IRS Gets Approval to Receive Financial Records of Circle’s US Customers

The court has authorized the US Internal Revenue Service of Joe Doe summons to Circle and its predecessors and affiliates, including Poloniex, for those engaged in crypto transactions worth at least $20,000 between 2016 and 2020.

US District Judge Richard Stearns of Boston has issued an ex parte order allowing the US Internal Revenue Service (IRS) to serve a John Doe summons on Circle, including its affiliates, division, and subsidiaries cryptocurrency exchange Poloniex.

Poloniex was sold by Circle in 2019 to Tron founder Justin Sun after less than two years of acquiring it for $400 million.

The IRS believes thousands of taxpayers are not telling the government about their income from crypto transactions. As such, the agency filed a petition for an order approving the service of an IRS John Doe summons on Circle.

Now, the court has ordered and adjudged the IRS to serve a summons upon the Boston-based digital currency platform Circle Internet Financial for the financial records of its US customers who had an account at the platform or any of its predecessors and engaged in cryptocurrency transactions worth at least $20,000 between 2016 and 2020.

The financial records include account registration records, Know-Your-Customer due diligence, money laundering reports, account funding, and activity records.

The IRS told the judge that it has good reason to believe Circle customers are not reporting their tax liability from crypto income.

At this time, it hasn’t been mentioned just how many Circle customers might be subject to the John Doe summons. As per the accompanying memo, Circle is regulated as a “money services business” (MSB) with the Financial Crimes Enforcement Network (FinCEN).

As an MSB, Circle is required to maintain certain records, including transactions worth more than $3,000, the name and address of both the sender and recipient, the amount of the transaction, the date of the transaction, and other identifying information.

The memo further mentions that as of July 2019, Circle had served over 8 million customers with over $200 billion in trading volume of more than 60 types of digital assets.

The IRS had also won a similar 2017 decision on Coinbase, under which the agency sent a notification letter to over 10,000 taxpayers and asked them to file amended returns and pay back taxes.

The IRS said Coinbase notifications resulted in about $25 million in revised assessment.

Coinbase had put up a fight against the John Doe summons, but it only resulted in the IRS narrowing the scope of its demand slightly as the court sided with the government. In the Justice Department announcement of Stearns’ order, IRS Commissioner Chuck Rettig said this summons is

“a step to enable the IRS to uncover those who are failing to report their virtual currency transactions properly.”

The DoJ said the US petition does not allege that Circle is engaged in any wrongdoing.

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Author: AnTy

EY Heads to Court to Dispute the Value of Crypto From Bankrupt Exchange, QuadrigaCX

EY Heads to Court to Dispute the Value of Crypto From Bankrupt Exchange, QuadrigaCX

Ernst and Young (EY), the bankruptcy trustee for collapsed cryptocurrency exchange QuadrigaCX, plans to evaluate the company’s assets and settle disputes before disbursing creditors and users of the crypto exchange.

EY will be going to court on January 26 to propose a date for accessing the claims for crypto assets rather than the date of the exchange’s bankruptcy on April 15, 2019.

The trustee is not taking the same stance as cryptocurrency startup BlockCAT, one of the creditors.

BlockCAT made CAR $4 Million Claims

The date’s choice may have a big impact on the fiat value of the funds that creditors are expected to receive from the remaining asset pool. BlockCAT has already filed a compensation claim of about CAD 4 million. The crypto startup has filed a petition and is looking to maximize payouts.

According to the firm, the actual evaluation date for users’ cryptocurrency claims should begin with the initial court order for the exchange and not a separate date proposed by its trustee.

The decision of the court regarding the date will be significant for both the creditors looking for disbursement in fiat currency and the former users of the exchange who are making claims for crypto assets.

After QuadrigaCX went on liquidation, CAD$ 224 million was made in claims by 17,053 users. However, the claims could be totaling CAD$291, depending on the date chosen for the asset valuation.

The trustee is expected to make sure claims made are properly disbursed before the exchange is finally dissolved. However, the court needs to decide on a valuation date before any payment process begins.

