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Alleged Bitcoin Fraudster Alexander Vinnik Appeals for Extradition to Russia

The former operator of now-shuttered crypto exchange BTC-e, Alexander Vinnik, has lodged an appeal with a Piraeus court for his release or extradition to Russia.

Former operator of now-shuttered crypto exchange BTC-e, Russian national Alexander Vinnik, has appealed with a Greek court for his release or extradition to Russia, local media outlet Kathimerini reported on March 21.

Vinnik — who is accused of fraud and laundering as much as $4 billion in Bitcoin (BTC) over the course of six years — has reportedly filed an appeal with Piraeus court for his release or extradition to Russia for humanitarian reasons.

Prior to that, Russia’s Commissioner for Human Rights Tatyana Moskalkova asked both the United Nations High Commissioner for Human Rights Michelle Bachelet and Greek Justice Minister Michalis Kalogirou to help extradite Vinnik to Russia. The petition was lodged in connection with Vinnik’s deteriorating health following a hunger strike he started last November.

At the time, Moskalkova stressed that Vinnik’s wife was seriously ill and is on the brink of death. The Commissioner said then:

“Given the extraordinary humanitarian situation, I would ask for help extraditing him [Vinnik] to Russia so that he could be closer to his family.”

Moskalkova also sent letters to the President of the International Committee of the Red Cross, Peter Maurer, the Greek Health Minister Andreas Xanthos, and the Greek Ombudsman, Andreas Pottakis, asking to provide Vinnik with medical assistance following the hunger strike.

Apart from Russia, French authorities also sought Vinnik’s extradition to France in regard to a further series of fraud allegations. France accused Vinnik of “defraud[ing] over 100 people in six French cities between 2016 and 2018.”

In late February, the Russian Supreme Court included the illicit use of cryptocurrencies in the list of criminal offences related to money laundering. The amendments were reportedly developed in order to comply with recommendations from the international Financial Action Task Force on Money Laundering.

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QuadrigaCX’s Legal Representatives Create Affected Users Committee

QuadrigaCX’s legal council has formed a dedicated committee to help provide guidance in representing affected clients of the exchange.

A new committee appointed by law firms Miller Thomson and Cox & Palmer will provide guidance in representing affected clients of major Canadian cryptocurrency exchange QuadrigaCX. The development was announced in a court notice on March 19.

In the filing, Miller Thompson reveals that it has established the Official Committee of Affected Users of now-shuttered QuadrigaCX, comprising of seven users affected by the shutdown of the trading platform following the sudden death of its co-founder, Gerald Cotten, last December.

At the time, the exchange reported that it was not able to access its cold wallet holdings, as Cotten had purportedly been the sole person with access to wallets’ keys. With the allegedly inaccessible crypto accounting for the vast majority of the exchange’s assets, QuadrigaCX now owes over $198.4 million to an estimated 115,000 users.

The newly formed committee is set to help the law firms represent all affected users in the court proceedings against QuadrigaCX. The committee can reportedly “retain advisors, experts and consultants to provide advice to and to assist the Official Committee of Affected Users and Representative Council in the exercise of their duties in relation to the Purpose.”

The committee members have varying fields of expertise and include such industry players as Eric Bachour, a creditor of now-defunct cryptocurrency exchange Mt. Gox, and Magdalena Gronowska, who has advisory experience in economic policy development for the Government of Ontario.

Miller Thomson and Cox & Palmer were appointed as QuadrigaCX’s legal representatives in February by a decision rendered by the Supreme Court of Nova Scotia, Justice Michael Wood. The representative council was set to be responsible for “managing communications with users; acting as user liaison for the monitor [Ernst & Young]; advocating for user interests before the court; identify[ing] potential conflicting interest amongst users; and advocating for user privacy.”

As Cointelegraph reported yesterday, QuadrigaCX’s co-founder Michael Patryn was reportedly involved in multiple criminal activities in the past. Patryn and his partner, Lovie Horner, remain two of QuadrigaCX’s largest shareholders, although he has not had any involvement in the company’s operations since 2016 due to a fundamental disagreement with Cotten.

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Israeli Bank Policy Should Not Have Shut Down Bitcoin Mining Firm’s Account, Court Rules

A judge in Tel Aviv has delivered a mixed verdict as part of a case involving Israminers and Union Bank.

An Israeli court has ruled in favor of a Bitcoin (BTC) mining company after a local bank closed its account over money laundering concerns. Israeli daily business news outlet Calcalist reported the development on March 17.

Israminers, which sued Bank Igud (the Union Bank of Israel Ltd.) in May 2018, had faced problems with cash flow due to the bank blocking deposits which it said was against its terms.

