OneCoin’s co-founder Karl Greenwood pleaded guilty to US fraud and money laundering charges for selling a bogus cryptocurrency alongside one of the US’ most wanted fugitives, a woman known as the ‘Cryptoqueen.’

Karl Greenwood, 45, was arrested in Thailand and extradited to the United States in 2018 for his role in selling the alleged cryptocurrency OneCoin, which federal prosecutors in Manhattan describe as a pyramid scheme that defrauded investors out of $4 billion. Since his arrest, he has been detained.

The plea comes as prosecutors in the Southern District of New York (SDNY) intensify their pursuit of financial crimes involving digital assets. Prosecutors unveiled an indictment against Sam Bankman-Fried, the founder of the FTX crypto exchange, on charges of stealing billions of dollars in customer deposits on Tuesday.

“This guilty plea by the co-founder of OneCoin caps a week at SDNY that sends a clear message that we are coming after all those who seek to exploit the cryptocurrency ecosystem through fraud,” said Damian Williams, Manhattan’s top federal prosecutor.

Prosecutors claim Greenwood co-founded OneCoin in Sofia, Bulgaria, in 2014 with Ruja Ignatova, a German citizen known as the ‘Cryptoqueen.’ She was added to the FBI’s top ten most-wanted list in June, and prosecutors said on Friday that she is still at large.

Greenwood’s attorney declined to comment. He is scheduled to be sentenced for the three counts to which he pleaded guilty on April 5.

Bankman-Fried acknowledged risk management failures at FTX but claimed he is not criminally liable. He is currently detained in The Bahamas, where FTX is based and is fighting an extradition request from the United States.

Cryptocurrency Fraud Sam Bankman-Fried denied bail.

A judge in the Bahamas has denied bail to Sam Bankman-Fried, the founder of the failed cryptocurrency exchange FTX.

On Tuesday, Mr. Bankman-Fried was charged with “one of the biggest financial frauds in US history” by US authorities.

The former FX chief built a “house of cards on a foundation of deception,” according to Securities and Exchange Commission (SEC) Chair Gary Gensler.

Mr. Bankman-Fried has stated that he will fight extradition to the United States.

Bahamas Chief Magistrate JoyAnn Ferguson-Pratt denied his bail petition, citing a “great” risk of flight, and ordered that he be held in a correctional facility until February 8.

FTX declared bankruptcy in the United States last month, rendering many users unable to withdraw their funds. According to a court filing, FTX owed nearly $3.1 billion (£2.5 billion) to its 50 largest creditors.

Among the most serious allegations against Mr. Bankman-Fried is that he used billions of dollars in customer funds to prop up Alameda, his investment trading firm.

It is unclear how much money people who have funds in the exchange will receive after the bankruptcy proceedings, though many experts have warned that it may be a small fraction of what they deposited.

In the United States, Mr. Bankman-Fried is facing eight criminal charges, including wire fraud, money laundering, and conspiracy to defraud. He also faces civil charges for defrauding investors who put more than $1 billion into the company.

Officials have also charged him with breaking campaign finance laws.

Damian Williams, the US Attorney for the Southern District of New York, described Mr. Bankman-alleged Fried’s fraud as “among the largest in US history” during a press conference on Tuesday.

Mr. Bankman-Fried was accused of defrauding lenders, investors, and customers and using “tens of millions” in ill-gotten gains to make illegal campaign contributions to Democrats and Republicans.

“All of this dirty money was used to serve Bankman-desire Fried’s to buy bipartisan influence and influence public policy in Washington,” Mr. Williams said.

Previously, the crypto tycoon admitted to making mistakes but denied intent to defraud his customers.

Mr. Bankman-Fried also denied claims that he knew FTX’s affiliated trading company, Alameda Research, was using FTX customer funds.

He was once considered a younger version of the legendary US investor Warren Buffett. As recently as late October, he had a net worth of more than $15 billion (£12.1 billion).
Caption for media,

Sam Bankman-Fried denies knowing FTX customer funds were used for risky financial bets.

Meanwhile, the firm’s new CEO, John Ray, told a US congressional committee that FTX’s demise appeared to result from a small group of “grossly inexperienced, non-sophisticated individuals” controlling the company.

He saw “an utter lack of record-keeping – no internal controls whatsoever,” he said.

Customers could use the FTX exchange to exchange traditional currency for cryptocurrencies such as Bitcoin.

Cryptocurrencies are not traditional currencies; they are stored online and function more like investment vehicles or securities, with high volatility.

