Gibson Dunn Digital Assets Recent Updates – November 2024

Client Alert | November 26, 2024

We are pleased to provide you with the November edition of Gibson Dunn’s digital assets regular update. This update covers recent legal news regarding all types of digital assets, including cryptocurrencies, stablecoins, CBDCs, and NFTs, as well as other blockchain and Web3 technologies. Thank you for your interest.

ENFORCEMENT ACTIONS

UNITED STATES

FTX Co-Founder Avoids Prison After Cooperating in Bankman-Fried Case and Providing Technical Information
On November 20, U.S. District Judge Lewis Kaplan sentenced Zixiao “Gary” Wang, the co-founder and Chief Technology Officer of bankrupt FTX, to time-served and three years of supervised release, citing his quick decision to cooperate with authorities and ongoing assistance to government authorities. Judge Kaplan also ordered Wang to forfeit more than $11 billion. Wang previously pleaded guilty to conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud, and conspiracy to commit securities fraud. Law360.
Defendants Sentenced to Terms of Imprisonment for Hacking Cryptocurrency Exchange and Money Laundering
On November 14, U.S. District Judge Colleen Kollar-Kotelly sentenced Ilya Lichtenstein to five years in prison and three years of supervised release for his role in laundering nearly 120,000 Bitcoin he stole from Bitfinex, a cryptocurrency exchange. The sentence was based in part on Lichtenstein’s “early and fulsome cooperation.” On November 18, Judge Kollar-Kotelly sentenced Lichtenstein’s wife, Heather Morgan (also known as “Razzlekhan”), to 18 months’ imprisonment for her role in the money laundering conspiracy. DOJ Press Release; Law360; The Block.
Federal Prosecutors Seek to Forfeit Digital Assets Linked to Alleged Bribes from Bankman-Fried to Chinese Officials
On November 12, federal prosecutors filed a civil forfeiture complaint in the Southern District of New York, seeking the forfeiture of millions of dollars’ worth of digital assets alleged to be linked to bribes paid by former FTX and Alameda Research CEO, Sam Bankman-Fried, to Chinese officials. Bankman-Fried arranged for these bribes to unfreeze approximately $1 billion in digital assets frozen on two Chinese exchanges. According to the complaint, Bankman-Fried directed transfers of more than $40 million in cryptocurrency to Chinese officials; after the first alleged transfer, the digital assets were no longer frozen. Complaint; The Block; Law360.
Operator of Cryptocurrency Money Laundering Service Sentenced to More Than 12 Years in Prison
On November 8, U.S. District Judge Randolph D. Moss sentenced Roman Sterlingov, the operator of Bitcoin Fog, to 150 months in prison for conspiring to commit money laundering, money laundering, and operating an unlicensed money transmitting business. “Bitcoin Fog” was a darknet site that made it more difficult to trace crypto transactions on public blockchains to identifiable entities and persons. The site was allegedly used to launder the proceeds of various criminal conduct, including narcotics trafficking and child sexual abuse material. The sentence includes a $395 million forfeiture order. Sterlingov has filed a notice of appeal. DOJ Press Release; Law360.
China and St. Kitts and Nevis Dual Citizen Pleads Guilty in $73 Million ‘Pig Butchering’ Crypto Scam
On November 12, Daren Li, a dual citizen of China and St. Kitts and Nevis, pleaded guilty to one count of conspiracy to commit money laundering in a $73 million cryptocurrency investment scam. Regulators, including the Commodity Futures Trading Commission, have raised concerns over similar “pig butchering” scams in which fraudsters build trust with their victims, induce them to send funds on false pretenses, and then abscond with the victims’ investments. The DOJ said that Li instructed co-conspirators to open U.S. bank accounts on behalf of shell companies and then monitored the conversion of victim funds to a stablecoin, which would subsequently be distributed to crypto wallets controlled by Li and other conspirators. DOJ Press Release; The Block.
BIT Mining Settles with DOJ for FCPA Violations and Pays $10 Million Fine
On November 19, BIT Mining, which operates a large cryptocurrency mining data center in Ohio and sells retail mining equipment, admitted guilt and agreed to pay $10 million for violating the Foreign Corrupt Practices Act (FCPA) for making illegal payments to Japanese officials in an attempt to open a lucrative resort and casino in Japan. In addition, a federal grand jury in the District of New Jersey returned an indictment against Bit Mining’s CEO, Zengming Pan, a Chinese national, charging him with four separate counts of violating the FCPA. The company has agreed to cooperate in ongoing and future investigations. DOJ Press Release; Be(In) Crypto.