Following a lengthy appeals process, a Tel Aviv district court judge argued that the bank’s policy on cryptocurrency clients was too broad, and should not include automatic rejections.

“I believe that the sweeping policy, which does not distinguish between different types of activity, scope of activity and different types of customers — in the field of digital currencies — is unreasonable,” Calcalist quoted judge Limor Bibi as saying.

At the same time, however, Bibi said banks were within their rights to refuse deposits which originated from cryptocurrency trades.

The episode continues the patchwork regulatory attitude to cryptocurrency trading as it impacts the legacy banking system. As Cointelegraph has reported, various banks have taken issue with servicing businesses and private investors who trade cryptocurrency.

Often, the hostile stance contradicts other activities at the same bank: United Kingdom-based Barclays, for example, also shut down accounts prior to developing a relationship with major cryptocurrency exchange Coinbase to conversely speed up deposits and withdrawals.

In the case of Union Bank, it would appear senior executives had benefited from education in the emerging sector, with local startup Bit2C conducting a seminar on its workings last November.

Earlier this month, a dedicated committee from Israel’s securities regulator issued final recommendations for governing the cryptocurrency economy, something which could see banks’ treatment become more uniform in future.

“The committee recommends considering adjustment of the existing regulation to create more suitable regulatory infrastructure for this trading activity in order to better cope with the risks incurred in this activity,” an accompanying report explained.

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Bitcoin Pioneer Jeff Garzik Subpoenaed in $4 Bln Lawsuit Against Craig Wright

Bitcoin core developer Jeff Garzik has been subpoenaed to appear in court in connection with a $4 billion lawsuit against Craig Wright.

Software engineer and Bitcoin (BTC) pioneer Jeff Garzik has been subpoenaed by a United States District Court in connection with the $4 billion lawsuit against Craig Wright, according to a document Garzik posted in a tweet on March 15.

The suit was initially filed last February with the U.S. District Court of the Southern District of Florida, with the family of David Kleiman —  a computer scientist, whom many suspect to have been one of the developers of Bitcoin and blockchain technology — alleging that Wright stole up to 1.1 million BTC after he passed away.

Following Kleiman’s death in 2013, Wright, who proclaimed himself to be Bitcoin creator Satoshi Nakamoto, contacted his estate, allegedly claiming to want to help dispose of the Bitcoin fortune. Kleiman’s family claims that Wright did not return the funds.

The official complaint states that Wright “forged a series of contracts that purported to transfer Dave’s assets to Craig and/or companies controlled by him. Craig backdated these contracts and forged Dave’s signature on them.”

Wright subsequently requested the court to dismiss the lawsuit against him, however the court rejected the request. The court document confirms that “the Court finds that Plaintiffs have sufficiently alleged a claim for conversion.”

Now, the subpoena calls Garzik to appear in court and reveal any evidence to the “personal theory” that Kleiman was Satoshi Nakamoto. The subpoena also requests to provide all communications, agreements and documents related to both Wright and Kleiman.

Additionally, the document asks Garzik to provide information concerning Bitcoin mining for the period between January 1, 2009 and April, 2013, and refers to the search for documents related to Silk Road, Liberty Reserve,  Mt. Gox, and the Prometheus Project.

The subpoena also asks for any communications with financial cryptographer Ian Grigg, CEO of Centre for Strategic Cyberspace + Security Science, Richard Zaluski, and early Bitcoin investor Roger Ver, among others.

Last November, commenting on various hypotheses as to the Bitcoin creator’s identity, Garzik said:

“My personal theory is that it’s [Satoshi Nakamoto] Floridian Dave Kleiman. It matches his coding style, this gentleman was self taught. And the Bitcoin coder was someone who was very, very smart, but not a classically trained software engineer.”

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French Court Clerks to Use IBM Blockchain Platform for Corporate Registry

French clerks of commercial courts will use a blockchain platform developed with IBM to record changes in companies’ legal status.

French commercial court clerks will use a blockchain-based platform to record changes in companies’ legal status within the country. The development was revealed in an official announcement on March 14.

The blockchain network was jointly developed by IBM and the National Council of Clerks (NCC) and will reportedly be deployed starting in 2019 by the clerks operating in commercial courts across France. The blockchain platform is built on the Hyperledger Fabric framework and aims to increase transparency and efficiency in legal transactions associated with the lifecycle of companies in the registry.

Specifically, the solution will be used to record and share data related to “the exchanges of regulatory information related to companies’ difficulties,” as well as “the changes of status of the company registered on the French territory.” That includes such data as change of corporate name, registration court office, establishment of branch offices, and business dissolution.