Because of their anonymity, they have been favored for criminal activities such as drug dealing and ransomware attacks, but supporters argue that they have enormous innovation potential – and independence from governments.

According to a study published Monday, roughly 75 percent of people who purchased bitcoin lost money as the cryptocurrency sector reels from the collapse of FTX, which has sapped confidence.

Economists at the Bank of International Settlements, widely regarded as the central bank of central banks, examined data on cryptocurrency investors in 95 countries between 2015 and 2022.

“Overall, back-of-the-envelope calculations indicate that roughly three-quarters of users have lost money on their bitcoin investments,” the researchers wrote in their study.

During the study period, the price of bitcoin increased from $250 in August 2015 to nearly $69,000 in November 2021. It is now worth around $16,500.

During the same time period, the number of people using smartphone apps to buy and sell cryptocurrencies increased from 119,000 to 32.5 million.

“Our analysis has revealed that, globally, bitcoin price increases have been linked to increased entry by retail investors,” the researchers wrote.

Furthermore, they discovered that “as prices rose and smaller users bought bitcoin, the largest holders (the so-called ‘whales’ or ‘humpbacks’) sold, making a profit at the expense of the smaller users.”

The researchers lacked direct data on individual investors’ gains and losses. However, they were able to extrapolate based on the price of bitcoin when new investors began using cryptocurrency trading apps and the roughly $20,000 it was worth last month.

The study also discovered that men under 35, commonly identified as the most “risk-seeking” segment, made up roughly 40% of new cryptocurrency investors.

Researchers discovered that most cryptocurrency investors viewed it as a speculative investment and that young men were more active in trading in the months following a significant increase in the bitcoin price.

According to them, the increase in investors following price increases should raise questions about whether more consumer protection is required.

Regulators Circle FTX

Following the spectacular collapse of a cryptocurrency exchange last week, regulators launched investigations. On Monday, FTX and rival exchanges sought to reassure nervous investors about their own stability, weighing on cryptocurrencies.

The collapse of FTX, once a crypto industry darling with a $32 billion valuation as of January, has prompted investigations by the US Justice Department, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, according to a source familiar with the investigations.

According to a second source with knowledge of the investigation, the SEC investigation is also targeting FTX executives, their knowledge of handling customer funds, and any potential violations of securities laws.

While the crypto industry has marketed digital assets as fundamentally different from traditional finance, the sector has proven to be vulnerable to the same risks and should be subject to the same regulations, according to Federal Reserve Vice Chair Lael Brainard on Monday.

“Crypto finance, because it is no different than traditional finance in terms of the risks that it exposes,” she told Bloomberg in an interview, echoing a long-held belief.

Separately, the Fed’s top regulatory official, Michael Barr, hinted on Monday that stricter oversight of cryptocurrencies is on the way. This includes “safeguards” to ensure crypto companies follow the same rules as other financial firms, according to Barr’s written testimony released ahead of his appearance before the Senate Banking Committee on Tuesday.

The committee’s Democratic chairman, U.S. Senator Sherrod Brown, spoke out.

“My focus has always been on the crypto industry’s fraud, scams, volatility, and outright theft,” he said. “FTX’s bankruptcy and numerous other recent instances of insecurity have demonstrated why we require a comprehensive regulatory approach that protects consumers.”

FTX Files for Bankruptcy

On Friday, FTX filed for bankruptcy in one of the most high-profile crypto meltdowns after frenzied traders withdrew $6 billion from the platform in 72 hours and rival exchange Binance abandoned a rescue deal.

According to a New York Times interview published on Monday, FTX’s former CEO, Sam Bankman-Fried, said his company had grown too quickly.

Bitcoin fell below $16,000 early Monday before recovering to trade at $16,401, up 0.56% at 5:56 p.m. EST (2256 GMT).

The sudden demise of FTX, once a saviour for struggling crypto firms, sent shockwaves through the crypto industry, bracing for more damage.

LedgerX LLC, an FTX subsidiary, withdrew its December request to the Commodity Futures Trading Commission to offer products that are not fully collateralized on Monday.

BlockFi, a cryptocurrency lender, said it has significant exposure to FTX after signing a deal with it to provide it with a $400 million revolving credit facility with an option to buy it for up to $240 million.

Other cryptocurrency exchanges have published details of their reserves and promised additional disclosures to calm investor nerves amid unverified rumours.

Kris Marszalek, CEO of Singapore-based crypto exchange Crypto.com, which made headlines in 2021 with a $700 million deal to rename Los Angeles’ Staples Center the Crypto.com Arena, refuted suggestions that the company was in trouble.