INTERNATIONAL

United Kingdom Authorities Secure Convictions for Crypto-Investment Fraud
On November 7, the United Kingdom’s Financial Conduct Authority announced that it secured convictions against two individuals for engaging in a crypto-investment fraud. The individuals defrauded at least 65 investors out of £1.5 million ($1.9 million) by cold-calling consumers and operating a professional-looking website that offered large returns for fake crypto investments. Press Release; Law360.
South Korea Arrests 215 Individuals in Alleged $232 Million Crypto Fraud Scheme
On November 13, South Korean authorities arrested 215 individuals linked to a cryptocurrency investment scheme alleged to have defrauded tens of thousands of victims and caused losses exceeding 325 billion South Korean won (approximately $232 million). The scam took place between December 2021 and March 2023, with the individuals allegedly promising high returns in exchange for participation in private sale and early crypto investment opportunities. The funds were directed into 28 different kinds of crypto assets, 6 of which were self-issued by the defendants, listed on foreign exchanges, and bolstered by paid market-making teams that worked to manipulate their prices. CoinDesk; The Block.
Upbit Being Investigated for KYC Compliance Failures by South Korean Financial Authorities
On November 15, local reports revealed that Upbit, a leading South Korean crypto exchange, is being investigated for failure to implement measures to properly identify their customers as mandated by South Korean law governing Know Your Customer requirements. The South Korean Financial Intelligent Unit discovered the failure to implement adequate measures during a routine business license renewal, and the fines stipulated by law for the 550,000 potential violations identified could theoretically reach $39 billion. The Block; CryptoSlate.

REGULATION AND LEGISLATION

UNITED STATES

CFPB Finalizes Rule on Oversight of Digital Payment Apps and Excludes Digital Currency Transactions from its Reach
On November 21, the Consumer Financial Protection Bureau finalized a rule to increase oversight of nonbank companies that offer digital funds transfers and payment wallet apps and handle more than 50 million transactions per year, when the proposed rule had contemplated a much lower threshold of 5 million annual transactions. The final rule subjects “nonbank covered persons that are larger participants in a market for ‘general-use digital consumer payment applications’” to CFPB supervision and periodic examination. Importantly, the CFPB noted that given the evolving market for digital currencies, it would limit the final rule’s scope to transactions conducted in U.S. dollars, which excludes cryptocurrencies. Press Release; Law360.
Pennsylvania Lawmakers Propose Legislation Allowing for State Treasurer to Invest in Crypto Reserve
On November 14, Pennsylvania legislators introduced a bill, titled the Pennsylvania “Bitcoin Strategic Reserve Act,” that would allow the state treasurer to invest Bitcoin and other digital assets. The bill’s sponsor, Representative Mike Cabell, stated that investing in a Bitcoin reserve could be a “hedge against inflation” and assist the state in maintaining a “well-diversified and resilient portfolio.” The Block.
Detroit Approves Use of Cryptocurrency to Pay Taxes
On November 7, Detroit’s Treasury Office announced that city residents will have the option to pay taxes and fees with cryptocurrency. Detroit will accept only Bitcoin, Ether, Bitcoin Cash, Litecoin, and PUSD. The payment method will become available in mid-2025. Cointelegraph; CoinDesk.