The problem is now the date of valuation, as BlockCAT asks for an earlier valuation date while the users are of a different opinion. BlockCAT wants to maximize its payout from the asset pool, as it seems the exchange’s remaining assets will not be enough to settle all claims.

Creditors and Users Disagree on the Payment Date

The main issue the trustee needs to settle before commencing disbursement is the disagreement between the creditors and the users on the date for claim settlement. While the creditors predominantly have fiat money claims, the former users of the exchange have cryptocurrency claims.

The trustee will be paying out claims made for U.S. dollars and cryptocurrency in Canadian dollars. This means that the court has to choose the right valuation date before disbursement.

Concerning the problem, the trustee filed a factum (statement of facts) at the Ontario Superior Court of Justice to receive approval to use the exchange rate on the conversions’ bankruptcy date. With the value of many crypto assets rising far beyond expectations since 2019, when the exchange was declared bankrupt, the trustees could pay hefty sums to use the current valuation.

Evans Thomas, the commercial litigator, said a reimbursed user based on the 2019 crypto conversion might receive 23% less than the actual present value. However, if BlockCAT succeeds in convincing the court to use the February date for payments, the asset pool’s share to be paid to the affected users in CAD claims will rise.

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Author: Ali Raza

CAOF to be Lead Plaintiff in ICO Lawsuit After Others File Inaccurate Data

A United States Court Judge Kaplan has now ruled that the class action suit brought against EOS developer ought to be represented by a lead plaintiff. This was after five of the investors of ICO displayed a lack of goodwill and commitment to make them the lead plaintiff of the case.

“Raises further concerns that the application is being driven by the lawyers, rather than the plaintiffs.”

The lead plaintiff often brings forth the interests of other plaintiffs in court in the case of a class-action suit. Hence, they get to pick the attorneys to handle the suit as well as picking up the legal tab. In this case, Judge Kaplan was keen to highlight that the case drags on for years which is potentially lucrative for the lead plaintiff’s attorneys.

CAOF declared the biggest loser

Law firm of Grant & Eisenhofer P.A has been chosen as the lead counsel in the case. This was decided upon by the Crypto Assets Opportunity Fund (CAOF) and rubber-stamped by the U.S. District Court for the Southern District of New York. This was after an August 4th hearing was able to confirm the losses suffered by CAOF and determined that they were the biggest losers.

The Williams Group that had filed a similar suit however had their motion shot down after the Judge deemed the evidence submitted inaccurate and unsubstantiated. Their trading data didn’t quantify how much they really had lost from the ICO. Data submitted indicated that they had lost more tokens than they acquired in the Initial Coin offering.

In a similar scenario, plaintiff Token Fund I, was incorporated only 2 days prior to filing the motion to lead the class action. They failed to produce intricate details of their previous trading activities, especially with

The motion clarifies that considerations such as previous collaborations amongst group members and how they intend to move forward with the class action have to be made when a group makes an application for lead plaintiff.

Notably, launched an ICO last year raising north of $4 Billion. They were later on involved in a legal tussle with the Securities and Exchange Commission (SEC) that saw them remitting $24 million in fines. They have been implicated in several class-action suits for allegedly issuing unregistered securities.

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Author: Lujan Odera

Non-Event But Still Increased Exposure: Bitcoin Defined as ‘Money’ Under DC Federal Court

Bitcoin is a form of “money” under Washington D.C. Money Transmitters Act, a federal court said on Friday.

The ruling was made in a criminal case against Larry Dean Harmon, who operated an underground bitcoin trading platform for running an unlicensed money transmitting business under D.C. law and for laundering money under federal law, reported Bloomberg.

Money “commonly means a medium of exchange, method of payment, or store of value,” said Chief Judge Beryl A. Howell for the U.S. District Court for the District of Columbia. “Bitcoin is these things.”

It may seem like big news, but in actuality, it is a “non event,” which would have a minimal impact, if any, on how bitcoin is treated by the market.

