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• U.S. Central Bank Launches Instant Payment Service • GAO Report Recommends Legislative Action for Oversight of Crypto Assets • SEC, CFTC and DOJ Continue Cryptocurrency Enforcement Actions • Hackers Attack Centralized Crypto Platforms and DeFi Protocols

U.S. Central Bank Launches Instant Payment Service

By <a href="https://www.bakerlaw.com/RobertAMusiala">Robert A. Musiala Jr.</a>

A recent press release by the U.S. central bank announced that “its new system for instant payments, the FedNow® Service, is now live.” According to the press release, “Banks and credit unions of all sizes can sign up and use this tool to instantly transfer money for their customers, any time of the day, on any day of the year.” The launch of the service will begin with 35 “early-adopting banks and credit unions” and 16 service providers to support payment processing. In a related announcement, the U.S. central bank stated that “The FedNow Service is not related to a digital currency” and further noted that it “has made no decision on issuing a central bank digital currency (CBDC) and would only proceed with the issuance of a CBDC with an authorizing law.”

For more information, please refer to the following links:

<a href="https://www.federalreserve.gov/newsevents/pressreleases/other20230720a.htm">Federal Reserve announces that its new system for instant payments, the FedNow® Service, is now live</a>

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<a href="https://www.federalreserve.gov/faqs/is-fednow-replacing-cash-is-it-a-central-bank-digital-currency.htm">Is the FedNow Service replacing cash? Is it a central bank digital currency?</a>

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GAO Report Recommends Legislative Action for Oversight of Crypto Assets

By <a href="https://www.bakerlaw.com/RobertAMusiala">Robert A. Musiala Jr.</a>

The U.S. Government Accountability Office (GAO) recently issued a report titled Blockchain in Finance: Legislative and Regulatory Actions Are Needed to Ensure Comprehensive Oversight of Crypto Assets. The GAO report “examines regulatory gaps and coordination” in regulating “blockchain-related financial products and services.” Among other things, the GAO report “recommends Congress consider legislation for federal oversight of nonsecurity crypto asset spot markets and stablecoins.” According to the report, “No federal financial regulator has comprehensive authority to regulate the spot market for crypto assets that are not securities … By providing for more comprehensive oversight of [crypto asset trading] platforms, Congress could better ensure users’ protection from unfair and manipulative trading practices.”

Additionally, the report finds that “Gaps in regulatory authority exist in the oversight of stablecoins” and that “issuers often state their stablecoins are backed by reserve assets. But no uniform standards exist for reserve levels and risks or for public disclosure of reserves.” According to the report, “By providing for consistent and comprehensive oversight of stablecoins, Congress could better ensure protections for consumers, investors, and the financial system.”

The report also notes that “Regulators lack an ongoing coordination mechanism for addressing blockchain risks in a timely manner” and states that “A formal coordination mechanism for addressing blockchain-related risks, which could establish processes or time frames for responding to risks, could help federal financial regulators collectively identify risks and develop timely and appropriate responses.” The report recommends that seven specific federal financial regulators “jointly establish or adapt an existing formal coordination mechanism … for collectively identifying risks posed by blockchain-related products and services and formulating a timely regulatory response.”

<a href="https://www.gao.gov/products/gao-23-105346?utm_source=twitter&amp;utm_medium=social&amp;utm_campaign=video">GAO: Blockchain in Finance: Legislative and Regulatory Actions Are Needed to Ensure Comprehensive Oversight of Crypto Assets</a>

<a href="https://www.gao.gov/assets/gao-23-105346-highlights.pdf">GAO Highlights: Legislative and Regulatory Actions Are Needed to Ensure Comprehensive Oversight of Crypto Assets</a>

<a href="https://www.gao.gov/assets/gao-23-105346.pdf">GAO Report: GAO: Blockchain in Finance: Legislative and Regulatory Actions Are Needed to Ensure Comprehensive Oversight of Crypto Assets</a>

SEC, CFTC and DOJ Continue Cryptocurrency Enforcement Actions

By <a href="https://www.bakerlaw.com/ChristopherLamb">Christopher Lamb</a><a href="https://www.bakerlaw.com/VeronicaReynolds"></a>