In a pilot, NCC reportedly managed to shorten the time needed to update the registry from several days to a single day. Vincent Fournier, Senior Manager Blockchain at IBM France, said that “blockchain’s qualities are ideal for this use, improving the Clerks’ business processes and adapting to the ever-changing nature of their missions.”

IBM has released various commercial blockchain products and filed a number of blockchain-related patents. Moreover, IBM reportedly offers the greatest number of blockchain jobs, according to recent research by The Next Web.

This week, IBM partnered with blockchain consortium and credit union service organization CULedger to develop new blockchain-based solutions for the credit union industry. These solutions can reportedly improve services such as digital identity authentication, Know Your Customer compliance, lending and payments services, and other consumer processes that require authentication.

Also this month, IBM revealed two new patents targeting network security using blockchain technology and focusing on database management using the tech.

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Market Maker Due $11.5 Mln Settlement From Quoine After Guilty Ruling on Reversed Trades

Electronic market liquidity provider B2C2 has won its case against Quoine and could claim now over 3,000 Bitcoin (BTC).

Electronic market liquidity provider B2C2 has won its case against Singapore cryptocurrency exchange Quoine and could claim now over 3,000 Bitcoin (BTC) ($11.5 million), local English-language daily news outlet Business Times reported on March 14.

The dispute, which saw Singapore’s first cryptocurrency court case begin last November, involves trades made by B2C2 on Quoine’s platform in April 2017.

At the time, Quoine was experiencing what it describes as technical difficulties, which resulted in temporary major liquidity problems.

As such, B2C2 was able to place Bitcoin (BTC) to Ethereum (ETH) trades at a highly artificial exchange rate of 10 BTC per 1 ETH, at the time making 1 ETH worth around $12,000.

Court documents revealed the amount involved as being 3,085 BTC ($11.9 million).

Now, a Singapore judge has ruled that Quoine incorrectly reversed the erroneous trades without seeking B2C2’s permission, opening the door to a settlement which may yet result in a full payout.

Given that Bitcoin’ price is substantially higher than it was in April 2017, however, the two parties must first attempt to find an agreement out of court. Should that fail, the court will decide damages on their behalf.

Following the decision, Quoine’s CEO Mike Kayamori told Business Times:

“We are reviewing the judgement and considering our options, including the possibility of an appeal.”

In November 2017, Quoine raised significant funds during its initial coin offering (ICO), investors buying up 350,000 units of its QASH token, the price of which was pegged to ETH.

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CFTC Requires Trading Platform to Pay $990K for Illegal Bitcoin-Related Transactions

The U.S. Commodity Futures Trading commission fined a Marshall Islands-based startup and its owner for illegally trading with U.S. customers.

The United States Commodity Futures Trading Commission (CFTC) has announced Monday, March 11, that international securities dealer 1pool Ltd. and its CEO Patrick Brunner must pay a total of $990,000 for illicit Bitcoin (BTC) transactions with U.S. customers.

The Marshall Islands-based startup, which was offering BTC-funded security-based swaps, and its owner have been fined for illegally offering BTC-margined retail commodity transactions to U.S. investors. Moreover, the CFTC states that 1pool Ltd. failed to register as a futures commission merchant and did not comply with the required Anti-Money Laundering (AML) procedures.

The CFTC imposed a civil penalty of $175,000, while also obliging 1pool Ltd. to reimburse $246,000 of gains. Moreover, the company has to return approximately 93 BTC, valued by the CFTC at approximately $570,000, to all known U.S. customers.

CFTC Director of Enforcement James McDonald has additionally warned intermediaries that the watchdog will hold them accountable in case they fail to comply with licensing requirements and U.S. trading policies.

As Cointelegraph previously reported, the U.S. Securities and Exchange Commission (SEC) and Federal Bureau of Investigation (FBI) were also involved in prosecution.

During the investigation an undercover FBI agent purchased security-based swaps on the Marshall-based platform from the U.S., though he did not comply with the discretionary investment thresholds required by the U.S. securities laws. According to SEC, the users could also open accounts on the platform with their email address and a user name only, without providing additional information, which does not comply with U.S. customer identification regulations.

The two parallel actions were filed by CFTC and SEC in September 2018. The chairman of CFTC Christopher Giancarlo explained that the CFTC charged the portion of the activity involving derivatives, the SEC charged the portion relating to equities, and the Department of Justice and the FBI secured an order to seize platform’s website and shut it down.

