Molly White's Citation Needed - Issue 76 – Tripartisan legislation

Episode Date: February 6, 2025

Crypto exchanges face legal troubles, and Trump’s crypto empire grows as regulations are slashed and enforcement is sidelined. Originally published on February 5, 2025.

I'm Molly White, and you're listening to the audio feed for the citation-needed newsletter. You can see the text version of the newsletter online at citation-needed.news. Issue 76. Tripartisan legislation. Crypto exchanges face legal troubles, and Trump's crypto empire grows as regulations are slashed and enforcement is sidelined. It's a profoundly weird feeling to outline all the goings on in the crypto world. right now, which range from the highly important, such as U.S. lawmakers working to dismantle anything that might prevent massive financial contagion from another crypto collapse, to the vaguely amusing,

such as a, quote, quantum enhanced AI project, raising a bunch of money by allegedly just slapping some monochrome artwork on a pseudo-random number generator. As Elon Musk and his alpaca-haired gaggle of 20-year-olds without any apparent vetting or clearance push changes straight to production in the Treasury, and Treasury Secretary continues to insist they have read-only access, and Trump suggests the U.S. take over the Gaza Strip, and Democrats advance RFK Jr.'s Health and Human Services Secretary appointment because they've decided doing any real legislating would get in the way of their re-election ambitions. I wonder if my time might be better spent going off-peased again, as I did last week in my story exposing the Trump loyalists

writing OMB memos. But I think regular readers of this newsletter will understand how inextricably linked the crypto industry is to our current circumstances, and how deeply they will continue to be linked, and how important it will be for people to understand what is happening in this world. And I hope new readers just joining will understand very soon, thanks to my ongoing work in this space. A blue sky user named Borderless wrote a great thread today that reached me just at the right time. Y'all pick a lane, then make a little progress in your lane each day.

In the courts, France has opened a probe into the Binance cryptocurrency exchange to examine money laundering, tax fraud, and other charges. Much like the criminal case in the United States, which examined Binance's early years of operation, French investigators are looking as far back as 2019 to review Binance's activities. Unlike the U.S. case, which looked at illicit activities, up until only mid-2020, French investigators are reportedly reviewing much more recent potential infractions dating up to 2024.

That hasn't stopped Binance from waiving off the investigation as, quote, several years old, and Binance has denied all the allegations. Stemming from charges filed back in March 2024, Q-Coin has pleaded guilty to violating U.S. anti-money laundering laws. They will pay a $300 million fine, and withdraw from the U.S. for two years. Two co-founders of the company who were personally charged have reached deferred prosecution agreements, which include them leaving the company and paying

$2.7 million in fines apiece. This is only the most recent development in Q-Coyne's history of legal woes. The case filed by the CFTC alongside the DOJ's criminal charges still remains ongoing. Prior to that, the company had paid a $22 million fine in a case brought by the New York Attorney General in 2023 and $2 million in a case brought by Canadian securities regulators in Ontario in 2022. A 22-year-old Canadian man named Andean Medajovic has been indicted on wire fraud, hacking, extortion, and money laundering-related charges in connection to his alleged hacking of both the indexed finance defy protocol in October 2021. and the Khyber Swap decentralized cryptocurrency exchange in November 2023. He was identified all the way back in October 2021, when he was only 18 years old,

when he stole $16 million from indexed finance. Even after he was identified, he refused to return the funds, insisting that code is law and that the users of indexed finance had merely been, quote, out-traded. There is nothing you can do about that. When Medvedovic was summoned to a court in Canada, he never showed. In 2023, he struck again, with a $50 million theft from Khyber Swamp. This time, he took it a step further, issuing a list of demands which included, quote, complete executive control over the company, and, quote, the surrender of all assets. He signed the missive Khyber director.

