NFT Initiatives Launch; OFAC Adds Crypto Public Keys to SDN List; Treasury Dept. Publishes Crypto Reports; Crypto Enforcement and Hacks Continue

In this issue:

• Non-Fungible Marketing: Brands Continue to Launch NFTs
• OFAC Adds Crypto Public Keys to SDN List Related to Russian Group
• US Department of the Treasury Publishes Digital Asset Reports and RFC
• Republican Senator Criticizes SEC Approach to Crypto Markets
• DOJ and SEC Target Crypto Fraud and Unregistered ‘Crypto Asset Securities’
• Cryptocurrency Market Maker Suffers $160M DeFi Hack

Non-Fungible Marketing: Brands Continue to Launch NFTs

A South Korean technology company has reportedly launched a weeklong promotion in the metaverse. According to reports, the virtual events occurred across multiple platforms and the company’s own website, and participants had the option to join a scavenger hunt, enter an NFT sweepstakes, and attend live-streamed presentations featuring new products.

To mark its 75th anniversary, an American jean manufacturer reportedly teamed with a Grammy-winning soul singer to create and sell a hybrid NFT collection consisting of a one-of-a-kind custom outfit and a tokenized digital replica that can be “worn” in the metaverse. According to reports, this hybrid NFT was born out of a partnership with platform LTD.INC, which creates “ultra-rare physical and digital NFT collections for artists, creators and brands.”

In a final piece of NFT news, golf’s premier professional tour organization has reportedly teamed with NFT marketplace Autograph to create a dedicated NFT platform. Similar to other sports organizations that have launched NFT marketplaces, the golf organization’s platform will reportedly offer digital content created from the organization’s archives of videos and player data. According to the organization, all revenue generated from the platform, which is set to launch in 2023, will go to the players.

For more information, please refer to the following links:

OFAC Adds Crypto Public Keys to SDN List Related to Russian Group

Last week the U.S. Department of the Treasury’s (Treasury) Office of Foreign Assets Control (OFAC) sanctioned 22 individuals and two entities in connection with Russia’s invasion of Ukraine, adding the individuals and entities to OFAC’s Specially Designated Nationals (SDN) List. According to a press release, several of the sanctioned individuals are responsible for furthering the Russian Federation’s objectives in Ukraine, both prior to and during Russia’s latest invasion of Ukraine in 2022. Among the entities sanctioned is Task Force Rusich, a neo-Nazi paramilitary group that has participated in combat with Russia’s military in Ukraine; in addition to sanctioning the group, OFAC added five associated cryptocurrency addresses to OFAC’s SDN List. The Treasury announcement noted that the actions come as part of a united international front to isolate Russia’s financial systems and counter any Russian attempts to evade sanctions.

For more information, please refer to the following links:

US Department of the Treasury Publishes Digital Asset Reports and RFC

Last week the U.S. Department of the Treasury (Treasury) published three reports pursuant to President Joe Biden’s Executive Order on Ensuring Responsible Development of Digital Assets. The reports address the future of money and payment systems, consumer and investor protection, and illicit finance risks. According to a statement by Secretary of the Treasury Janet L. Yellen, the reports “provide a strong foundation for policymakers as we work to realize the potential benefits of digital assets and to mitigate and minimize the risks.” The BakerHostetler Blockchain and Digital Assets team will publish alerts analyzing each of the three reports over the course of the coming weeks.

Also last week, pursuant to the same executive order, Treasury filed a Request for Comment (RFC) seeking “feedback from the American people on the illicit finance and national security risks posed by digital assets.” The RFC asks for input on issues related to digital assets in the areas of illicit finance risks, anti-money laundering (AML) and counter-terrorist financing (CFT) regulation and supervision, global implementation of AML/CFT standards, private sector engagement and AML/CFT solutions, and central bank digital currencies. The RFC will be open for comment through Nov. 3, 2022.

For more information, please refer to the following links:

Republican Senator Criticizes SEC Approach to Crypto Markets

Last week, U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) published his opening statement from a recent hearing with U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler in which the senator said that “the SEC has failed to provide consumers and innovators alike with much-needed regulatory clarity when it comes to digital assets, prompting the need for Congress to step in.” Among other things, Toomey criticized the SEC for failing to take action to prevent the recent bankruptcies of Celsius and Voyager, saying, “The SEC took enforcement action against BlockFi for similar activities last winter, yet somehow … Celsius and Voyager continued through this spring, when both companies blew up and found themselves in bankruptcy, with investors staring at billions in losses.” Toomey also criticized Gensler’s recent remarks suggesting that “many crypto intermediaries … are transacting in securities and have to register with the SEC.” According to Toomey, “Given the novel nature of these tokens, Congress ought to step in to provide clarity. In particular, we need to revisit the definition of ‘security’ as part of a larger effort to tailor a regulatory framework that is calibrated to the unique risks and activities of the crypto market.”

For more information, please refer to the following link:

DOJ and SEC Target Crypto Fraud and Unregistered ‘Crypto Asset Securities’

A recent press release from the U.S. Department of Justice (DOJ) announced that a cryptocurrency fraudster was sentenced to 42 months in prison for devising a fraudulent investment scheme that took in more than $600,000 from 60 victims. According to the press release, the fraudster convinced victims to loan money to his organization, World Sports Alliance, based on a purported connection to the United Nations and for the promise of investment returns related to a digital currency called IGObit.

Another recent DOJ press release announced the guilty plea of an individual accused of laundering and transmitting the proceeds of Ponzi-type investment fraud schemes based out of Nigeria. According to the press release, the schemes involved the offer of trading and bitcoin investing services in a Ponzi-like fraud. The defendant reportedly laundered the fraud proceeds through a network of co-conspirators in the United States, and used his personal and business accounts in the United States and Nigeria.

Another Ponzi-type fraud was targeted by the U.S. Securities and Exchange Commission (SEC), which recently announced an action against an individual and his affiliated companies for fraudulently raising and misappropriating funds from investors. The defendant and his companies are alleged to have fraudulently offered and sold securities using false and misleading statements to raise approximately $4.3 million, telling investors that the funds would be invested in digital assets. According to the press release, only a fraction of those funds were invested in digital assets and the defendant made early repayments to investors in a Ponzi-like fashion to attract more investments.

This week the SEC also issued a cease-and-desist order against Sparkster Ltd. and its chief executive officer for the alleged unregistered offer and sale of “crypto asset securities.” The SEC also charged a crypto influencer for failing to disclose compensation he received from the company for promoting the company’s SPRK tokens and for failing to file a registration statement with the SEC for tokens he resold. The order finds that the SPRK tokens, as offered and sold, were securities that were neither registered with the SEC nor exempt from registration. The company and its CEO settled and agreed to collectively pay in excess of $35 million into a fund for distribution to harmed investors, according to the press release.

For more information, please refer to the following links:

Cryptocurrency Market Maker Suffers $160M DeFi Hack

Early this week, cryptocurrency market maker Wintermute suffered a $160M hack on the wallet the company uses for DeFi proprietary trading, tweeted the company’s founder and CEO, Evgeny Gaevoy. Gaevoy noted that the DeFi wallet was “completely separate and independent” from Wintermute’s CeFi and OTC operations. He also stated that Wintermute remains solvent, with “twice over” $160 million remaining in equity, and any disruption to services will be resolved within days. The Wintermute attack is just the latest in a number of high-profile hacks to crypto platforms this year. In August, for example, millions’ worth of crypto was stolen from Solana wallets; and Nomad, a crypto bridge company that allows users to transfer tokens between blockchains, suffered an attack in which $190M worth of crypto was reportedly drained.

For more information, please refer to the following links: