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Key Comments From Libra Hearing at US House of Representatives

Legislators in the U.S. House of Representatives heard testimony on Facebook’s Libra cryptocurrency project. Here are some key comments from lawmakers and David Marcus.

The United States House of Representatives Financial Services Committee heard testimony from from Facebook’s David Marcus, today July 17. Marcus, the CEO of the Calibra wallet service for the social media giant’s forthcoming Libra stablecoin, attempted to assuage regulators’ concerns regarding the project and educate lawmakers on its purpose and potential. Cointelegraph has compiled some key quotes from the hearing, which you can view here.

[2:50] Rep. Maxine Waters, chair of the Financial Services Committee: “Demonstrated pattern of failing to keep consumer data private on a scale similar to Equifax… Facebook also allowed malicious Russian state actors to purchase and target ads”.

[5:40] Rep. Patrick McHenry: ”We’re here to go beyond the headlines… Washington must go beyond the hype to ensure that we are not the place where innovation goes to die.”

[13:49] David Marcus: “That’s what Libra is about: developing a safe, secure and low-cost way for people to send money around the world.”

[27:] McHenry: “Why are you doing this in Switzerland and why are you using a basket of currencies? Why not the good old American dollar”

Marcus: “…The choice of Switzerland has nothing to do about evading responsibilities or oversight. The goal of Switzerland is to home this Libra in an international place…” 

[0:40:10] Rep. Nydia Velasquez: “Will you commit yourself to not launch before all the concerns from the Federal Reserve and all the regulators are addressed?”

Marcus: “Absolutely Congresswoman and I want to reiterate this commitment that this was the spirit in which we announced early…”

[1:01:51] Rep. David Scott: “Neither your white paper nor your subsequent Facebook post offered any concrete details as to how you plan to implement or enforce strong Anti-Money Laundering, how you plan to enforce Know Your Customer protections, and most importantly, to ensure — and that’s what all of us are concerned about — the safety of our financial system.[…] what do you see as the responsibilities of Libra to combat money laundering, to protect our financial system?”

Marcus: “[Libra] will have an AML program and will have guidelines for all the members to enforce the AML, KYC, CFT standards. […] Blockchain gives additional information to law enforcement and regulators compared to our current system.”

Scott: “What are you anticipating as some of the new ways that criminals may attempt to export and exploit Libra for illicit use and how are you combating [this]?” 

Marcus: “I couldn’t agree more with you Congressman, and I believe that we can improve on the current system because we have a chance this time around to think through how the network is designed, the way that the on and off ramps are properly regulated with proper KYC controls, the proper way to monitor new activity and report it with new technologies and I think this system might be potentially better on these fronts.”

[1:17:44] Rep. Sean Duffy: “Who gets to use Calibra and Libra? 

Marcus: “Anyone that can open an account, goes through KYC, in countries where we can operate.”

Duffy: “Who can use a $20 bill? […] This $20 bill doesn’t discriminate on anything you can be a murderer say horrible things, you can say great things. This $20 bill can be used by every single person that possesses it. With regard to your network, can Milos Yianopolous and Louis Farrakhan use Libra?” [both have been banned from FB]

Marcus: “I don’t know yet, congressman.”

[1:33:00] Rep. Brad Sherman: “We need to get Mr. Zuckerberg here. This is the biggest thing or this tries to biggest thing this committee will deal with this decade […] Now we’re told by some that innovation is always good, the most innovative thing that happened this century is when Osama bin Laden came up with the idea of flying two airplanes into the twin towers. That’s the most consequential innovation, although this will do more to endanger America than even that […] If cryptocurrency is used to finance the next horrific terrorist attack, 100 lawyers standing in a row, charging $200,000 an hour, are not going to protect his [Zuckerber’s] rear end from the wrath of the American people.”

[2:37:00] Rep. Ayanna Pressley: “It is long past time that we stop compromising consumers’ privacy in pursuit of profit. […] Would you trust your money with a company who essential admits it’s just winging it?”

[2:50:00] Rep. Alexandria Ocasio-Cortez: “I believe we’re here today because Facebook, which is a publishing platform, an advertising network, a surveillance corporation, a content distributor now always wants to establish a currency and act through its wallet as at minimum a payment processor. Why should these activities be consolidated under one corporation?”

