had been allowed to be put up for bail, since judges can accept other assets such as real estate.

Simmons was quoted as saying:

“It really is quite broad. The judge could order just about anything. What the objective is is to get the defendant to comply with an order to appear later.”

Marsich faces a maximum sentence of five years’ imprisonment and a fine of $250,000 if found guilty, the Attorney’s Office says.

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Court Sides With Crypto Exchange Despite Allegation It Violated China Ban

A Chinese cryptocurrency trader who was sent bitcoin in error must repay an exchange even if it broke domestic rules, a Beijing court has ruled.

In a judgement made on July 31 and released on Thursday, an intermediate Beijing court upheld a decision made by a district court early this year that a bitcoin trader named Li Jianfeng must return the proceeds he received from selling five bitcoins he obtained by accident.

The case reportedly stemmed from a system bug on a China-based bitcoin exchange named Coinnice, which mistakenly sent five bitcoins to Li on March 10, 2017.

Based on the court document, Li subsequently liquidated the bitcoins for around $6,100. After Li declined Coinnice’s request that he return the funds, the company brought a lawsuit against him in a Beijing district court.

During the case, Coinnice argued that Li had no legal right to possession of the assets and, as such, should return the proceeds to the exchange.

The plaintiff further presented the bitcoin address that was assigned to Li on the exchange, proving the transactions to the court. The judge consequently ruled in favor of the plaintiffs in March 2018, saying that by signing up on Coinnice, Li agreed by default to the contractual terms listed on the platform.

However, Li later appealed to the intermediate court making the counter-argument that Coinnice was based in China and should have been be regarded as an illegal operation to begin with, since the People’s Bank of China has explicitly prohibited bitcoin trading platforms from providing services to domestic investors.

However, the judge in the appeal ruled that, based on China’s civil law, anyone that has made profits without a legal ground and resulted in other people’s loss must return the unauthorized assets.

The court went to explain:

“In this case, whether or not Coinnice’s establishment as a bitcoin trading platform has violated relevant rules, does not have any impact on Li’s liability to return the profits he received with no legal basis. … As such, the court denies his appeal and the decision is final.”

Although codified statutes predominate in China’s civil law system, the judgement may still offer a window into the thinking of courts in the country when dealing with disputes involving cryptocurrencies.

In a similar case, crypto exchange OKEx is also facing a lawsuit in which a bitcoin trader is claiming for 38 bitcoin cash that he did not receive after the cryptocurrency’s hard fork from bitcoin in August 2017. The divergence meant that anyone with bitcoins at the time would, in theory, also own the new bitcoin cash to an equal amount. However, not all exchanges passed the free coins onto customers.

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Court Sentences Bitcoin Ransomware Creators to Community Service

The developers behind the CoinVault and BitCryptor ransomware were sentenced to 240 hours of community service in a Dutch court on Thursday.

Melvin and Dennis van de B., aged 25 and 21, were convicted of accusing 1,259 computers in the Netherlands and other Western European countries with the ransomware and demanding bitcoin payments as a ransom to fix the computers. The two reportedly made roughly 10,000 euros each between 2014 and 2015, Dutch website NU.nl reported.

CoinVault would cut off victims’ access to files on their computers and demand 1 bitcoin as a ransom – equivalent to several hundred euros at that time. Almost a hundred victims paid the fee, according to NU.nl.

After the news of the malware spread, cybersecurity firm Kaspersky Lab tipped the Dutch police on the names of the hackers. The firm said it had found a bug in the CoinVault code and could see “one of the suspect’s first names in the pdb path.” Kaspersky also issued around 14,000 decryption keys for the victims of the attack, as previously reported by CoinDesk.

The men told the court they just wanted to experiment and challenge their technical skills, but the judges noted that the brothers would always ask for payment, including when some victims were asking for the return of files related to their deceased parents, the Dutch website NRC.nl reported.

Some of the victims are now demanding compensation in bitcoin, 2-spyware.com wrote.

The Public Prosecution Service had previously demanded a suspended prison sentence of one year, but the judges took into consideration that the brothers had no previous criminal record and hadn’t commit any new crimes while waiting for the trial since their arrest in 2015.

Editor’s note: some of the statements in this article were translated from Dutch.

