A number of American CeFi companies are caught up in legal disputes, and their outcomes can be life-changing for millions of their clients. CeFi stands for Centralized Finance, i.e. traditionally structured firms that work with crypto: exchanges, lenders, brokers… Unlike DeFi (Decentralized Finance), CeFi companies’ cash flows are managed by people, and not by code, which can lead to an array of interesting (and sometimes legally dubious) situations.
Digital Currency Group
The latest scandal is unfolding around the Digital Currency Group, an American conglomerate including a popular media outlet Coindesk, Bitcoin miner Foundry, and world’s biggest crypto asset manager Grayscale.
Last week, Bloomberg reported that the group was under investigation by the DOJ and the SEC. The authorities were reportedly interested in the internal transfers between the DCG and Genesis, its subsidiary crypto lending company.
Genesis halted withdrawals back in November due to liquidity issues: it was hit by the collapse of the hedge fund Three Arrows Capital and the subsequent crash of FTX. DCG pledged to inject over $1.1 billion in order to make Genesis clients whole, but so far no action has been taken.
This situation could have stayed unnoticed, were it not for Gemini, an exchange that claimed its Earn program clients were owed $900 million by Genesis. The exchange’s co-founder Cameron Winklevoss accused the DCG founder Barry Silbert of “bad faith stall tactics” and “defrauding” 340’000 of Gemini’s clients.
FTX
FTX’s former CEO Sam Bankman-Fried has pled not guilty to all eight counts of his criminal charges: conspiracy to commit wire fraud on customers, wire fraud on customers, conspiracy to commit wire fraud on lenders, wire fraud on lenders, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and conspiracy to defraud the United States and violate the campaign finance laws.
Should he be convicted, the crypto industry’s former prodigy could get 115 years of prison. The perspective is far from enticing, and SBF is desperately trying to avoid it... so desperately, in fact, that he might end up harming his case.
SBF has been attempting to access his shares of Robinhood worth over $460 million. The shares were bought via a company 90% owned by SBF, and which had borrowed money from Alameda Research, accused of gambling away FTX clients’ funds.
Despite the situation’s compromising aspect, SBF tried to prove that he needed this money more than FTX’s clients, arguing that “financial inability to defend oneself has serious consequences, and is irreparable”, while “the FTX debtors face only the possibility of economic loss”. This statement did not gain him any friends, and the crypto Twitter exploded with outrage.
BlockFi
Crypto lender BlockFi is also trying to gain access to SBF’s Robinhood shares. The company, badly hurt by the Terra collapse, breathed a sigh of relief last July, when FTX US promised it a $400 million revolving credit facility. The deal did not hold, and BlockFi was forced to file bankruptcy.
Voyager Digital
Voyageur Digital, another bankrupt company, is sorting out a legal problem of its own. After the FTX’s buyout deal went bust, the company has been trying to move forward with a $1.02 billion offer from Binance US, while the SEC objected to it, doubting Binance US’ capacity to “consummate a transaction of this magnitude”.
Binance
Binance US could not stay out of the authorities’ radar neither. It has been under investigation by the DOJ since 2018 for alleged money laundering and evading sanctions. Last month, Reuters reported that the prosecutors were ready to file charges, but the exchange argued that criminal prosecution would shake the already unstable crypto markets and asked for a plea deal.
The US authorities do have an increased interest in CeFi companies, especially after the melodramatic crash of FTX. However, these inquiries do not seem to influence the crypto markets much.
Last week it became known that traditional finance giant BlackRock ($10 trillion of assets under management) started to add Bitcoin-based products to its $18.5 billion Global Allocation Fund, mentioning in its filing “cash-settled Bitcoin futures that are traded on commodity exchanges”.
The news might have woken up the stagnant Bitcoin price, which has risen 4% since last week, and even the troubled Grayscale Bitcoin Trust shares, which were traded with a record 50% discount in December, have since surged 12%.
Written by D.Center