Marcus: “The one thing we are focused on is solving problems for the very people who are left behind right now and we believe it’s important because we have the ability to invest and the products to deliver those services that will solve problems.”

[3:11:30] Madeleine: “No, we do need to trust you. We absolutely need to trust you […] Could you be specific as to the wrong-doing that generated a $5 billion fine? It’s tough to trust when the collection, storage and misuse of the information of your customers generated a $5 billion fine.”

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Rep. Waters Opens Libra Hearing With Indictment of Facebook’s Past Mistakes

The chair of the House Financial Services Committee opened today’s hearing on Libra by noting Facebook’s past mistakes.

Today, lawmakers on the United States House of Representatives Financial Services Committee are meeting to discuss the possible effects of Facebook’s proposed Libra cryptocurrency project on the financial system. 

As a Cointelegraph respondent reports on July 17, committee chair Rep. Maxine Waters has opened the hearing with an indictment of Facebook’s past behavior. In her statement, Waters said that there was a, “demonstrated pattern of failing to keep consumer data private on a scale similar to Equifax.”

Waters also stated that Facebook, “allowed malicious Russian state actors to purchase and target ads,” which purportedly influenced the 2016 U.S. presidential elections.

Waters also emphasized that the committee will be discussing the “Keep Big Tech Out of Finance Act.” A draft of the bill recently surfaced, the goal of which would prevent large tech companies like Facebook from creating their own digital assets. The draft reads:

“A large platform utility may not establish, maintain, or operate a digital asset that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function, as defined by the Board of Governors of the Federal Reserve System.” 

Today’s hearing in the House of Representatives follows one in the Senate, wherein lawmakers grilled Facebook’s David Marcus regarding Libra. Amid questions of safety, compliance and consumer protection, Marcus stressed that the Libra project would seek proper approval and registrations with the relevant authorities, including the United States Financial Crimes Enforcement Network.

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Co-Founder of Now-Defunct BitFunder Gets 14 Months Imprisonment

The co-founder of defunct Bitcoin exchange BitFunder has received 14 months imprisonment in connection with federal charges of obstruction of justice and securities fraud.

The operator of now-defunct Bitcoin (BTC) exchange BitFunder, Jon Montroll, has received a 14 months prison sentence following federal charges of obstruction of justice and securities fraud, finance and trading industry news outlet FinanceFeeds reported on July 12.

The proceedings against Montroll began last year. In July 2018, Montroll pleaded guilty to obstruction of justice, admitting that he provided false balance statements to the United States Securities and Exchange Commission in an investigation of the fake 6,000 BTC BitFunder hack in 2013.

The proceedings against Montroll ended on July 11, 2019, wherein Judge Richard M. Berman of the New York Southern District Court ruled to imprison Montroll for 14 months and determined 3 years of supervised release. Although Montroll’s counsel argued in favour of a probationary sentence, the government made a case for a sentence from 27 to 33 months’ imprisonment.

Recently, U.S. District Judge Sandra J. Feuerstein sentenced 44-year old New Jersey resident Blake Kantor to 86 months in prison for running a cryptocurrency-related scheme. Feuerstein also ordered Kantor to pay a total restitution of $806,405 distributed to the victims who invested in his scam, as well as forfeiture of $153,000 in stolen proceeds.

In May, the SEC initiated court proceedings against California resident Daniel Pacheco for allegedly operating a multimillion-dollar cryptocurrency pyramid scheme. The SEC accused Pacheco of conducting a fraudulent, unregistered offering of securities through two California-based companies, IPro Solutions LLC and IPro Network LLC, from January 2017 through March 2018.

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Texas Court Orders Defendants to Pay $400K for Fraudulent Bitcoin Scheme

A Texas Federal Court has ordered two defendants to pay $400,000 for allegedly conducting a fraudulent scheme to solicit Bitcoin from members of the public.

A Texas Federal Court has ordered two defendants to pay $400,000 for conducting a fraudulent scheme to solicit Bitcoin (BTC) from members of the public, the United States Commodity Futures Trading Commission (CFTC) announced on July 10.

Judge Reed C. O’Connor of the U.S. District Court for the Northern District of Texas filed an Order and Default Judgment on June 28, 2019, alleging that U.S. citizens Morgan Hunt and Kim Hecroft engaged in a fraudulent scheme to solicit Bitcoin from the public to invest in trading products like binary options, diamonds and foreign currency contracts. The defendants allegedly did business through entities called Diamonds Trading Investment House and First Options Trading.