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Widow of QuadrigaCX Founder Seeks Compensation for Creditor Protection Court Costs

Jennifer Robertson is seeking $225,000 in repayment for costs associated with QuadrigaCX’s creditor protection proceedings.

The widow of the founder of now-defunct cryptocurrency exchange QuadrigaCX has asked the court for $225,000 in compensation for legal costs, Bloomberg reports on March 4.

Jennifer Robertson, the wife of late QuadrigaCX founder Gerry Cotten, is seeking repayment for financing used to help the crypto exchange acquire court-approved protection from creditors. After $145 million in crypto assets went missing following Cotten’s death, Robertson provided interim financing for legal proceedings.

According to Bloomberg, Robertson paid CA$300,000 (~$225,000), which covered Big Four audit firm Ernst & Young’s (EY) appointment as a monitor to the legal proceedings, in addition to fees associated  with filing under Companies’ Creditors Arrangement Act (CCAA) and appointing new directors. Currently, QuadrigaCX is reportedly overseen by Robertson and her step-father, Tom Beazley, as directors.

While the issue of repaying Robertson was reportedly discussed in court, the law firm representing QuadrigaCX’s affected clients, Cox & Palmer, took issue with the repayment. In a letter filed directly to the court, the firm argued that repayment should not be granted until EY has reviewed asset and transaction information from Cotten’s estate. Cox & Palmer states:

“In our submissions, the repayment contemplated by the cash flow is inappropriate until such time as the Monitor has reviewed the requested information and satisfied itself as to the source of funds used to fund the CCAA Proceeding.”

According to the Toronto Star, Supreme Court Justice Michael Wood has extended the proceedings for 45 days until April 23, and has approved the appointment of a chief restructuring officer to the exchange. He also directed the court monitor, Ernst & Young, to assure that fees for professional services will not be “out of control.” Any decision on repayments to Robertson was also deferred.

Last week, Ernst & Young found that QuadrigaCX’s cold wallets have been empty and unused since April 2018. The firm also discovered several user accounts that “may have been created outside the normal process by Quadriga” and that “[i]t appears that the Identified Accounts were created under various aliases.”

Recently, crypto research and consulting platform ZeroNonCense published a report claiming that QuadrigaCX stored a significant quantity of Ethereum (ETH) in other crypto exchanges, such as Kraken, Bitfinex and Poloniex.

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Report: QuadrigaCX Wallets Have Been Empty, Unused Since April

Ernst & Young has released its third report in QuadrigaCX’s creditor protection proceedings, revealing that its cold wallets have long been empty.

Big Four audit firm Ernst & Young (EY) released its “Third Report of the Monitor” in the creditor protection proceedings of Canadian crypto exchange QuadrigaCX on March 1.

Within the report, the audit firm has identified six separate crypto wallets that were used primarily to store Bitcoin (BTC), the cryptocurrency most used on the platform. Apart from one inadvertent transaction of Bitcoin amounting to nearly $500,000, there have been no deposits in the wallets since April 2018. Furthermore the report states:

“To date, the Applicants have been unable to identify a reason why Quadriga may have stopped using the Identified Bitcoin Cold Wallets for deposits in April 2018, however, the Monitor and Management will continue to review the Quadriga database to obtain further information.”

In early February, the exchange filed for creditor protection when — after the death of its founder Gerald Cotten — it lost access to the cold wallets and corresponding keys, that ostensibly held the assets owed to various clients. Since then, the exchange, the court, EY and investigators have been navigating a convoluted process to ascertain where the funds went.

Today’s report also states that, within the course of its investigation, EY has discovered 14 user accounts that “may have been created outside the normal process by Quadriga” and that “[i]t appears that the Identified Accounts were created under various aliases.” The report continues:

“…the Identified Accounts were internally created without a corresponding customer and used to trade on the Quadriga platform. [EY] was further advised that deposits into certain of the Identified Accounts may have been artificially created and subsequently used for trading on the Quadriga platform.”

The monitor has also been trying to secure transaction and account balance data from the platform, which is stored on the cloud by Amazon Web Services, however:

“Due to the account being a personal account in the name of Mr. Cotten, AWS has indicated that it is unable to provide the Monitor with access to the AWS Account to permit a copy of the data that it is hosting to be secured.”

Earlier this week, cryptocurrency exchange Kraken offered a $100,000 reward for tips that could lead to the discovery of QuadrigaCX’s missing funds. The reward can be collected in either fiat or digital currency. Kraken stated, “All leads collected by Kraken will be provided to the FBI [Federal Bureau of Investigaion], RCMP [Royal Canadian Mounted Police] or other law enforcement authorities, who have an active interest in this case.”