INTERNATIONAL

Singapore Publishes Plans to Advance Commercialization of Tokenized Assets
On November 4, the Monetary Authority of Singapore announced two industry frameworks to facilitate the commercial acceptance and implementation of asset tokenization. The “Guardian Fixed Income Framework” provides industry guidance on implementing tokenization in debt capital markets and accelerating the adoption of tokenized fixed income assets. The “Guardian Funds Framework” sets forth recommendations for best practices for tokenized funds. Both frameworks were developed by Project Guardian, an industry group composed of financial institutions, associations, and international policymakers. Press Release; The Block.
Singapore Unveils SGD Testnet to Drive Innovation in Digital Asset Settlement
On November 4, Mr. Leong Sing Chiong, Deputy Managing Director (Markets & Development) of the Monetary Authority of Singapore (MAS), announced at the Layer One Summit the launch of the Singapore Dollar (SGD) Testnet. This initiative aims to provide financial institutions with access to a shared settlement asset for market testing. The SGD Testnet will feature a wholesale CBDC settlement facility, programmable transactions for tokenized assets, and interoperability with existing financial market infrastructures. MAS has initial participants, and is encouraging more institutions to propose innovative use cases. The Testnet is part of MAS’s broader digital asset initiatives, including Project Guardian and Project Orchid, to enhance Singapore’s digital money ecosystem. Speech.
Hong Kong Regulator Warns Crypto Firms Against the Misuse of the Word “Bank”
On November 15, the Hong Kong Monetary Authority (HKMA) published a press release to remind crypto firms that they should not use the word the word “bank” in the descriptions of their products or services if they are not a licensed bank in Hong Kong. Under the Banking Ordinance, it is an offence for any person to use the word “bank” in the name or description under which the person carries on business, or makes any representation that the person is a bank or is carrying on banking business in Hong Kong, other than a licensed bank in Hong Kong. Press Release.
New Zealand Announces Tax Work Priorities Aimed at Economic Growth and Includes Reporting by Crypto Companies to Tax Authorities
On November 13, New Zealand’s Inland Revenue Department announced priorities for the country’s tax regime, such as the proposed implementation of the Organization for Economic Cooperation and Development’s framework that requires crypto-asset service providers to automatically exchange tax information on transactions with the jurisdictions of residence of taxpayers. Law360.
Italy Considers Softening Crypto Tax Hike to 28% Instead of 42%
On November 12, news outlets reported that the Italian government under Prime Minister Giorgia Meloni plans to accept a proposal from The League, a junior partner in Meloni’s coalition, to reduce an anticipated tax increase on crypto trades, originally proposed to be set at 42%, to 28%. Italy currently levies a maximum of 26% on crypto trades. Bloomberg; The Block.
Russian Government Introduces Amendments to Tax Income from Crypto Trading and Mining
On November 18, Russia’s Ministry of Finance approved draft amendments to a bill that would introduce a 15% tax on income derived from crypto transactions and mining and classify cryptocurrencies as property for tax purposes. The Block; Yahoo!.

CIVIL LITIGATION

UNITED STATES

Federal Judge Vacates SEC’s Dealer Rule
On November 21, U.S. District Judge Reed O’Connor issued two orders vacating the SEC’s Dealer Rule in two separate cases brought against the SEC—one by investment trade groups and another by the Crypto Freedom Alliance of Texas and the Blockchain Association. The Dealer Rule purported to expand the definition of “dealer” under the Securities Exchange Act of 1934, to cover activities for one’s own investing and trading objectives as opposed to the purchase and sales of securities in service of customers. Judge O’Connor reasoned that the Rule “impermissibly exceeds the SEC’s statutory authority” because it “de facto removes the distinction between ‘trader’ and ‘dealer’ as they have commonly been defined for nearly 100 years.” Order; Reuters.
Attorneys General Sue SEC for Alleged Regulatory Overreach
On November 14, a group of 18 attorneys general and the DeFi Education Fund sued the SEC in the Eastern District of Kentucky for enforcement practices that allegedly violate “principles of federalism and separation of powers” by interfering with state regulation of digital assets. The complaint pushes back against the conclusion that crypto assets are uniformly considered securities under the Howey test. The plaintiffs seek a declaration that a “digital asset is not an investment contract” under federal law and an order enjoining the defendants “from bringing enforcement actions premised on the failure of digital asset platforms facilitating such secondary transactions to register as securities exchanges, dealers, brokers, or clearing agencies.” Complaint; Law360; The Block.
Bankrupt FTX and its Former Crypto Trading Affiliate Alameda Research Advance Flurry of Litigation to Claw Back Assets

