Shalini Nagarajan

Singapore&#8217;s central bank has issued prohibition orders against Su Zhu and Kyle Davies, founders of the now-defunct cryptocurrency hedge fund, Three Arrows Capital.



The legal directives, effective as of Sept. 13, prevent the founders from participating in any regulated activity via management, directorship or becoming substantial shareholders of a capital market services firm under Singapore&#8217;s securities regulations.



The Monetary Authority of Singapore <a href="https://www.sgpc.gov.sg/api/file/getfile/MAS%20Media%20Release%20-%20MAS%20issues%20Prohibition%20Orders%20against%20Three%20Arrows%20Capital%20Zhu%20Su%20and%20Kyle%20Livingston%20Davies.pdf?path=/sgpcmedia/media_releases/mas/press_release/P-20230914-1/attachment/MAS%20Media%20Release%20-%20MAS%20issues%20Prohibition%20Orders%20against%20Three%20Arrows%20Capital%20Zhu%20Su%20and%20Kyle%20Livingston%20Davies.pdf">issued</a> the prohibition order on Wednesday, citing its <a href="https://blockworks.co/news/three-arrows-capital-misled-regulators-singapore-mas">June reprimand</a> and further findings regarding the company&#8217;s evasion of local regulations.



If Zhu and Davies fail to comply with the orders, they could be subjected to a fine of up to $150,000, a maximum of two years in prison, or both, an MAS spokesperson told Blockworks.



Previously, MAS determined that <a href="https://blockworks.co/tag/3ac">3AC</a> misled regulators about the management of its offshore entity, which played a key role in much of its recent business activities.



Although 3AC is headquartered in Singapore, it is incorporated in the British Virgin Islands.



Upon conducting a more extensive inquiry into the company, MAS identified multiple violations committed by Three Arrows Capital between August 2020 and January 2022.&nbsp;



The violations included the firm&#8217;s neglect to promptly notify the regulator about the employment of Cheong Jun Yoong Arthur, who was tasked with carrying out fund management activities.



3AC misled MAS in January 2022, stating they hadn&#8217;t informed the regulator about Cheong&#8217;s employment due to his lack of involvement in regulated activities, according to the prohibition order.



Additionally, the firm allegedly lacked a risk management framework for overseeing cryptocurrency and digital asset investments.



The watchdog also revealed that Zhu and Davies, responsible for ensuring 3AC&#8217;s compliance with regulations, failed in their duties and were at fault for the company&#8217;s breaches.



“Senior management of fund managers are required to implement robust risk management measures to protect the interest of investors,” Loo Siew Yee, assistant managing director of payments and financial crime at MAS said in a statement.



“MAS takes a serious view of Mr. Zhu’s and Mr. Davies’ flagrant disregard of MAS’ regulatory requirements and dereliction of their directors’ duties. MAS will take action to weed out senior managers who commit such misconduct.”



After some time away following 3AC&#8217;s downfall, Zhu and Davies introduced a new venture called OPNX, in partnership with the founders of bankrupt exchange CoinFLEX.



OPNX&#8217;s objective was to facilitate the trading of bankruptcy claims for companies like Celsius and FTX.&nbsp; Shortly after its announcement however, Dubai&#8217;s crypto regulator <a href="https://blockworks.co/news/3ac-opnx-dubai-fine">imposed a hefty $2.7 million fine on OPNX for violations</a> related to marketing, advertising and promotional regulations.



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Singapore bans 3AC founders from conducting market activity for 9 years

<div id="highlights-block_62c6c20347ab6" class="highlights">
 <ul>
 <li>“Defendants made enormous profits through the sale of SOL securities to retail investors,” the plaintiff alleged</li>
 <li>The lawsuit paints SOL as a highly centralized cryptocurrency that has benefited company insiders</li>
 </ul>
 
</div>



A Solana investor has filed a class action <a href="https://storage.courtlistener.com/recap/gov.uscourts.cand.397697/gov.uscourts.cand.397697.1.0.pdf" target="_blank" rel="noreferrer noopener">lawsuit</a> against key parties in the Solana ecosystem for allegedly making misleading statements and profiting from selling unregistered securities to retail customers.



The plaintiff, Mark Young, filed the suit on July 1 against Solana Labs, Solana Foundation, Solana CEO <a href="https://cms.blockworks.co/tag/anatoly-yakovenko/" target="_blank" rel="noreferrer noopener">Anatoly Yakovenko</a>, crypto investment firm <a href="https://cms.blockworks.co/tag/multicoin-capital/" target="_blank" rel="noreferrer noopener">Multicoin Capital</a> and its co-founder Kyle Samani, as well as trading platform <a href="https://cms.blockworks.co/tag/falconx/" target="_blank" rel="noreferrer noopener">FalconX</a>.&nbsp;



“Defendants made enormous profits through the sale of solana (SOL) securities to retail investors in the United States, in violation of the registration provisions of federal and state securities laws, and the investors have suffered enormous losses,” Young, who said he bought SOL tokens in 2021, wrote. 



The lawsuit was filed on behalf of investors who purchased Solana tokens between March 24, 2020 and the filing date, he said.



Solana Labs and FalconX declined to comment. Multicoin Capital didn’t return Blockworks’ request for comment. Yakovenko and Samani could not be reached. 



Court documents show Young has alleged the defendants spent exorbitant sums to promote SOL in the US since April 2020, which supposedly boosted its price to $258 per token and market value to $77 billion as of Nov. 5, 2021.



“These promotional efforts took SOL securities from a relatively obscure crypto-asset to one of the top crypto-assets in the world,” Young wrote.