A recent press release by the U.S. Securities and Exchange Commission (SEC) announced charges against a California-based company, Quantstamp, Inc., for “conducting an unregistered initial coin offering (ICO) of crypto asset securities” in October and November 2017. According to the order, the company raised over $28 million by selling “QSP” tokens to approximately 5,000 investors and planned to use the funds from the ICO to “develop and market an automated smart contract security auditing platform.” Among other things, the order alleges the company “emphasized the large market,” “led QSP purchasers to expect that the value … would increase” and “took steps to make the token available for trading on third-party digital asset trading platforms after the ICO.” According to the press release, “Quantstamp agreed to a cease-and-desist order and to pay disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil penalty of $1 million.”

Another recent press release by the Commodity Futures Trading Commission (CFTC) announced that the CFTC has filed a complaint against two individuals from Tennessee for “defrauding over 100 people across the U.S. and failing to register with the CFTC in connection with a multi-million-dollar commodity pool scheme.” The CFTC’s complaint alleges that the defendants “contacted colleagues and customers of their real estate business and offered them the opportunity to pool funds with others to trade digital asset commodity futures contracts.” According to the press release, “the CFTC seeks restitution to defrauded pool participants, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.”

In a recent speech, Principal Deputy Assistant Attorney General Nicole M. Argentieri announced that the U.S. Department of Justice (DOJ) National Cryptocurrency Enforcement Team (NCET) and Computer Crime and Intellectual Property Section (CCIPS) are merging into a “single office that consolidated the Criminal Division’s expertise in all aspects of fighting cybercrime.” According to the speech, the merger will more than double the number of DOJ attorneys available to work on criminal cryptocurrency matters and will “elevate[] cryptocurrency work within the Criminal Division by giving it equal status to computer crime and intellectual property work.” The merger will also “multiply” DOJ’s “ability to trace cryptocurrency, to charge cases involving the criminal use of cryptocurrency, and to seize legally forfeitable cryptocurrency.”

<a href="https://www.sec.gov/enforce/33-11215-s">SEC CHARGES QUANTSTAMP, INC. IN $28.35 MILLION INITIAL COIN OFFERING</a>

<a href="https://www.cftc.gov/PressRoom/PressReleases/8757-23">CFTC Charges Tennessee Husband and Wife Realtors for Operating a $6 Million Digital Assets Commodity Pool Scheme</a>

<a href="https://www.justice.gov/opa/speech/principal-deputy-assistant-attorney-general-nicole-m-argentieri-delivers-remarks-center">Principal Deputy Assistant Attorney General Nicole M. Argentieri Delivers Remarks at the Center for Strategic and International Studies</a>

Hackers Attack Centralized Crypto Platforms and DeFi Protocols

A recent hack targeted CoinsPaid, a cryptocurrency payments platform. The hackers reportedly stole $37.3 million from the platform. According to reports, CoinsPaid suspects that the attack was carried out by the Lazarus Group, a North Korean state-backed criminal organization.

In another recent hack, attackers stole 1,700 ETH (valued at approximately $3.6 million) from decentralized finance (DeFi) protocol Conic Finance. The attack was reportedly executed using a price manipulation technique referred to as “read-only reentrancy,” which effectively tricks a smart contract by making repeated calls to a protocol. According to reports, the root cause of the attack came from a smart contract that had not been part of a prior smart contract audit.

<a href="https://www.coindesk.com/tech/2023/07/21/defi-protocol-conic-finance-hacked-for-1700-ether/">DeFi Protocol Conic Finance Hacked for 1,700 Ether</a>

<a href="https://cointelegraph.com/news/eth-curve-omnipool-platform-conic-finance-hacked-for-3-2-million-in-eth">Curve omnipool platform Conic Finance hacked for $3.2 million in ETH</a>

<a href="https://cointelegraph.com/news/coinpaid-crypto-payments-suspect-lazarus-group-behind-hack">Crypto payment gateway CoinsPaid suspects Lazarus Group in $37M hack</a>

FedNow Instant Payments Service Launches; GAO Recommends Oversight of Crypto Assets; SEC, CFTC, DOJ Continue Crypto Enforcement; Hacks Continue