Sebastian Sinclair

Coinbase’s settlement with regulators on Wednesday has marked the industry’s largest in almost a year and one of the largest to date.



The New York State Department of Financial Services (NYDFS) found the exchange <a href="https://blockworks.co/news/coinbase-stock-up-after-settlement">violated anti-money laundering</a> laws in 2018 and 2019 by allowing customers to open accounts without complete background checks.



As such, Coinbase has agreed to pay a $50 million fine as well as a further $50 million that will go towards its compliance practices, per the agreement laid out in the settlement.



Coinbase’s latest regulatory snafu follows a previous <a href="https://www.cftc.gov/PressRoom/PressReleases/8369-21" target="_blank" rel="noreferrer noopener">$6.5 million settlement</a> in a civil penalty with the Commodities and Futures Trading Commission in March 2021. 



The exchange was accused of delivering false, misleading, or inaccurate reports relating to transactions on a trading platform it operated known as GDAX.



The settlement amount is similar to NYDFS previous money laundering-related fines of financial giants such as Deutsche Bank (<a href="https://www.dfs.ny.gov/system/files/documents/2020/07/ea20200706_deutsche_bank_consent_order.pdf" target="_blank" rel="noreferrer noopener">$150 million</a> in 2020) and Wells Fargo (<a href="https://www.latimes.com/business/la-fi-wells-fargo-new-york-fine-20181022-story.html" target="_blank" rel="noreferrer noopener">$65 million</a> in 2018).



What follows is a roundup of the industry’s most significant settlements with US regulators in relation to dollar amounts and terms laid out in the legal agreements stretching back to 2019.



<h3>BlockFi Fined $100 Million over interest-bearing products</h3>



In February of last year, now-bankrupt crypto lender <a href="https://blockworks.co/news/crypto-lender-blockfi-to-pay-100m-in-fines-to-us-regulators">BlockFi was ordered to pay $50 million</a> in fines to the Securities and Exchange Commission and a further $50 million to various state regulators.



It was alleged at the time the lender had illegally offered a high-interest yield product, known as BlockFi Interest Account (BIA), which had allowed users to lend out their crypto for up to 9.25% in annual percentage yield.



US customers were prohibited from opening any new interest-yielding accounts, and existing accounts were converted to “BlockFi Yield” under an existing regulatory-compliant framework.



BlockFi later <a href="https://blockworks.co/news/blockfi-bankruptcy-highlights">filed for Chapter 11 bankruptcy</a> on Nov. 28 following the collapse of FTX.



<h3>Bitfinex parent pays $18.5 million over alleged $850 million cover-up</h3>



Roughly one year before BlockFi’s settlement, crypto exchange Bitfinex’s parent <a href="https://www.reuters.com/world/americas/bitfinex-tether-owner-pays-185-mln-fine-settle-nyag-cryptocurrency-cover-up-2021-02-23/" target="_blank" rel="noreferrer noopener">agreed to pay</a> an $18.5 million fine to the New York Attorney General&#8217;s office to settle charges it had engaged in a cover-up to hide the loss of hundreds of millions in client funds.



Hong Kong-based iFinex Inc, also the parent of stablecoin issuer Tether, was required to halt trading activity with New Yorkers as part of the deal.&nbsp;



Bitfinex was accused of having sent $850 million to Panama-based payments processor Crypto Capital Corp without first telling clients. After funds went missing, it was alleged the exchange siphoned $700 million from Tether’s stablecoin reserves to cover the shortfall.



As part of the agreement to settle, Bitfinex and Tether did not admit or deny wrongdoing.



In October, 2021, Tether <a href="https://blockworks.co/news/tether-settles-with-cftc-for-42-5m">settled with the CFTC for $42.5 million</a> over the agencies allegations that Tether misrepresented the reserves backing of USDT.



<h3>Block.One pays $24 million to settle charges over unregistered ICO</h3>



Block.One, the company behind the EOS cryptocurrency, reached a settlement with the Securities and Exchange Commission in October 2019, <a href="https://www.sec.gov/news/press-release/2019-202" target="_blank" rel="noreferrer noopener">agreeing to pay</a> a $24 million fine for conducting an unregistered securities sale



Its initial coin offering of 900 million EOS tokens first began way back in June 2017, and is considered the largest ICO in history, having raised some $4.1 billion.



As per the legal agreement, Block.One later settled the charges without admitting or denying the findings by the federal regulator.



<h3>Telegram fined $18.5 million, forced to repay $1.2 billion from ICO sale</h3>



Also in October 2019, the SEC filed a complaint against the parent of social media platform Telegram, alleging the company raised more than $1.2 billion from the illegal securities sale of 2.9 billion Grams — a proposed utility token.



At the time, the SEC alleged Grams had been sold via an initial coin offering to some 171 initial purchasers around the globe and sought to restrain Telegram from any further sales.&nbsp;



The US Southern District Court of New York later agreed with the SEC’s findings in March 2020 and issued an injunction barring any further sale of Grams. Without admitting or denying the allegations, Telegram agreed to pay $18.5 million in a civil penalty.



Up until last year, Telegram was also required to notify the SEC before embarking on any further issuance of digital assets. Telegram was also forced to repay the $1.2 billion back to investors.



Although Telegram was prohibited from pursuing its centralized blockchain development plans, the underling open-source code was used to launch <a href="https://blockworks.co/news/ton-standout-in-rocky-crypto-markets">the community-driven TON project</a>. The team behind Telegram’s Messenger app is now building upon the same technology it previously developed in-house.



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Coinbase’s $100M Settlement, Largest Since BlockFi

Shalini Nagarajan

<div id="highlights-block_62c53fa4831b6" class="highlights">
 <ul>
 <li>Bullish delayed its plan to go public via a merger, pushing back the deal&#8217;s termination date to December</li>
 <li>Investors including Block.one, Peter Thiel and Alan Howard together injected $10 billion in funding the exchange last year</li>
 </ul>
 
</div>



Peter Thiel-backed cryptocurrency exchange Bullish is yet another firm dealing with pressure stemming from the crypto market liquidity drought.



The Gibraltar-registered company has laid off less than 30 employees, <a href="https://www.theblock.co/post/155859/bullish-com-cuts-jobs-crypto-exchange" target="_blank" rel="noreferrer noopener">The Block</a> reported on Tuesday, citing a source familiar with the matter. The exchange employs more than 395 people, according to its <a href="https://bullish.com/about-us/" target="_blank" rel="noreferrer noopener">website</a>, meaning that the layoffs represent a 7% cut to its workforce.



A company spokesperson confirmed the job cuts according to the report, adding that Bullish is still hiring for product, engineering and other strategic roles.



The downturn in cryptocurrency markets has led to a <a href="https://cms.blockworks.co/crypto-industry-layoffs-may-have-unintended-consequences/" target="_blank" rel="noreferrer noopener">series</a> of firms cutting back on expenses or letting go of employees, including <a href="https://cms.blockworks.co/coinbase-latest-crypto-firm-to-cut-costs-amid-market-downturn/" target="_blank" rel="noreferrer noopener">Coinbase</a>, <a href="https://cms.blockworks.co/cryptocurrency-lender-blockfi-set-to-cut-staff-by-a-fifth/" target="_blank" rel="noreferrer noopener">BlockFi</a>, <a href="https://cms.blockworks.co/crypto-com-cutting-5-of-workforce-amid-digital-asset-downturn/" target="_blank" rel="noreferrer noopener">Crypto.com</a>, <a href="https://cms.blockworks.co/coinbase-backed-vauld-cuts-workforce-by-30-seeks-to-halve-exec-pay/" target="_blank" rel="noreferrer noopener">Vauld</a>, <a href="https://cms.blockworks.co/gemini-joins-growing-list-of-crypto-exchanges-cutting-staff-amid-downturn/" target="_blank" rel="noreferrer noopener">Gemini</a> and <a href="https://cms.blockworks.co/cosmos-developer-ignite-sees-mass-exodus-and-layoffs-as-ceo-exits/" target="_blank" rel="noreferrer noopener">Ignite</a>. Some commentators expect market volatility and ensuing financial challenges to continue for the foreseeable future.



“I think there probably is some meaningful pain in the short term,” Noah Hamman, CEO of AdvisorShares, told Blockworks. “We think it will work itself out, but some companies won&#8217;t make it through. But then we feel it&#8217;s almost like a refresh…a little bit cleansing,” he added.



Bullish, a unit of blockchain software firm Block.one, has offices in Hong Kong, New York, Washington DC, Virginia, Singapore, Gibraltar and the Cayman Islands.&nbsp;



The exchange, launched in 2021 with <a href="https://bullish.com/news/press-releases/launch-of-new-cryptocurrency-exchange-bullish/" target="_blank" rel="noreferrer noopener">$10 billion</a> in funding, originally targeted only institutional investors. But it later expanded services, including automated market making, lending and portfolio management, to retail users. Among its backers are Peter Thiel’s Thiel Capital and Founders Fund, British hedge fund manager Alan Howard, Galaxy Digital and Japanese investment bank Nomura.



In July last year, Bullish said it planned to <a href="https://cms.blockworks.co/bullish-plans-to-go-public-through-spac-merger/" target="_blank" rel="noreferrer noopener">go public</a> via a merger with Far Peak Acquisition Corporation, a special-purpose acquisition company (SPAC). That deal hasn’t closed yet, and the termination date was recently <a href="https://bullish.com/news/press-releases/bullish-and-far-peak-acquisition-corp-announce-extension-of-outside-date-for-business-combination-june-2022/" target="_blank" rel="noreferrer noopener">extended</a> to Dec. 31, 2022. Bullish said it paid Far Peak an extension fee of $2.5 million and expects the deal to close in the third quarter this year.



If the deal goes through as intended, Bullish will become a publicly-listed company and will trade on the New York Stock Exchange.



Bullish didn’t immediately return Blockworks’ request for comment.



This story has been edited to correct the number of employees laid off.



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Bullish Joins Rival Crypto Exchanges in Cutting Workforce: Report

Sam Reynolds

<div id="highlights-block_61a61d973642e" class="highlights">
 <ul>
 <li>Institutional exchange Bullish, backed by Peter Thiel and Galaxy Digital, launches in Gibraltar today as institutional interest in digital assets continues to climb</li>
 <li>The exchange launched with deep pools of crypto liquidity thanks to the backing from controversial EOS developer Block.one, and already plans to go public via a SPAC</li>
 </ul>
 
</div>



Bullish, an institutional exchange backed by some of the biggest names in traditional finance as well as Block.one of EOS fame, launched today in Gibraltar.



The exchange was <a href="https://cms.blockworks.co/biggest-names-in-macro-back-new-10b-digital-asset-exchange-bullish/" target="_blank" rel="noreferrer noopener">first announced</a> back in May and caught the attention of many, given the names attached to it like Peter Thiel, Galaxy Digital, global investment bank Nomura, and fund manager Alan Howard, as well as the significant capital commitment from Block.one in the form of 164,000 bitcoins, 20,000,000 EOS tokens, and $100 million in cash.



Gibraltar, not a well known destination for the digital assets industry, was chosen because the Gibraltar Financial Services Commission’s “principles-based approach” sets the outcomes that it intends to achieve, leaving the ‘how’ to achieve compliance up to the regulated firms,” said Anthony Smith, the exchange’s head of compliance.&nbsp;&nbsp;



Bullish is unique insofar as it integrates its own internal automated market-makers (AMM), a defining aspect of decentralized exchanges, but will do so in a regulated environment. In a release, Bullish said that it is initially making available $3 billion of its over $10 billion on the balance sheet to its liquidity pools.



“What sets us apart is that the Bullish exchange is designed to integrate a regulated and compliant exchange, operating a high-performance central-limit-order-book matching engine. This is combined with Decentralized Finance (DeFi)-derived liquidity pools to enable automated market-making (AMM) capabilities and yield earning opportunities,” Michael Lau, Head of Institutional Clients, told Blockworks via email. 



In the future, Bullish users will be able to stake their assets via Bullish Earn to provide liquidity to the exchange’s AMM in exchange for yield. However, no details on the staking and yield arrangement have been released.&nbsp;



Lau added that Bullish plans to draw materially on its own digital assets and dollars to facilitate liquidity, something that many decentralized and centralized exchanges would find “hard to replicate” simply because they don’t have the war chest.&nbsp;



For now, Bullish is only available to non-US residents, and it doesn’t have a timeline as to when that will change. The exchange isn’t providing a full list of its institutional customers yet, but says that a non-U.S. affiliate of Virtu Financial and Hong Kong based liquidity provider <a href="https://cms.blockworks.co/amber-group-raises-100-million-series-b-as-defi-booms/" target="_blank" rel="noreferrer noopener">Amber Group</a> are among the first to be onboarded.



<figure class="wp-block-image size-large"><img decoding="async" src="https://cms.blockworks.co/wp-content/uploads/2021/11/shutterstock_1073747786-1024x537-1.jpg" alt="Gibraltar" class="wp-image-11918"/><figcaption>Gibraltar; Source: Shutterstock</figcaption></figure>



<h3>The EOS legacy</h3>



Despite having some of the biggest names in TradFi attached to the project, many industry observers are skeptical of Bullish given its connections to EOS and Block.one. Block.one launched EOS in 2016 as an ‘Ethereum Killer’ and raised approximately $4 billion via an ICO in 2018. But despite the impressive funds available to it, EOS has never really gone anywhere. None of the major DeFi protocols listed on <a href="https://defipulse.com/" target="_blank" rel="noreferrer noopener">DeFi Pulse</a> are on the chain, and there’s only one Dapp based on EOS — a game called UpLand — on DappRadar’s top-25 list. In the era of Solana and Polkadot, EOS just isn’t a competitive proposition.



This mega-ICO attracted the attention of regulators, and the SEC <a href="https://www.sec.gov/news/press-release/2019-202" target="_blank" rel="noreferrer noopener">fined</a> Block.one in 2019, the company behind EOS, $24 million for selling unlicensed securities.



That’s not the only negative attention EOS has gotten in recent history. In August, forensic financial analysis firm <a href="https://www.integrafec.com/post/eos-ico" target="_blank" rel="noreferrer noopener">Integra FEC</a>, posted a 14-page paper levelling some serious allegations that the EOS ICO was “pumped up” from wash trading. The paper identifies 21 wallets that during the ICO made whale-sized purchases of EOS and then dumped them on exchanges less than an hour later, a process the paper identifies as “recycling.” For its part, Block.one commissioned the law firm Clifford Chance LLP to test the Integra FEC claims. With help from PwC, Clifford Chance LLP said that it “found no evidence of any arrangements between Block.one and third parties by which third parties bought tokens on Block.one’s behalf.”



Meanwhile, token holders were disappointed both by the regulatory scrutiny on Block.one and the underperformance of EOS. The Crypto Assets Opportunity Fund (CAOF), along with investor Johnny Hong, had accused Block.one of failing to sufficiently decentralize EOS and not due proper legal due diligence in the process of launching the EOS crowd sale in order to &#8220;capitalize on the investor fervor for cryptocurrencies.&#8221; The resulting class action lawsuit <a href="https://b1.com/press/announces-settlement-of-class-action-lawsuit/?utm_source=twitter&amp;utm_medium=social&amp;utm_campaign=corporate_news&amp;utm_content=settlement" target="_blank" rel="noreferrer noopener">was settled in June 2021</a> for $27.5 million.&nbsp;



<h3>Is a SPAC’ed Bullish another crypto macro proxy?</h3>



Bullish <a href="https://cms.blockworks.co/bullish-plans-to-go-public-through-spac-merger/" target="_blank" rel="noreferrer noopener">previously announced</a> its intention to go public through a SPAC back in July. This was a surprising move considering that the exchange had yet to launch. Sam Bankman-Fried, FTX’s founder and CEO, suggested that one reason why there was an expedited push for a SPAC despite Bullish being nothing more than a website, at the time: the market wants listed macro proxies for crypto more than it wants another exchange.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">15) But anyway, maybe this is all besides the point. Bullish seems to be comparing itself to Bakkt and Coinbase, but maybe that&#39;s not really what it is. Maybe Bullish is really another MicroStrategy.&mdash; SBF (@SBF_FTX) <a href="https://twitter.com/SBF_FTX/status/1413688840489816065?ref_src=twsrc%5Etfw">July 10, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Bankman-Fried (admittedly, a Bullish competitor) concluded, after reviewing the exchange’s pitch deck, that their fees are higher than what the market can support, and their growth projections are optimistic. Still, the value of Bullish’s holdings has increased to nearly $9 billion since this SBF summer tweet, plus $6 billion in additional crypto assets could make for an interesting listed crypto play for investors that can only hold listed companies, and are willing to pay a premium for them.



“Maybe Bullish is really another MicroStrategy,” rather than a competitor to Coinbase or Bakkt, SBF concluded. That may be the reason why so many significant players in TradFi are lending their names to the project despite the EOS albatross.



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