“Samani and Multicoin continuously flogged SOL securities, inflating its market price from below a dollar to hundreds of dollars, persisting in their promotional efforts even after it was clear that Solana had serious outages and technical issues,” he added, referring to multiple snafus over the past year, including an outage in September 2021 that <a href="https://cms.blockworks.co/solana-recovers-after-10-hour-outage/" target="_blank" rel="noreferrer noopener">lasted more than 10 hours</a>.



The plaintiff also said the defendants made misleading statements regarding the supply and the decentralized nature of SOL and claimed company insiders held a substantial percentage of tokens.



“As of May 2021, insiders held 48% of the SOL supply. The network is thus highly centralized,” Young claimed.



He alleged Yakovenko raised private funding in multiple rounds by selling SOL securities at low prices. And in one such “seed sale,” Solana sold “the future rights” to nearly 80 million SOL tokens for $3.17 million ($0.04 per token) in April 2018, the filing claims. It adds that the defendants chose to sell only a small percentage of its token supply (less than 2%) in its 2020 initial coin offering, which priced SOL tokens at $0.22, according to <a href="https://cryptorank.io/ico/solana" target="_blank" rel="noreferrer noopener">CryptoRank</a>.



“Defendants did this to ensure they had de facto control over the Solana blockchain and to artificially drive down the available supply of SOL securities through coordination amongst themselves,” the plaintiff wrote.



Young also said Multicoin profited from offloading millions of SOL tokens onto retail investors, while using over-the-counter (OTC) trading desks such as FalconX as a broker.



Solana’s SOL is down 78% so far this year and has fallen 12% in the last month to $36.85, data from <a href="https://www.blockworksresearch.com/assets/sol/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> shows. The token&#8217;s losses in June were spurred by blockchain <a href="https://cms.blockworks.co/solana-price-dips-after-another-network-outage/" target="_blank" rel="noreferrer noopener">downtime</a> that prevented transactions from being validated for over four hours.



Young’s case, filed in the Northern District of California, is represented by law firms Roche Freedman and Schneider Wallace.&nbsp;



Roche Freedman has filed numerous lawsuits against other cryptocurrency firms in the last year, including crypto exchanges <a href="https://www.prnewswire.com/news-releases/roche-freedman-llp-and-dontzin-nagy--fleissig-llp-bring-class-action-lawsuit-against-binance-us-for-engaging-in-unlawful-sales-of-ust-to-investors-301570669.html" target="_blank" rel="noreferrer noopener">Binance US</a> and <a href="https://www.prnewswire.com/news-releases/roche-freedman-llp-and-selendy--gay-pllc-allege-in-class-action-lawsuit-that-kucoin-illegally-made-eos-and-trx-available-for-trading-301427255.html" target="_blank" rel="noreferrer noopener">KuCoin</a>, alleging execution of illegal trades or violation of securities law in relation to tokens such as EOS, TRX and Terraform Labs&#8217; failed stablecoin UST.



In December, Roche Freedman also secured a <a href="https://cms.blockworks.co/verdict-in-craig-wright-civil-trial-100m-award-for-plaintiff-but-no-punitive-damages/" target="_blank" rel="noreferrer noopener">$100 million verdict</a> in a lawsuit against self-proclaimed Bitcoin creator Craig Wright.



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Solana Investor Sues Project Insiders, Claims Network Is ‘Highly Centralized’

Morgan Chittum

<div id="highlights-block_6221167ace99e" class="highlights">
 <ul>
 <li>The SEC is especially seeking information on fractional NFTs</li>
 <li>NFTs can be deemed securities if they pass the “Howey Test,” a regulatory standard used to determine if a transaction has an investment contract </li>
 </ul>
 
</div>



The SEC is investigating NFT creators and cryptocurrency exchanges over potential violations of securities law, according to <a href="https://www.bloomberg.com/news/articles/2022-03-02/sec-scrutinizes-nft-market-over-illegal-crypto-token-offerings" target="_blank" rel="noreferrer noopener">Bloomberg.</a>&nbsp;



The probe is looking into whether NFTs (non-fungible tokens) &#8220;are being utilized to raise money like traditional securities,” unnamed sources told the news outlet.&nbsp;



The federal agency is seeking information, in particular, on fractional NFTs — cryptoassets that have been divided or securitized, allowing many investors to own a fraction.



NFTs can be deemed securities if they pass the so-called “Howey Test,” a regulatory standard used to determine if a transaction has an &#8220;investment contract,” according to the SEC.



SEC Commissioner Hester Peirce may have previously signaled an inquiry during an interview with <a href="https://www.coindesk.com/policy/2021/12/30/sec-commissioner-hester-peirce-says-washington-doesnt-need-a-new-crypto-regulator/" target="_blank" rel="noreferrer noopener">Coindesk TV</a> last December.



“Given the breadth of the NFT landscape, certain pieces of it might fall within our jurisdiction,” Peirce said. “People need to be thinking about potential places where NFTs might run into the securities regulatory regime.”



<a href="https://cms.blockworks.co/investors-can-now-buy-home-equity-slices-via-fractionalized-nfts/" target="_blank" rel="noreferrer noopener">Qualifying as a security</a> and meeting regulatory requirements, however, have been points of uncertainty for crypto startups. A <a href="https://www.dandodiary.com/wp-content/uploads/sites/893/2021/06/Dapper-Labs-lawsuit-complaint.pdf" target="_blank" rel="noreferrer noopener">class action complaint</a> was filed last year against NFT creator Dapper Labs, alleging that some of the digital collectibles were acting as unregistered securities.



The SEC did not immediately respond to a request for comment.



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securities violations