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Former Indian Lawmaker Declared 'Offender' in Bitcoin Extortion Case

A former Indian legislator who was allegedly involved in a $1.3 million bitcoin extortion case has been declared a “proclaimed offender” by a local court.

According to The Indian Express, a sessions court in Ahmedabad granted an application from the state Criminal Investigation Department (CID) on Monday to declare Nalin Kotadiya an absconder from justice. According to Indian law, can now be arrested by any resident and is banned from leaving the country.

The decision comes after Kotadiya – a former Member of Legislative Assembly – failed to appear in court despite repeated summonses and after the CID could not reach him with an arrest warrant.

As previously reported by CoinDesk, Kotadiya’s name surfaced when the CID started investigating the case in which businessman Shailash Bhatt accused 10 policemen of extorting 200 bitcoin (then worth around $1.7 million) from him by force in February.

According to the new report, Kotadiya is believed by the CID to have helped the police officers kidnap Bhatt.

In an intriguing twist to the tale, the CID is also accusing the apparent victim, Bhatt, and an associate, Kirit Paladiya, of extorting around $22 million – including cash and over 2,000 bitcoin – at gunpoint from a member of BitConnect, an alleged bitcoin Ponzi scheme which reportedly closed in India in January. Another report said Bhatt had previously invested in the scheme.

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LA Bitcoin Trader Faces 30 Months in Jail for Illegal Money Business

A Los Angeles bitcoin trader faces more than two years in jail for having operated what prosecutors say is an illegal money transmitting business.

Fifty-year-old Theresa Tetley, who worked under the name “Bitcoin Maven,” made at least $300,000 a year from trading bitcoin on Localbitcoins.com between 2014 and 2017, according to NBC Los Angeles. She also made transactions over that time worth from $6 million to $9.5 million.

Tetley has already pled guilty to operating an unregistered money transmission business and exchanging around 80 BTC for $70,000 in one transaction that prosecutors allege involved the proceeds of drug trafficking, according to court documents.

The ex-trader now faces a 30-month federal jail sentence for the crimes, if the government gets its way in court on Monday, although her defense team is pushing for a lesser sentence of one year. Federal prosecutors also hope to seize 40 BTC (currently worth $270,000), $292,264 and 25 gold bars seized by law enforcement agents in March, according to the report.

The Prosecutors Office said in court documents that Tetley’s activities “fueled a black-market financial system in the Central District of California that purposely and deliberately existed outside of the regulated bank industry.”

While the case is thought to the first of its kind in Southern California, according to NBC LA, other bitcoin traders have run afoul of authorities in other parts of U.S. in the last year.

A Detroit bitcoin trader was sentenced in December 2017 to 366 days in jail for similarly operating an unlicensed money services business. Sal Mansy funneled bitcoin transactions – also using localbitcoins.com – through a corporation he owned, ultimately conducting $2.4 million-worth of bitcoin transactions over a two-year period.

In another case linked to Localbitcoins, father and son trading team Randall and Michael Lord were last May handed down jail sentences of 106 months and 46 months, respectively, for running an unlawful money business. Michael Lord also pled guilty to a charge involving narcotics distribution.

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Coinbase-Cryptsy Lawsuit Will Head to Jury Trial

Coinbase has lost another appeal in a lawsuit brought by former customers of the defunct cryptocurrency exchange Cryptsy, and the case will now proceed to a jury trial.

An appeals court in Georgia on Monday affirmed a lower court’s denial of Coinbase’s appeal of the case, which blames the company for failing to stop Cryptsy’s chief executive from allegedly absconding with his customers’ money.

In the case, plaintiff Brandon Leidel, who was a Cryptsy customer, claims that Coinbase should have actively helped prevent Cryptsy CEO Paul Vernon from laundering the funds through a Coinbase wallet.

Vernon allegedly used Coinbase to launder millions of dollars he is accused of stealing from his customers prior to Cryptsy’s collapse, as previously reported.

Coinbase tried to negotiate the case in arbitration by pointing at user agreements Vernon signed when he first began using the wallet. However, a judge ruled last year that Cryptsy’s customers are not bound by the same agreements that Vernon was, and therefore are not required to arbitrate the case.

Coinbase appealed this decision, but the appeal was denied by a district court.

The Eleventh Circuit Court of Appeals affirmed that decision Monday, writing that “Leidel does not seek to enforce the terms of the User Agreements, nor does he allege any tort rooted in an allegation that Defendant breached or facilitated a breach of any obligation uniquely imposed by those agreements.” The decision went on to say:

“In other words, Leidel’s claims are viable, if at all, without reference to the User Agreements, as the duties Defendant allegedly breached were not imposed by those agreements.”

As a result, the court has opened the door for a jury trial in the class action lawsuit, which can now proceed to discovery.

In a statement, David Silver, a lawyer representing the plaintiffs, said “we are pleased, though not surprised, the appellate court affirmed the trial court’s decision to keep this dispute in the public view … We look forward to having Coinbase answer for its role in the millions of dollars in harm suffered by our clients; and we look forward to resolving these claims in court.”

Coinbase did not immediately respond to a request for comment.

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Most Cryptos Aren't Commodities, Defendants Claim in CFTC Case

Defendants from a cryptocurrency services company charged with fraud by the CFTC are pushing back against the the agency’s assertion that cryptocurrencies are commodities.

In January, the CFTC charged My Big Coin Pay Inc, Randall Crater, Mark Gillespie and other associated parties with fraud and misappropriation of funds, alleging that they swindled more than $6 million from their customers through the sale of My Big Coins.

The CFTC subsequently sent a notice of “supplemental legal authority” to the defendants in March, after a judge in another case affirmed the commission’s definition of cryptocurrencies as commodities.

On Tuesday, the defendants, excepting Gillespie, fired back in a filing opposing the CFTC’s motion for a preliminary injunction against them. They argue that under the Commodity Exchange Act (CEA) and other regulations, cryptocurrencies only constitute commodities when futures contracts are dealt on them – as with bitcoin, for example.

“While cryptocurrencies on which futures are dealt in are no doubt subject to CEA and CFTC Regulation,” the filing reads, “there are no futures on My Big Coin so it is not a commodity as that term is defined in the CEA and CFTC Regulations.”

It explains further:

“As a virtual currency, with no physical or tangible existence, My Big Coin (and other virtual currencies) is not a ‘good’ or an ‘article.’ Instead, virtual currencies represent a set of ‘services, rights and interests.’ But, per the plain language of the CEA, intangible ‘services, rights and interests’ are only included in the CEA’s definition of the term ‘commodity’ if there are futures contracts traded on them. The only virtual currency on which futures contracts are traded is bitcoin.”

The defendants’ lawyers argue further that the CFTC’s January notice of supplemental legal authority misinterpreted the aforementioned judge’s decision, and that the judge acknowledged the “futures requirement” in his ruling.

In another notable development, recent filings show that Crater has hired a former senior trial attorney at the CFTC’s Enforcement Division, Katherine Cooper.

In March, Cooper penned a blog post for the Blockchain Law Center considering the judge’s affirmation of the CFTC’s definition of cryptocurrencies as commodities, and outlined an argument similar to that of the defendants’ filing.

She conjectured that the court’s potentially contradictory definition of a commodity could be the result of it “reasoning that if one virtual currency has a futures contract trading on it, then all other virtual currencies are ‘goods … in which contracts for future delivery are presently or in the future dealt in.'”

She closed her post with a now timely conclusion:

“It remains to be seen then how a court would rule if it had the benefit of a robust, critical analysis of the CFTC’s theory proffered on behalf of a defendant.”

View the filing below

MyBigCoinPay2 by CoinDesk on Scribd

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Israeli Supreme Court Rules for Bitcoin Broker in Bank Dispute

A cryptocurrency brokerage based in Israel won’t have its bank account closed – for now , anyway- thanks to an intervention by the country’s Supreme Court.

Bits of Gold, which launched its services in 2013, was on the cusp of having its Bank Leumi account cut off on account of its business model, according to a report from The Marker. The issue dates back to last fall when banking officials there reportedly began scrutinizing the accounts held by cryptocurrency users and businesses more closely.