Noteworthy litigation activity includes

Alameda’s Suit Against Crypto.com for Return of $11.4 Million in Assets
On November 7, Alameda filed suit in Delaware bankruptcy court against crypto exchange Crypto.com, seeking the return of $11.4 million in assets currently held on the platform. The complaint alleges that, after FTX commenced bankruptcy, Crypto.com locked Alameda’s account, preventing the debtors from recovering these assets, and Crypto.com failed to respond to requests to return the assets. Law360.
Alameda’s Suit Against Waves Founder for Return of $90 Million in Assets
On November 10, Alameda filed a lawsuit against Aleksandr Ivanov, the founder of Waves and its affiliated entities, to claw back at least $90 million of assets. Alameda previously deposited the assets with Vires.Finance, a liquidity platform operating on Waves, and claimed that Ivanov had since orchestrated a series of transactions that artificially inflated the value of Waves, while at the same time siphoning funds from Vires. The Block.
FTX’s Complaint Alleging Humpy the Whale Cost $1 Billion in Losses
On November 8, FTX’s estate sued crypto-trader Humpy the Whale, who they named as “Nawaaz Mohammad Meerun,” in Delaware Bankruptcy Court for allegedly having “orchestrated a series of massive market manipulation schemes and defrauded hundreds of millions of dollars from FTX.” CoinDesk
FTX’s Suit Against Binance and Its Former CEO for $1.8 BillionOn November 10, FTX’s estate sued Binance and former Binance CEO Changpeng “CZ” Zhao, seeking the return of $1.76 billion transferred cryptocurrency arising out of FTX’s use of customer deposits to repurchase shares in FTX. Responding to the suit, a Binance spokesperson said “[t]he claims are meritless, and we will vigorously defend ourselves.” CoinDesk; Law360.
Class-Action Lawsuit Against Elon Musk over Dogecoin Dropped
On November 15, a class of cryptocurrency investors withdrew their appeal of the dismissal of their Dogecoin case against Elon Musk. The plaintiffs had alleged, among other things, that Musk timed trades of Dogecoin in relation to his public statements and appearances related to the digital asset. The district court dismissed the lawsuit on August 29 of this year, holding that no reasonable investor could rely on Musk’s public statements about Dogecoin. Reuters; The Block.
Federal Judge Allows Claims Against Lido DAO and Some Investors to Proceed
On November 18, U.S. District Judge Vince Chabria declined to dismiss a suit against Lido DAO and three institutional investors, which was brought for losses incurred by the Plaintiff after purchasing the DAO’s tokens and claimed that Lido DAO violated the Securities Act by failing to register the tokens with the SEC. Judge Chabria held that: Lido is a general partnership under California law and thus capable of being sued; the complaint adequately alleged that the institutional investors, as members of the general partnership, could be held liable for the partnership’s activities; and that Lido “solicited” the purchase of the tokens—despite their purchase on a secondary market. Moreover, Judge Chabria held that liability incurred under Section 12(a)(1) of the Securities Act is not limited to sales made in a “public offering.” Order.
Crypto Company Celsius Reports Recovery of $92 Million
On November 13, Celsius Network’s estate representatives told a New York bankruptcy judge they recovered $92 million in litigation proceeds and are closing in on full distributions to customers. Celsius filed for bankruptcy in July 2022, a month after freezing customer withdrawals, effectively trapping $4.7 billion in digital assets on the Celsius platform. The litigation proceeds were gained through settlements of suits seeking to claw back payments made by Celsius in the 90 days before the Chapter 11 filing and settlements of ’Celsius’s claims in the Chapter 11 case of crypto miner Core Scientific. Law360.