Unfortunately for him, this added stunt seems to have been what earned him an additional extortion charge. If convicted, Medvedovic is potentially facing serious time, with 20-year maximum sentences on four of the five charges. Sam Bankman-Fried's parents are looking into acquiring a presidential pardon for their son, according to Bloomberg. I guess they might as well, but it seems somewhat unlikely to me that this will go anywhere. For one, despite the fact that Bankman-Freed's political donations were a lot more bipartisan than generally believed, due to his dark money or straw Republican donations, he is still generally perceived to be a primarily Democratic mega-donor, something that is not likely to endear him to Trump. Secondly, while the crypto industry is

already cashing in on the favors they've bought with Trump, an SBF pardon is not likely to be among them. While he was once a figurehead of the crypto industry, there is no free SBF campaign within the crypto world, which largely resents him for damaging whatever reputation they believe they once had. A second class action lawsuit has been filed against the Pump.comun meme coin platform, joining another that was filed in mid-January. Much as the first lawsuit involved trades of the peanut token, themed around Maga-Ca-Codeb Peanut the Squirrel, this lawsuit focuses on a meme coin themed around peanuts lesser-known but similarly ill-fated roommate,

a raccoon named Fred. The most recent case also names the tokens Fwag and Gryphane. The plaintiff in the second suit is represented by some of the same legal team as in the first, and the complaint makes similar allegations. There is a bit of a weird twist here, though. In order to illustrate its claims around how easy it is to create a meme coin on pump.funk-funkn, law appear to have created a meme coin of their own. Exhibits submitted alongside the lawsuit show screenshots of a wallet creating a token called

dog shit going nowhere, or dog shit too, with a description, don't buy this coin. Eagle-eyed crypto Degens have, of course, tried to pump the token price. However, Berwick Law's managing partner has denied actually creating the token, stating that the, quote, token concept was only, quote, memory on the server. Seven people have been charged in a series of kidnappings and violent attacks on a single victim, who was forced to transfer 100,000 pounds, or around 125,000 US dollars, in cryptocurrency across five separate attacks in the span of a year.

The man was repeatedly threatened with violence and forced to transfer money. In the third attack, he was kidnapped and assaulted until he sent more money. He went on to be kidnapped twice more, and in the last incident was held for several days. He had been tied up, burned, and beaten. The seven people were convicted and sentenced to prison terms of between roughly two and 13 years. In bankruptcies, Cryptocasino Zero Edge seems to be in the running to break records for the shortest time between raising millions of dollars in seed funding and having to shut down. Company liquidators have accused founder Richard Kim of, quote, misappropriating most of the $8.3 million the company raised in seed investments and token sales. A day after the company closed its seed financing round in June 2024, Kim put millions of dollars into leverage.

long Bitcoin positions. When Bitcoin prices took a dive that month, all was lost. Kim admitted what he had done, claiming that it all began when he lost $80,000 to a fishing website. Quote, this triggered my old demons, the need to make it back to preserve my reputation. I started down a negative spiral of leverage trading, raising more capital, and hiding the truth. By the seed rounds close, I was ready to rebuild to start fresh, putting past demons aside. But the moment I received the proceeds, something snapped. I felt compelled to make up for my missteps. Within days, millions were in leveraged longs. When Bitcoin crashed, I experienced a complete wipeout. Although Kim told a crypto media outlet at the time that he had self-reported to the SEC tip line, and that he, quote,

didn't intend to go run away with this money, company liquidators have accused him of misappropriating the funds and then, quote, disappearing. In governments and regulators. Robin Hood, Crypto.com, and Kalshi might be in hot water with the CFTC, after announcing they intend to launch, quote, event contracts pertaining to the outcomes of the Super Bowl on their, quote, derivatives markets. Quote, with an emerging asset class like event contracts, we recognize an opportunity to better serve our customers, said Robin Hood in a statement announcing the launch, which was

followed a day later by another announcement that they would be suspending the offering at the CFTC's request. Personally, I'm impressed at the branding exercise happening here. Sports bets are now event contracts, and gambling is now an emerging asset class. They seem to be taking lessons from the cryptocurrency industry, who have termed ignoring financial regulations as economic innovation. Perhaps the next pickpocket to be caught by police should try informing the officer that they're merely democratizing finance. El Salvador's Congress has signed off on a request from President Buckele to drop Bitcoin as legal tender in the country. This is a remarkable about face by vehemently pro-Biccoyne who pushed the asset on the country in 2021 despite little interest from the

public. His changed stance is thanks to the International Monetary Fund, or IMF, who responded to Buckeli's Bitcoin policies by downgrading El Salvador's credit rating and whose $1.4 billion in credit to the country was made contingent on changes to limit its Bitcoin-related activities. In U.S. politics. Crypto Press Conference America's new AI and CryptoZar, David Sachs, headed up a crypto-focused press conference on Tuesday, in concert with the Senate Banking Committee and several House representatives. The CryptoWorld reacted with some disappointment to those they were only recently so excited about, seeming unimpressed that these politicians were merely announcing future announcements,