The order specifically claims that the defendants “falsely claimed that they would use customer funds to invest in trading for the benefit of the customers, misrepresented their experience and track record as traders and portfolio managers, falsely told customers that they could not withdraw their purported investment profits without first paying a tax to the CFTC, and misappropriated customer funds.”

The court now requires that Hunt and Hecroft pay restitution and a $180,000 civil monetary penalty each, as well as imposing permanent trading and registration bans. According to the announcement, the defendants may be unable to repay victims due to a lack of sufficient funds.

In mid-June, the CFTC filed a complaint with the New York Southern District Court against the now-defunct United Kingdom-based entity Control-Finance Ltd, which allegedly defrauded more than 1,000 investors to launder at least 22,858 BTC.

As a recent report from Chainalysis revealed, the amount of Bitcoin spent on illegal transactions in 2019 could hit a record high of $1 billion, even as the ratio of illegal to legal transactions is shrinking.

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Canada: Crypto Exchanges Must Register With Financial Watchdog Next June

New AML laws will require Canadian crypto exchanges to register with the country’s financial watchdog FinTRAC next June.

Cryptocurrency exchanges in Canada will be legally required to register with the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) as of June 1, 2020, according to a notice published on July 10.

This requirement will come into effect along with other amendments to Canada’s new anti-money-laundering (AML) laws next year.

Crypto exchanges will also reportedly be required to observe Know Your Customer policies and report any suspicious transactions to the Canadian watchdog; this also includes keeping records of their clients and hiring a compliance officer for their platform.

A report by The Globe and Mail notes that up until now, compliance with these policies has been voluntary, but some exchanges have chosen to do so anyway. 

The motivation for implementing the new policies is reportedly to get Canadian banks onboard and in cooperation with cryptocurrency exchanges.

According to Lori Stein, a partner at business law firm Osler, Hoskin & Harcourt, Canadian financial institutions have historically been concerned about the risk of money laundering and terrorist financing via crypto exchanges. Stein said:

“The hope is that now that there is going to be a requirement to register and comply, and oversight by FinTRAC, that banks and other financial entities are going to be more open to providing services to and dealing with virtual-currency businesses.”

However, Stein points out that some international exchanges may not be willing to comply with the new Canadian rules. Some other experts reportedly agree, saying that having mandatory regulation requirements could result in cryptocurrency exchanges opting to exit from the Canadian marketplace.

The CEO of blockchain startup Bitaccess, Moe Adham, told The Globe and Mail, “I expect to see a number of firms relocate outside of Canada, as well as international firms limiting access to Canadians.”

The new regulatory policies may also drive crypto exchange customers away, some say. “This has the potential to drive cryptocurrency underground again,” said Canadian crypto exchange Coinsquare’s AML officer, Charlene Cieslik. Cieslik said that customers who do not want to reveal their information to exchanges, would likely just transact with each other directly.

As previously reported by Cointelegraph, a bill was signed in 2014 that required some foreign entities to register with FinTRAC for Bitcoin (BTC) payments.

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US SEC Approves Blockstack Token Offering Under Regulation A+

Blockstack has received approval from the SEC to run a public token offering via Regulation A+ — a first use of the regulation for a token offering.

The United States Securities and Exchange Commission (SEC) has given blockchain-based startup Blockstack the go-ahead to run a $28 million public token offering under Regulation A+, according to a report by The Wall Street Journal (WSJ) on June 10.

Blockstack will reportedly launch its token offering online tomorrow, July 11. While other firms have previously taken advantage of Regulation A+ funding, this marks the first time that investors will receive a token, rather than shares in the company.

Regulation A+ is an initial public offering (IPO) alternative geared towards startups in need of early funding. Regulation A+ funding was introduced in 2012 via the “Jumpstart Our Business Startups Act.” As the report says, any member of the public can partake in a Regulation A+ funding round.

While Regulation A+ has more lenient disclosure obligations than as with an IPO, it has two tiers with hard caps on raised funds, maxing out at $50 million within a 12-month period.

This is possibly a precedent-setting moment for the crypto space, as per the report. Initial coin offerings (ICOs) have been on the decline. Crypto firms raised billions of dollars through ICOs until the SEC began an ongoing crackdown in the name of investor-protection laws, as per the report. The report cites research from TokenData, which apparently shows that ICO funding dropped from $6.9 billion in Q1 2018 to $118 million in Q1 2019.

Blockstack founders Muneeb Ali and Ryan Shea reportedly spent 10 months and approximately $2 million to gain approval from the SEC. Ali apparently said that Blockstack had to develop a protocol for running what is essentially a regulated ICO through Regulation A+ from the ground up. As previously reported by Cointelegraph, Blockstart applied for SEC approval to run a $50 million token sale in April.

As the report says, some blockchain-based startups have conducted token sales under SEC Regulation D, including Blockstart. Unlike Regulation A+ sales, Regulation D sales do not require SEC approval; however, they are limited only to accredited investors, i.e. companies that hold a minimum of $5 million in assets and $1 million in its figures’ cumulative net worth.  Blockstart reportedly received $47 million through Regulation D funding in 2017, along with an additional $5 million from venture-capital funding.

According to the WSJ, a crypto-based startup YouNow Inc. has also has filed for a Regulation A+ funding round.

As previously reported by Cointelegraph, major traditional exchanges such as Nasdaq and the New York Stock Exchange have shied away from Regulation A+ IPOs due to recent events.

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US Lawmaker Reintroduces ‘Safe Harbor’ Crypto Tax Bill in Congress

Congressman Tom Emmer reintroduced a bill to protect investors if they make an error as the result of receiving hard forked blockchain assets.

United States Congressman Tom Emmer has reintroduced his Safe Harbor for Taxpayers with Forked Assets bill, according to a press release published July 9.

The reintroduced version of the bill appears to have been published on July 3, based on the date printed within the document.

Emmer initially announced plans for the Forked Assets bill in 2018 as a means to simplify tax laws pertaining to assets held on blockchains with hard forks

A hard fork on a blockchain splits the chain in two, with one path following the original protocol and another path diverging with different features. The new path is incompatible with the original blockchain, and does not regard its previously ratified transactions as valid.

Emmer purportedly introduced the bill in order to foster blockchain industry growth in the U.S. by lessening the burden on businesses to figure out relevant tax laws. In Emmer’s own words, “taxpayers can only comply with the law when the law is clear.”

Worth noting is that The Safe Harbor bill is not intended to eliminate taxes on a hard forked blockchain. Instead, the bill aims to provide a safe harbor to investors who don’t properly account for a hard fork in calculating their tax returns.

As previously reported by Cointelegraph, Congressman Emmer also recently reintroduced the bill to “provide a safe harbor from licensing and registration for certain non-controlling blockchain developers and providers of blockchain services” in January.

In April, Congress representatives Warren Davidson and Darren Soto — a co-sponsor of the foregoing licensing and registration bill — moved to reintroduce the Token Taxonomy Act. This bill would exclude cryptocurrencies from security regulations, and would similarly aim to simultaneously clarify and simplify regulatory compliance for blockchain-based businesses.

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New York Attorney General Fights Dismissal Motion in Bitfinex, Tether Case

The office of the New York Attorney General has filed a memorandum arguing that its case against Bitfinex and Tether should proceed.

The office of the New York Attorney General (OAG) has claimed that crypto exchange Bitfinex and stablecoin firm Tether have been operating in New York into 2019, according to official documents filed in the New York State Courts on June 8.

The OAG has submitted these documents to fight Bitfinex and Tether’s motion to dismiss the case, a motion filed in May. The defendants argued that the case should be thrown out because they were not operating their businesses in New York. They noted that the OAG had appealed to the Martin Act in bringing their case against the defendants, which is a securities and commodities law specific to New York State.

In yesterdays string of filings, the OAG submitted almost 30 documents that allegedly demonstrate that the defendants have, in fact, been operating in New York.

In an affirmation against the case dismissal, Assistant Attorney General Brian Whitehurst discussed the details of the exhibit documents, some of which have been redacted. Some of these documents purport to show that the defendants have been in business in New York all the way up to 2019. Whitehurst writes:

“The OAG’s investigation has determined that in January 2019, Bitfinex opened a trading account with a New York-based virtual currency trading firm. Compiled at Exhibit R are redacted versions of email communications between this firm and Respondents from January 2019. These documents do not appear to have been produced to the OAG by Respondents following the Court’s order directing production of materials relevant to personal jurisdiction.”