SPEAKER’S CORNER

UNITED STATES

SEC Chair Gary Gensler to Leave SEC
On November 21, SEC Chair Gary Gensler announced that he will be leaving the commission on January 20. President-elect Trump had promised during his campaign to replace Gensler as SEC Chair, although Gensler would have been entitled to remain as an SEC commissioner. After taking office in April 2021, Gensler oversaw several rulemakings and enforcement actions affecting the crypto industry and the first approval of spot bitcoin and ether exchange-traded products. President-elect Trump has not yet named his nominee to succeed Gensler as SEC chair. Law360; CoinDesk.

OTHER NOTABLE NEWS

Canary Capital Files for First-Ever Hedera HBAR Spot ETF with SEC
On November 12, Canary Capital filed for a Hedera spot exchange-traded fund with the SEC—the first of its kind. HBAR is the native cryptocurrency of the decentralized Hedera network, which uses the Hashgraph consensus algorithm. The filing indicates that the Canary HBAR ETF plans to hold only HBAR, without using other financial instruments. The S-1 filing does not name a custodian or administrator. The Block.
Sen. Warren to Become Top Democrat on the Senate Banking Committee Amid Scrutiny from Crypto Industry
On November 13, Sen. Elizabeth Warren, known to be critical of the crypto industry, confirmed that she will take the spot as top Democrat on the influential Senate Banking Committee after current Chair Sherrod Brown (D-OH) lost his Senate reelection bid to Bernie Moreno. The Committee has jurisdiction over key agencies, including the SEC. Sen. Warren is pushing for the crypto industry to adhere to anti-money laundering rules and supports a bill that would extend Bank Secrecy Act requirements, including Know-Your-Customer rules, to miners, validators, and wallet providers. The Block; CoinDesk.
Congressional Results Stir Optimism in the Crypto Industry
Throughout president-elect Trump’s campaign he vowed to replace the SEC leader Gary Gensler with a more crypto-friendly SEC Chair and establish a bitcoin and crypto presidential advisory council. However, he was not the only candidate to have won in November holding crypto-friendly policies. Industry leaders anticipate legislative and policy developments in the digital asset space given the election results. NPR; Politico.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Kendall Day, Jeff Steiner, Sara Weed, Chris Jones, Sam Raymond, Nick Harper, Soumya Kandukuri*, Nicole Martinez, and John Seidman.

FinTech and Digital Assets Group Leaders / Members:

Ashlie Beringer, Palo Alto (+1 650.849.5327, [email protected])

Michael D. Bopp, Washington, D.C. (+1 202.955.8256, [email protected]

Stephanie L. Brooker, Washington, D.C. (+1 202.887.3502, [email protected])

Jason J. Cabral, New York (+1 212.351.6267, [email protected])

Ella Alves Capone, Washington, D.C. (+1 202.887.3511, [email protected])

M. Kendall Day, Washington, D.C. (+1 202.955.8220, [email protected])

Michael J. Desmond, Los Angeles/Washington, D.C. (+1 213.229.7531, [email protected])

Sébastien Evrard, Hong Kong (+852 2214 3798, [email protected])

William R. Hallatt, Hong Kong (+852 2214 3836, [email protected])

Martin A. Hewett, Washington, D.C. (+1 202.955.8207, [email protected])

Sameera Kimatrai, Dubai (+971 4 318 4616, [email protected])

Michelle M. Kirschner, London (+44 (0)20 7071.4212, [email protected])

Stewart McDowell, San Francisco (+1 415.393.8322, [email protected])

Mark K. Schonfeld, New York (+1 212.351.2433, [email protected])

Orin Snyder, New York (+1 212.351.2400, [email protected])

Ro Spaziani, New York (+1 212.351.6255, [email protected])

Jeffrey L. Steiner, Washington, D.C. (+1 202.887.3632, [email protected])

Eric D. Vandevelde, Los Angeles (+1 213.229.7186, [email protected])

Benjamin Wagner, Palo Alto (+1 650.849.5395, [email protected])

Sara K. Weed, Washington, D.C. (+1 202.955.8507, [email protected])

*Soumya Kandukuri, an associate in the Palo Alto office, is not yet admitted to practice law.

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Gibson Dunn Digital Assets Recent Updates – November 2024

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