Indian police arrest eight more in $300M crypto scam

In a recent announcement, Russia-linked cryptocurrency exchange Bitzlato revealed a temporary suspension of certain withdrawal requests, with the suspension taking effect as of Dec. 27. Asset seizureThe decision comes in the wake of French authorities seizing Bitzlato's assets in January last year, a move that also involved international law enforcement, including U.S. authorities. In a message shared on Telegram, Bitzlato explained the suspension: "… We are faced with the need to suspend special balance withdrawals and technical support. This is a temporary measure to prepare for and go through the upcoming court hearings regarding the seizure of user assets in France."Photo by Chris Karidis on UnsplashSpecial balance withdrawalsThe specifics of transactions categorized as "special balance withdrawals" were not disclosed by Bitzlato, and it remains unclear whether the withdrawal freeze is applicable exclusively to users in France. Despite the asset seizure and subsequent closure of Bitzlato's website, the company asserted in its latest statement that it managed to "close 70% of the balance" held at the time of the service shutdown. However, no details were provided on how the company intends to fulfill its obligations with its assets frozen. Bitzlato has been under scrutiny from the U.S. Treasury, which identified the exchange as a money laundering concern linked to illicit Russian financing. Transactions with Bitzlato have been prohibited by the U.S. government. Hydra Market counterpartyThe Department of Justice (DOJ) separately accused Bitzlato of facilitating money laundering and other crimes, alleging involvement in laundering $700 million connected to the now-defunct Russian darknet market, Hydra Market. The DOJ's United States Attorney Breon Peace characterized Bitzlato as an "open turnstile by criminals," while the exchange was deemed a "crucial financial resource" for Hydra Market, enabling the laundering of funds, including those from ransomware attacks. Registered in Hong Kong, Bitzlato served as the largest counterparty in cryptocurrency transactions for Hydra Market, a darknet marketplace for narcotics and illicit drugs. In April 2022, U.S. and German authorities jointly shut down the illicit marketplace. The legal troubles extend to company executives, with Bitzlato founder Anatoly Legkodymov pleading guilty to charges related to the illicit transfer of funds in the U.S. on Dec. 6. Legkodymov agreed to forfeit $23 million to prosecutors and faces a potential prison sentence of up to five years. He is currently imprisoned at the Metropolitan Detention Center (MDC) in Brooklyn, New York. European authorities also arrested senior management linked to Bitzlato in January 2023. The exchange's precarious situation highlights the challenges faced by cryptocurrency platforms amidst regulatory scrutiny and legal actions. The MDC facility also currently holds John Karony, the CEO of crypto company Safemoon and convicted fraudster and former FTX founder, Sam Bankman-Fried. The Department of Justice found itself the subject of major criticism on Friday, when it emerged that it had informed the court that it would not be pursuing a second trial against Bankman-Fried. A second trial would have centered upon campaign financing offenses. It would have likely implicated Bankman-Fried’s parents. According to federal prosecutors, the disgraced FTX CEO donated customer funds to the tune of $100 million to U.S. politicians. It’s unclear which of these politicians, if any, has returned the money, with critics alleging corruption.  

Lee Bok-hyun, the governor of South Korea’s Financial Supervisory Service (FSS), is set to have a meeting with Gary Gensler, the chair of the U.S. Securities and Exchange Commission (SEC), in May. The purpose of their meeting is to discuss whether to classify non-fungible tokens (NFTs) as virtual assets. Currently, NFTs are not seen as virtual assets in Korea, but there is a high likelihood of them being acknowledged as such following the meeting in May, local financial media outlet Edaily reported.Photo by Andrey Metelev on UnsplashLack of definition for NFTsAn NFT is a digital certificate of authenticity that is not fungible or replicable. NFTs tokenize content or assets of various types – from images, music, videos, games and artworks to real-estates – by assigning a unique token ID to them. Many see 2018 as the year NFT technology was first introduced.  Despite its wide range of applications, no legal definition has been made for NFTs. Some view NFTs as technology, and others as virtual assets or securities. The Korean government decided not to recognize NFTs as virtual assets under the Virtual Asset Protection Act (Virtual Asset Act), effective in July. Behind this decision is a perception that NFTs are less likely to pose significant risks to the market, as a large portion of NFTs are now traded by collectors seeking to expand their private collections.  However, NFTs are increasingly seen as speculative destinations by many investors over time, as prices of virtual assets including BTC surge. This shift backs the local movement to recognize NFTs as well as spot bitcoin ETFs as virtual assets. Opposition from NFT businessesBlockchain industry insiders say defining NFTs is of utmost importance, noting that classifying NFTs as virtual assets headfirst could deal a heavy blow to businesses in this sector. One finance insider mentioned that defining NFTs comes down to understanding their purposes and how they are utilized. If NFTs are primarily used for speculative purposes or as currency, they could be recognized as virtual assets, the person said.  The biggest resistance is coming from NFT-related businesses. That is because recognizing NFTs as virtual assets would require these businesses to obtain a virtual asset service provider (VASP) license from the financial authority, which takes significant costs and workforce in the process. A CEO of a blockchain startup, who preferred to remain anonymous, expressed concerns about the possibility of NFTs becoming virtual assets, saying that such recognition would enable NFT transaction tracing, potentially leading to severe violations of human rights. While many industry insiders expect that the financial authorities will bring NFTs under the forthcoming Virtual Asset Act, the FSS stated that no decisions have been made regarding details of the upcoming meeting with the U.S. SEC. 