Whitehurst also filed an official memorandum entitled “Memorandum of Law in Opposition to Respondents’ Motion to Dismiss and For an Immediate Stay” with a full argument against the motion. 

In this document, Whitehurst writes that the OAG has shown twice that the Martin Act is applicable to the case, saying that the defendants’ “ties to New York are many and deep.”

As previously reported by Cointelegraph, on July 8 Bitfinex announced that it used 27% of its Tokinex revenue to burn LEO tokens. The aforementioned memorandum also mentions this recent event in order to demonstrate that the current proceeding is not disruptive to Bitfinex business, and that they in fact appear to be seeing considerable success.

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Official: Russia to Postpone Adoption of Bill on Digital Currencies

Russia’s parliament, the State Duma, may defer the adoption of the country’s major crypto bill “On Digital Financial Assets” until autumn.

Russia’s parliament, the State Duma, may defer the adoption of the country’s major crypto bill “On Digital Financial Assets” (DFA) until the autumn session, local news outlet TASS reported on July 9.

The Duma is considering shifting the adoption of the DFA bill to the autumn session, while the representatives have largely agreed on a bill on crowdfunding, according to the chairman of the State Duma Committee on Financial Markets, Anatoly Aksakov.

Aksakov further explained that officials have not been able to reach a common position on the fate of digital currencies in Russia.

“The law on the DFA is set to decide whether we will prohibit cryptocurrencies as a medium of exchange in Russian legislation, meaning that there will be no exchange points nor exchanges that work with cryptocurrencies. We have not yet reached consensus on the issue. We need to define what cryptocurrency is at the legislative level. Then there is a fork in the road: we either prohibit organizing infrastructure for the purchase and sale of cryptocurrencies in Russia, or allow it.”

Initially, the country’s parliament planned to adopt the law at the end of June. At the time, Russia’s deputy finance minister, Alexei Moiseev revealed that the authorities had approved separate legislation for initial coin offerings (ICOs), which will be a part of Russia’s law on crowdfunding.

Previously, Russia had already postponed the adoption of crypto legislation due to a requirement from the Financial Action Task Force on Money Laundering (FATF) in late May. The FATF then ordered Russian lawmakers to expand the terminology of the federal bill on the regulation of crypto assets, requiring that the country legislate major industry terms such as cryptocurrencies and Bitcoin (BTC).

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Craig Wright Uses Falsified Docs to Prove Innocence in Kleiman Case

Trial lawyer Stephen Palley has pointed out apparent evidence of fabrication in Craig Wright’s court documents in Kleiman case.

Self-proclaimed Bitcoin (BTC) creator Craig Wright has allegedly provided fabricated court documents to prove a trust deed with his plaintiffs, as seen from documents revealed by trial lawyer Stephen Palley on Twitter on July 3.

According to Palley, the self-styled Satoshi Nakamoto has failed to prove his case by presenting court documents that Palley alleges to be fake, as they contain multiple chronological discrepancies.

Among the exhibits filed with the District Court for the Florida Southern District on July 3, there is a document submitted as proof of cooperation between Wright and the now-deceased David Kleiman, whose lawyers filed the case against Wright in February 2018. Kleiman’s lawyers accuse Wright of stealing hundreds of thousands of Bitcoin — at press time valued at over $5 billion — after Kleiman’s death in April 2013.

While the presented deed of trust document is ostensibly dated Oct. 23, 2012, the metadata of the file indicates that the document was actually created after the death of Kleiman, as Palley found. The trust document apparently uses a 2015 copyright notice related to Calibri, the Microsoft Word font, indicating that the document could not be from earlier.

Alleged falsification of trust deed documents by Craig Wright

Alleged falsification of trust deed documents by Craig Wright. Source: Stephen Palley

Following the apparent accusation of Wright for forging the court documents, Palley wrote:

“I mean it makes sense that the inventor of bitcoin can time travel.  Your honor.”

In late June, Wright declared that he cannot comply with a court order to provide a list of all his early bitcoin addresses, claiming that he gave a key piece of information regarding the funds and wallets to Kleiman before his death.