But the Feb. 26 ruling from the Supreme Court – a temporary injunction following an appeal by Bits of Gold – has put off the potential closure until a formal review of the issue can be conducted. In the order, the judge wrote that the concerns expressed by Bank Leumi are merely speculative and that Bits of Gold “acted transparently and did not violate any provision of law” during its years of operation.

The temporary injunction doesn’t necessarily mean that Bits of Gold will keep its banking access, however, and the ruling states that the bank still has the right to scrutinize specific activities related to the account. That said, the outcome and the nature of the ruling itself has given the startup cause for celebration amidst the uncertainty.

“The court’s decision enables us to focus on the growth of the Israeli cryptocurrency community. We were the first to request for the creation of rules for digital currency trade and the first to comply with those rules and others,” Youval Rouach, CEO at Bits of Gold, said in a statement. “We’ll continue to lead this field in order to give cryptocurrencies their rightful place – as a massive growth engine for the Israeli high tech and fintech industry.”

The developments come as the regulatory picture in Israel around cryptocurrencies gains more clarification as a result of recent government statements. On Feb. 19, the country’s tax office indicated that it would treat bitcoin as a form of property, making any profits realized subject to a capital gains tax.

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ATB Coin the Latest to Face Class-Action Suit After ICO

Following similar suits against Tezos and Centra, another initial coin offering that opted not to register with the Securities and Exchange Commission (SEC) faces a class-action lawsuit alleging its cryptocurrency should be considered a security.

On December 21, Raymond Balestra filed a class action suit in the Southern District of New York against ATBCoin LLC, Edward Ng (CEO) and Herbert W. Hoover (co-founder). Seeking a jury trial from the court, the plaintiffs alleged that ATBCoin had violated the Securities Act by issuing unregistered securities with the expectation of profit in the form of the ATB coin and the placement of all remaining funds invested into a trust, in the interest of investors.

The complaint alleges:

“The ATB ICO was a clear offer and sale of securities because, inter alia [among other things], Defendants touted, and Plaintiff and other ATB ICO investors reasonably expected, that the ATB Coins received in exchange for their investments would be worth more than the ETH, BTC, LTC or other currencies invested.”

Offered as a fast and inexpensive blockchain-based payment system, ATB’s initial coin offering launched on June 12, to run through July 12, according to a blog post. The plaintiffs alleged that the offering effectively continued into September, with a second phase in August and a press release on September 11 announcing it was still open to investment. On the ATB blog, the company announced that sales were closed on September 8 and that distribution would take place on September 14.

The plaintiff invested 2.1 ETH on August 12 (approximately $621.62 at the time, according to CoinDesk’s Ethereum Price Tracker). It is not known how many people invested or how much was raised, but the complaint estimated the total to be somewhere “between $20,400,000 and $24,210,000” in bitcoin, ether and litecoin.

The case made similar allegations to those of other investors against other ICO projects such as Tezos and Centra Tech, in which similar arguments from plaintiffs were made that tokens offered by these ICOs should be seen as securities.

In addition, legal experts also weighed in arguing that private complaints against initial coin offerings may force the courts to define which cryptocurrencies are considered as securities before the Securities and Exchange Commission (SEC).

Drinker Biddle’s Jim Lundy, a veteran of the SEC who represents clients in securities cases, told CoinDesk, that the complaint is “following a typical securities class action format for a public offering.” He said, “This theory is that item itself, the ATB Coin, is a security. I don’t doubt that the defendants will move to dismiss that, and the judge will have to rule.”

Participants in the crypto-economy have been waiting for greater clarity from the courts or the SEC on which kinds of coins are securities under U.S. law. Even getting to that ruling is likely to take months, however. 

Another SEC veteran, Timothy Peterson, now of Murphy & McGonigle, agreed that a motion to dismiss should come shortly, adding that “it’s likely the court will look at the SEC’s 21(a) report on DAO for guidance, but it’s important to note that the 21(a) report is not controlling. That is, the court can come to its own conclusions about what is and what is not a security for purposes of federal securities law.”

Peterson concluded:

“I think we can expect to see more of these complaints in the future, especially once courts begin to carve out tests to define how cryptocurrencies should be regulated or examined. More facts will need to come out before it’s fair to comment on the merits of these particular allegations.”

The full filing may be read here:

ATB Coin Complaint by CoinDesk on Scribd

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