Dubai Regulator Hits OPNX With $2.7M PenaltyCrypto bankruptcy claims trading platform OPNX and its founders have been hit with a hefty fine, imposed by Dubai’s Virtual Assets Regulatory Authority (VARA). The penalty, amounting to AED 10 million ($2.7 million), was levied on the newly established exchange in accordance with a notice published by the regulator on Wednesday.Photo by Agnieszka Stankiewicz on UnsplashPayment outstandingVARA’s recent announcement highlighted that the fine had been imposed in May and remains outstanding. The regulatory body disclosed that individual fines of AED 200,000 ($54,451) each were imposed on Su Zhu and Kyle Davies, the controversial founders of failed Singapore-based crypto hedge fund, Three Arrows Capital (3AC). Additionally, fines were also imposed on two other co-founders of OPNX. The penalties were attributed to failures in adhering to regulations governing marketing, advertising, and promotions.OPNX, established earlier this year by Su Zhu and Kyle Davies in collaboration with Mark Lamb and Sudhu Arumugam, positioned itself as a trading platform for crypto claims following the collapse of their Three Arrows Capital (3AC) fund last summer. The duo has since made Dubai their primary operational base.Further action“In light of the company’s unpaid fine, VARA shall determine consequential actions warranted against OPNX, which may include further fines, penalties, and/or taking any actions necessary to recover payment and definitively remedy the behavior,” stated VARA in an official statement.Dubai is making a concerted effort to nurture the development of crypto-related business, implementing various initiatives in order to bring that about. However, as part of that strategy, Dubai’s regulatory landscape for cryptocurrencies has taken a more stringent turn this year, with the introduction of a new regulatory framework mandating that companies catering to retail investors must secure full licensing from VARA.Concerns arose in February when regulatory authorities discovered that OPNX was actively seeking customers for its platform and collecting personal data without proper authorization.Formal reprimandsIn April VARA issued an investor alert, outlining that OPNX was not a regulated entity although it was operating from Dubai. Shortly afterwards, formal reprimands followed for the two 3AC founders, alongside Mark Lamb, Sudhu Arumugam, and OPNX’s CEO Leslie Lamb.Leslie Lamb, in a previous interview with Bloomberg, emphasized that OPNX had not actively marketed itself toward Dubai or the broader UAE market. She stressed the company’s full cooperation with VARA’s ongoing investigation, asserting that no regulatory guidelines had been breached.“While Kyle and I contributed the initial ideas for OPNX, Leslie is very much the CEO, and we aren’t involved in day-to-day operations,” stated Su Zhu, clarifying their roles.Despite the regulatory setback, both Su Zhu and Kyle Davies continued to promote OPNX on the X platform (formerly known as Twitter).It emerged recently that the claims trading platform has been eyeing the acquisition of failed crypto lender Hodlnaut, which is currently undergoing court-supervised restructuring in Singapore. Zhu and Davies have come in for a lot of criticism within the crypto sector, having left a long list of unpaid creditors as a consequence of the failure of 3AC. The duo recently suggested that they would contribute profits from OPNX to 3AC creditors despite the fact that they have been uncooperative with the 3AC bankruptcy process.