Missing Money

Marszalek stated in an “ask-me-anything” YouTube Livestream that the exchange always kept reserves to match every coin customers held on its platform and that an audited proof of Crypto.com’s reserves would be published within weeks.

The move came after investors took to Twitter over the weekend to question a $400 million ether token transfer to the Gate.io exchange on Oct. 21.

On Sunday, Marszalek tweeted that the ether had been recovered and returned to the exchange, but the Wall Street Journal reported that withdrawals at Crypto.com had increased over the weekend.

A Crypto.com spokesperson declined to comment whether the platform’s outflows continued on Monday.

Crypto.com is one of the top ten exchanges in turnover worldwide, but it is smaller than FTX and market leader Binance.

On Sunday, Kraken, another cryptocurrency exchange, announced on Twitter that it had frozen the accounts of FTX, affiliated crypto trading firm Alameda Research, and their executives.

“We have actively monitored recent developments with the FTX estate, are in contact with law enforcement, and have frozen Kraken account access to certain funds we suspect to be associated with FTX-related ‘fraud, negligence, or misconduct,” a Kraken spokesperson said.

Changpeng Zhao, the CEO of Binance, the world’s largest cryptocurrency exchange, stated that he plans to establish an industry recovery fund to assist projects that are “otherwise strong but in a liquidity crisis.”

Binance signed a nonbinding letter of intent to buy FTX’s non-US assets last week but backed out, causing the company to go bankrupt. Zhao has since issued a warning about a “cascading” cryptocurrency crisis.

FTX took less than a week to go from the world’s third-largest cryptocurrency exchange to bankruptcy. The embattled cryptocurrency exchange sought bankruptcy protection.

On Friday morning, FTX, the hedge fund Alameda Research, and dozens of other affiliated companies filed for bankruptcy in Delaware. FTX US, which was not expected to be part of any financial rescue, was also included in the company’s bankruptcy filing.

According to the company, CEO and founder Sam Bankman-Fried has resigned. Bankman-net Fried’s worth was recently estimated to be $23 billion, and he has been a major political donor to Democrats. According to Forbes and Bloomberg, which closely track the net worth of the world’s richest people, his net worth has vanished.

“I was shocked to see things unravel the way they did earlier this week,” Bankman-Fried wrote on Twitter.

The unravelling of FTX is causing ripple effects. Companies that backed FTX are already writing down their investments. Politicians and regulators are increasing their calls for stricter regulation of the cryptocurrency industry.

And the latest crisis has put downward pressure on bitcoin and other digital currency prices. According to CoinMarketCap.com, the total market value of all digital currencies fell by about $150 billion in the last week.

The failure of FTX extends beyond finance. The company also had major sports sponsorships, such as Formula One racing and a deal with Major League Baseball. Miami-Dade County decided to end its relationship with FTX on Friday, which means the venue where the Miami Heat play will no longer be known as FTX Arena.

Mercedes announced that FTX would be removed from its race cars this weekend.

Semafor, the high-profile news startup run by former BuzzFeed editor-in-chief and New York Times columnist Ben Smith, was also an early investor for FTX and Bankman-Fried, as well as his brother.

SEC Investigating FXT

Bankman-Fried also has other issues. According to a person familiar with the situation, the Department of Justice and the Securities and Exchange Commission are investigating FTX to determine whether any criminal activity or securities violations occurred. The person could not speak publicly about the investigations and spoke to The Associated Press on the condition of anonymity.

The inquiry is focused on the possibility that FTX used customer deposits to fund bets at Alameda Research. Brokers in traditional markets are expected to keep client funds separate from other company assets. Regulators have the authority to penalize violations. When MF Global intermingled client assets with its own bets roughly a decade ago, it effectively failed for a similar practice.

FTX listed more than 130 affiliated companies worldwide in its bankruptcy filing. The company estimated its assets to be worth $10 billion to $50 billion and its liabilities to be worth the same amount. The company named John Ray III as its new CEO, a long-time bankruptcy litigator best known for having to clean up the mess left by Enron’s demise.

The bankruptcy of FTX will undoubtedly be one of the most complicated bankruptcy cases in recent years. According to bankruptcy lawyers, the company listed more than 100,000 creditors in its filing, and because all of its customers are effectively creditors because they deposited their funds with FTX, determining who is owed what will take months.

Cryptocurrency Not Protected

Cryptocurrencies are not legally protected, and politicians on both sides have issued statements opposing any Lehman Brothers-style bailout for cryptocurrency investors.