“This just means that if you’re a bitcoin intermediary for someone living in DC, you need a money transmitter license,” clarified Neeraj K. Aggarwal of Coin Center. Also, it would not affect taxes, he said.

Stil, “Increased exposure nonetheless. Dates I like are Aug/7, Aug/28, and Sept/25 (FOMC meeting). Because vol is cheap, range is tight, macro correlations meaningful, and there are two major events in that horizon,” said economist and trader Alex Kruger.

Harmon was indicted by a federal grand jury in 2019, and his service, located on the Darknet, was used to exchange about $311 million between 2014 and 2017.

The court also denied Harmon’s motion to release his 160 Bitcoin seized by the government.

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Author: AnTy

China’s Supreme People’s Court Releases Guidelines On Protection Of Digital Assets As Property

China’s Supreme People’s Court and the National Development and Reform Commission (NDRC) released a joint statement on the expansion of property rights around various items, including virtual property, data, and digital currencies.

The guideline released on July 22 aims at improving the socialist market to offer a stronger protection stance for private ownership of property. This document opens up regulation and legal protection for new classes of property such as digital assets, virtual currencies, and data.

The new laws focus on seven major areas, including property protection, market order, fair trade, and livelihood guarantee, He Xiaorang, a member of the judicial committee, said. The new guidelines further aim at “protecting private enterprises’ properties from illegal seizing or freezing as well as preventing wrongful rulings by public or judicial systems.”

Despite the mention of digital assets and virtual currencies, the guideline did not define fully what constitutes a digital currency. However, with the digital yuan (CBDC) development in place, the current changes point to the government setting up a solid regulation structure before its launch.

China: Digital assets as property

China’s efforts in developing a CBDC are well beyond what most of the nations across the globe have considered. The government passed its first crypto law in November 2019, aiming at standardizing the application and management of passwords. The law, adopted earlier in the year, protects cryptographic intellectual property rights and promotes the progress and innovation of cryptography and public/private key technology.

Digital assets have been classified as property in a couple of instances across China too. A court judge in April declared Ethereum (ETH) as property in a legal theft case presented. Notwithstanding, back in 2018, another judge ruled on Bitcoin being treated as virtual property across the country.

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Author: Lujan Odera

Canadian Tech Startup Sues ConsenSys For Stealing Payment Coding; Lawsuit is Fabricated

Canadian tech startup, BlockCrushr, is taking Ethereum developer, ConsenSys, to court over the stolen intellectual property of a payment solution. The plaintiff claims ConsenSys stole its source code when they participated in a ConsenSys-sponsored hackathon to create a rival payment system to theirs.

In a filing to the Eastern District of New York Court, BlockCrushr claims ConsenSys broke trust as an investor by stealing trade secrets and launching a rival version of their recurring payments platform, a day before they began.

The link between the two companies started in 2020 when BlockCrushr participated in ConsenSys’ Tachyon Accelerator Program. ConsenSys had also invested $100,000 into the company, but the founders of the company believe the mentor was simply playing them to steal their trade secrets.

BlockCrushr claims it shared a “detailed every aspect of its marketing, financial, technical, and regulatory strategy” to ConsenSys during the Accelerator program. Furthermore, the filing states they shared over 120,000 lines of source code of their recurring payments platform to gain guidance.

The complaint states that following the Accelerator program, ConsenSys would invest and guide the company forward, but no funding came. Due to cash strains and lack of funding, BlockCrushr’s founders Andrew Redden and Scott Burke, claim they had to lay off employees to streamline funding.

After securing a new round of funding, BlockCrushr moved to launch to market but were beaten to it by ConsenSy’s new recurring payments platform, “Daisy Payments,” which began on August 22nd, 2019, a day before their slated product launch.

TheBlock was able to get a comment from the ConsenSys legal counsel team who claim the story by BlockCrushr is fabricated and false but declined to comment before the court hearing.

The Canadian tech startup is now suing ConsenSys for damages caused by misappropriation of trade secrets and a breach of contract.

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Author: Lujan Odera

Crypto Mining GPU Manufacturer, NVidia Petitions Court to Toss Out $1 Billion Class Action

NVidia has petitioned the California court to dismiss the class action suit made by its investors.