rather than unveiling anything that would immediately pump their bags. Quote, this crypto-focused presidential working committee might need to be doged as well, remarked one popular crypto-t Twitter account and frequent retweeee of Elon Musk. For all the crypto-industry money that poured into installing crypto-friendly Congress people, this time around, the speakers at the press conference mostly described their plans to push forward crypto-related market structure and stable coin bills that will look a lot like what was on the table during the last administration. Fit 21 is back, although the complaints from last summer from some of the crypto industry that their regulatory windfall was not friendly enough, will likely

resurface in front of this new, obsequious group. Speakers at the press conference made no secret of the the degree to which they intend to let the cryptocurrency industry write the rules, with Congressman G.T. Thompson, a Republican from Pennsylvania, boasting that they would continue to work in a, quote, tripartisan way with Republicans, Democrats, and the crypto industry. Senators Hagerty, a Republican from Tennessee, Scott, a Republican from South Carolina, Gillibrand, a Democrat from New York,

and Lummis, a Republican from Wyoming, have put forward a stable coin bill, also announced Tuesday, called the Genius Act, which is short for guiding and establishing national innovation for U.S. Stable Coins. I guess Stable Genius Act was already taken. It's pretty similar to the Stablecoin Bill introduced last Congress by Lemus & Jellibrand,

and similarly has very little in it that would safeguard consumers or address risks of financial contagion. This is treated as a selling point. The press release from the Senate Banking Committee promotes its, quote, light-touch, tailored regulatory standards. Cabinet confirmations. The Senate has confirmed pro-Crypto Scott Bessent as Treasury Secretary to replace Janet Yellen.

Days after his confirmation, he was also tapped to replace Consumer Financial Protection Bureau Director Rohit Chopra, who Trump unsurprisingly fired. Chopra wrote in a farewell letter that the CFPB is intended to, quote, make sure the laws of our land aren't just words on a page. Those laws are intended to check the enormous influence that powerful firms have over our daily lives. With so much power concentrated in the hands of a few, agencies like the CFPB have never been more critical. Given that Bessent himself is a wealthy hedge fund manager,

and that one of his first actions as Treasury Secretary was to sign off on granting Elon Musk and his gaggle of interns access to the highly sensitive federal payment systems, it was hardly unexpected to see Besant immediately shut down work at the CFPB. It should be noted that as the crypto industry continues to protest debanking, or at least their crypto-focused definition of the term, they have been completely silent about the stoppage of work at the agency primarily in charge of preventing discriminatory consumer debanking. The Senate Commerce Committee voted 16 to 12 to send Howard Lutnik's nomination to a full Senate vote,

with votes largely breaking down along party lines. He faced some scrutiny during his confirmation hearing over his substantial ties to the tether stablecoin, mostly pertaining to its role in enabling criminal activity. Quote, our AI tools will rip illicit activity out of stablecoins within a year or two, he said in response, which was hardly more convincing than if he had done. said, quote, we expect a crime-stopping magic wand to be dropped in our laps within a year or two. As for the question of Tether's years-long failure to produce anything resembling a proper audit, which Lettnick had previously waved off by personally vouching for the stablecoin's reserves,

he actually backed down from those previous statements somewhat, saying, quote, Cantor Fitzgerald is not conducting continuous diligence on Tether's financial statements, but I believe my statements were accurate when made. Asked if he would publicly call for a tether audit, Lutnik dodged the question entirely. I, for one, have never been more confident in the stability of the asset that props up the entirety of the crypto ecosystem.

SEC. Even before any confirmation of Trump's nominee for agency chairman, the SEC is already working to fulfill its orders from the crypto industry. The New York Times has reported that the agency has reassigned some of the roughly 50 lawyers comprising its crypto-focused enforcement unit, which is tasked both with ensuring crypto companies comply with securities laws and with going after fraud and other malfeasance in the markets they oversee. However, it seems to me that the SEC is also telegraphing that slashing the SEC's consumer