“Unlike in a case where there is (security insurance in the case of a brokerage failure) or where the FDIC steps in with a bank failure, these customers are completely exposed,” said Daniel Besikof, a partner at Loeb & Loeb LLP, specializes in bankruptcy law.

After experiencing the cryptocurrency equivalent of a bank run, FTX agreed earlier this week to sell itself to larger rival Binance. Customers abandoned the exchange after becoming concerned about FTX’s capital.

The cryptocurrency community had hoped that Binance, the world’s largest cryptocurrency exchange, would be able to save FTX and its depositors. However, after reviewing FTX’s books, Binance concluded that the smaller exchange’s problems were too large to solve and backed out of the deal.

FTX is the latest in a string of disasters rocking the crypto industry, which is now under intense pressure from collapsing prices and circling financial regulators. Its failure is already being felt across the cryptocurrency universe.

Sequoia Capital, a venture capital firm, announced Thursday that it is writing down its total investment in FTX of nearly $215 million.

Bitcoin price drop

BlockFi, a cryptocurrency lender, announced late Thursday on Twitter that it is “unable to conduct business as usual” and has paused client withdrawals due to FTX’s demise.

BlockFi, bailed out by Bankman-FTX Fried’s early last summer, said it was “shocked and dismayed” by the news about FTX and Alameda in a letter posted late Thursday on its Twitter profile.

The company concluded by stating that future updates on its status “will be less frequent than what our clients and other stakeholders are accustomed to.”

Bitcoin fell immediately after the letter was published and is now trading below $17,000. Bitcoin, the original cryptocurrency, had been hovering around $20,000 for months before FTX’s problems were revealed this week, sending it briefly down to around $15,500.

Shares of Coinbase, a publicly traded cryptocurrency exchange, and Robinhood, an online trading platform, rose nearly 12%.

Meanwhile, institutional investors were already turning against cryptocurrencies before this week. Sam Bankman-FTX.com Fried’s abrupt demise may have permanently harmed their chances of inclusion in mainstream portfolios.

While there are still many industry zealots, many professional money managers believe the case for cryptocurrency as a portfolio diversifier or digital gold has been debunked. They claim that the losses are too great and the market structure is too risky.

“It has become clear that it will not find a home in institutional asset allocation,” Hani Redha, multi-asset portfolio manager at Pinebridge Investments in London, said. “There was a time when it was regarded as a potential asset class that every investor should include in their strategic asset allocation, and that is no longer the case.”

Tiger Global and SoftBank are facing new FTX losses.

The recent explosions and scandals have demolished the key arguments of crypto supporters, effectively erasing the notion of Bitcoin as a safe haven in turbulent times. But none of those events, from the TerraUSD collapse to the Celsius bankruptcy, were as damning as the discovery that even FTX, once considered one of the most reliable names in crypto, was insolvent.

Salman Ahmed, the chief investment strategist at Fidelity International, which manages $646 billion from London, said the FTX collapse is “raising questions about the viability of the crypto ecosystem.” “It was always difficult to make a case for including crypto, but the setup has come under increased scrutiny.”

In February, his firm launched a Bitcoin exchange-traded product aimed at professional European investors. Since its inception, it has lost approximately 55% of its value.

Only a year ago, cryptomania was at its peak, with Bitcoin reaching $67,000. Bridgewater estimated in January that institutional investors owned 5% of Bitcoin.

Back then, frothy predictions were everywhere. JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou wrote that Bitcoin could theoretically reach $146,000 in the long run by crowding out gold. According to a PWC survey conducted in April, 42% of crypto hedge funds expect Bitcoin to trade between $75,000 and $100,000 by the end of 2022.

Investors’ perspectives are becoming more restrained. In a recent report, Panigirtzoglou predicted that Bitcoin would return to its summer lows of $13,000. On Friday, Bitcoin was trading below $17,000.

“The argument for investing in cryptocurrency for diversification died a long time ago,” he said in an interview.

Bitcoin has previously crashed and recovered. Some believers believe market hubris is being flushed out, putting the industry on a path to maturity. According to Mike Cyprys, an analyst at Morgan Stanley, FTX’s problems may benefit established companies with a track record of risk management, such as the Nasdaq Stock Market and CBOE Global Markets Inc.

According to Mark Dowding, chief investment officer at BlueBay Asset Management, the case for Bitcoin becoming a digital gold version is bogus. He believes it’s only time before more investors flee and crypto prices plummet.

“It should have been obvious that an industry that was producing nothing, burning cash, and promising alluring returns was doomed to fail,” he said.

VOR News, Bloomberg, AP