The lawsuit against the firm’s top brass alleges that they understated more than $1 Billion in revenue between 2017 and 2018 from crypto mining GPUs instead of owing it to the gaming sector.

Graphic processing Unit manufacturer Nvidia moved to file a petition to drop the class action suit against them. Their shareholders alleged that the company misrepresented its revenues from 2017 -2018.

The initial class-action suit was filed on Dec 2018 in a Californian Northern District Court by the Iron Workers Local 580 Joint Fund, which primarily ensures welfare (pension and health benefits) amongst both working and retired ironworkers.

The plaintiff alleges that the defendants of the suit, Nvidia top brass Jensen Huang and Colette Kress, failed to reveal that their purported earnings from the gaming industry highly relied on sales made to crypto miners.

Their GPUs: GeForce and GTX are popular picks for gaming enthusiasts and crypto miners that may require extra computing power. They later unveiled a chip dubbed – Crypto SKU – tailored for crypto mining activities in 2017. Their sales report indicated that the majority of their sales (north of $1 Billion) were generated from the gaming sector, and only Crypto SKU sales represented the cryptocurrency mining sphere.

In the petition to dismiss the class action, Nvidia has reiterated the remarks by top brass at the time of the initial lawsuit. They have highlighted that there was no way of determining the exact objectives of acquiring their GPUs.

They echoed comments made by founder and CEO Jensen Huang that it was hard to say whether the GPUs purchased for mining or crypto activities. Shifting blame from its executives who have described earnings from crypto accounted for just a tiny fraction of their total revenue.

The Skewed Findings

The firm is alleging the court threw out their initial objection solely based on the Prysm group report. They have maintained that the amended suit doesn’t qualify because it entirely relies on erroneous findings made from a 2018 impact of crypto mining on the firm’s sales inquiry.

This report was penned by Jon Peddie Research consultancy, and Morgan Stanley’s skewed statistic for the gaming chips demand model. They claim that the plaintiff is cherry-picking snippets from the corporate statement while ignoring information volunteered about the company’s revenue streams.

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Author: Lujan Odera

Russia’s Supreme Court Employs Blockchain Technology To Vote Amidst the COVID-19 Pandemic

  • Russia’s Supreme Court uses blockchain technology to finalize voting decisions.
  • Polys, a blockchain based voting platform by Kaspersky Labs, enhances transparency and security in voting systems.

An official statement published on the official website of the Supreme Court of the Russian Federation, the Plenum of the court used Polys blockchain technology, developed by Kaspersky Lab, to vote in light of the current social distancing protocols in place due to the COVID-19 pandemic.

The Kaspersky- developed Polys blockchain is built on the Ethereum aiming to build completely secure and immutable online voting platforms to enhance transparency and accountability in elections.

The Supreme Court participants used Kaspersky Lab’s Polys blockchain to “make decisions” which were then “deployed on the basis of Softline’s Russian cloud storage.” The successful implementation of the blockchain solution pushed a recommendation on its use in the upcoming meeting in July. The statement reads,

“As a result, this system is recommended for use in the framework of the next plenary meeting of the Council of Judges of the Russian Federation, which will be held in July 2020. The meeting is supposed to include the maximum possible number of representatives of the Russian judicial system.”

Blockchain voting adoption in Russia

Russia is heavily focusing on blockchain voting systems in a bid to improve their elections – both at the state and national level. In 2019, the Moscow’s city parliament, known as Duma, successfully conducted a regional election while in December 2018 another regional election in Saratov Oblast, with over 40,000 participants, was conducted on a blockchain platform.

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Author: Lujan Odera

Former Mt. Gox CEO Appeal Rejected By Japan’s High Court, Two Year Jail Term Stands

  • Japan’s federal court rejects the former Mt. Gox CEO, Mark Karpeles’ appeal, upholding his two-year jail term.
  • The ruling sees the infamous Mt. Gox case stretch on as Mark’s attorney’s vow to reopen the case following an “unfortunate verdict.”

According to Associated Press report, a Japanese high court upheld a lower court’s ruling on the Mt. Gox saga, a crypto exchange that went bankrupt after 850,000 Bitcoins were hacked from the exchange. Mark Karpeles, the former CEO of the Japan based crypto exchange is the center stage of the case charged with manipulation of electronic data.

The lower court found the Frenchman guilty of manipulation of data sentencing him to two and a half years in suspended prison time – meaning he won’t serve jail time. The court also dropped two charges from the original prosecutions – embezzlement of funds and a breach of trust to the Mt. Gox users.

However, Karpeles appealed the ruling maintaining the hack was completely external and he had nothing to do with it. He believes the case on Mt. Gox will drag on for a decade before the root cause of the hack is established given the relatively new area of the crypto space back then.

The prosecutors at the district court had asked the court for a ten-year jail term for Karpeles following a class action lawsuit filed against him by former Mt.Gox users.

An innocent plea

The Namaste order from the high court however will not stop Mr. Karpeles attorneys from proving his innocence in the MT. Gox hack saga. The lawyers argue that the prosecutors misunderstand the overall working around a crypto exchange hence their continued pursuit over the CEO while he had nothing to do with it. The statement from Karpeles following the upholding of the guilty verdict read,

“Today’s verdict was unfortunate, and I am reviewing its contents alongside my lawyers and will decide how to proceed from there in the coming days.”

Currently, reports from Japan show that Mark Karpeles has launched Tristan Technologies, a blockchain based operating system much to the criticism and disdain of Mt.Gox users. One distraught user claims Karpeles is finding a way to clean his image and get back into the blockchain space.

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Author: Lujan Odera

Ripple Inc. Moves To Court To Dismiss Fraud Claims Against Its CEO, Brad Garlinghouse

  • Ripple Inc. moves to court asking for a dismissal on the three accounts of fraud in an ongoing case against Brad Garlinghouse, the company’s CEO.
  • The lawsuit against Mr. Garlinghouse claims the executive sold millions of dollars’ worth of XRP when the market was booming in 2017 by misleading customers he was “very long” on the digital asset.

A “court motion to dismiss,” filed by Ripple Inc. to the United States District Court in Northern California on June 8, aims to dismiss the charges faced by the CEO, Brad Garlinghouse.

The motion aims at removing three accounts of fraud by the plaintiff, Bradley Sostack, which did not show how Garlinghouse was purportedly fraudulent in selling his XRP.

The lawsuit is built around the interview that Garlinghouse made on XRP back in December 2017, claiming he was “very very long [on] XRP” regarding questions on his view on the investment asset. Furthermore, an amended complaint alleges that Garlinghouse sold a vast portion of his XRP coins shortly after receiving them from Ripple despite being “long.”

Finally, the lawsuit also claims that XRP is a security and raised questions on Ripple’s selling point of XRP as a utility token.

Ripple Dismisses the Lawsuit: “Must be Disregarded”

While the plaintiffs are claiming the Ripple CEO sold close to $58 million in Ripple shortly after saying he was long, the defendant’s lawyers claim the misrepresentation does not amount to fraud. The plaintiff is yet to prove this according to the Federal Rule of Civil Procedure 9 (b) which states that they must “state with particularity the circumstances constituting fraud.”

According to the defendant’s lawyers, plaintiffs are yet to establish the fraud in Garlinghouse selling off part of his investments. The motion filed with the district court further elaborates that the mere act of selling a portion of his XRP assets, Garlinghouse did not stop being long on the asset.

It reads:

“Selling a portion of one’s XRP holdings does not mean that the seller cannot also be ‘very, very long’ in the same asset as a percentage of his or her own personal balance sheet.”

The defendants are asking the court to disregard the three fraud claims brought against the Ripple CEO. This will see the pursuit of fraud claims against Garlinghouse’s $58 million XRP sale in 2017 be dropped completely.

“Defendants thus respectfully request that the Court dismiss Plaintiff’s fraud claims with prejudice.”

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Author: Lujan Odera