protection activities will likely have some unpleasant consequences. In a long statement by longtime crypto-friendly SEC Commissioner Hester Pierce, who is now also chief of staff of the agency's new crypto task force, she tucked in a caveat mTOR. Quote, spinning up coins and tokens is easy. If people want to buy a token or product that lacks a clear long-term value proposition, they should feel free to, but should not be surprised if someday the price drops. In this country, people generally have a right to make decision. for themselves, but the counterpart to that wonderful American liberty is the equally wonderful American expectation that people must decide for themselves, not look to mama government to tell them what to do or not to do, nor to bail them out when they do something that turns out badly. Whether she's speaking about bailouts for individuals who actually buy various crypto tokens,

or for the whole American financial system, will remain to be seen. The SEC has not yet dropped ongoing enforcement cases against political mega donors like Coinbase, ripple, and others, but the industry has already been acting in ways that suggests they believe they have impunity from enforcement actions going forward. As I noted two issues ago, Coinbase has already relaunched the borrowing program that the SEC had previously frowned upon. Now, Cracken has relaunched crypto-staking services, which they shut down as a part of of February 23 settlement with the SEC that also saw them pay $30 million in fines. Trump Crypto Projects. Trump's World Liberty Financial project has found itself in some hot water

after Blockworks reported that the company has been approaching various blockchain projects with token swap deals, where World Liberty Financial would agree to buy an equivalent amount of the token belonging to projects that bought $10 million or more of its World Liberty Financial. tokens, Sons a 10% fee. Recent revelations that World Liberty Financial has bought tokens including Justin Sun's Tron Project's TRX token, chain links, Link, and Avey have caused spikes in interest and therefore price in those various tokens, which might incentivize other projects to pursue similar deals. Some also seem to hope that this would earn their project's inclusion in World Liberty Financial's upcoming trading platform.

Eric Trump, President Trump's son and a member of World Liberty Financial's management board, pumped the price of ETH on February 3rd when he tweeted, quote, In my opinion, it's a great time to add ETH. You can thank me later. He tweeted this shortly after, in what I'm sure was a totally unrelated move, World Liberty Financial moved a substantial number of ETH tokens to Coinbase Prime, where they would stand to earn more money if the ETH price just so happened to spike right around that time. World Liberty Financial has denied that they were selling tokens. Not long after making his post, Eric Trump removed the

You Can Thank Me Later portion, but not before various influential crypto figures remarked on the blatant pump attempt. Quote, they're going to have to come up with a new word for market manipulation after this cycle is over, commented crypto influencer Ansem later that day. Trump themed and owned meme coins, Trump and Melania, whose websites insisted they were nothing more than digital collectibles, or, quote, an expression of support for the ideals and beliefs embodied by their tickers, are now being accepted as payment on several stores for Trump-branded products,

including fragrances and sneakers. Sadly, for holders, their tokens will buy them somewhere between a quarter and a fifth as many of the $200 Trump for men and Trump for Women, Colognes, and Perfumes as they might once have, as the token prices have slumped considerably since the meme coin announcements. Trump apparently can't get enough of crypto, because in addition to these two projects, one of his companies is planning to launch a third. Trump Media and Technology Group, the publicly traded company behind the Truth Social Platform, has announced it will be launching a, quote, financial services and fintech brand called

Truth.com, which will be focused on, quote, American first investment vehicles, investment products, and decentralized finance. Quote, developing American first investment vehicles is another step toward our goal of creating a robust ecosystem through which American patriots can protect themselves from the ever-present threat of cancellation, censorship, debanking, and privacy violations committed by big tech and woke corporations,

said Trump Media's CEO and chairman Devin Nunes. Yes, that Devin Nunes. The CEO of Trump's, quote, free speech platform is the same former congressman known for filing bogus slapsuits against perceived enemies and critics, including against a parody Twitter account named Devin Nunes's cow. Everything else. Musk is reportedly, quote, exploring blockchain technology for use in both his Department of Government Efficiency and at the Treasury, because what could contribute more to government efficiency

then securing lucrative contracts for your crypto donors to implement inefficient technology that is uniquely suited to solving problems you don't have. The Crypto Advisory Council, led by Bo Hines, will presumably take shape soon. According to one hopeful, quoted by the New York Post, quote, everyone and their mother is begging for a spot. Those rumored to be on the short list include Crypto Mega Donor Brian Armstrong of Coinbase, as well as executives from other crypto exchanges and crypto-related companies. I'm sure the list of consumer protection advocates and more crypto-sceptical voices also being

considered for the council will drop any day now. In Elections and Political Influence. Fairshake is already fundraising for the midterms, pulling in multi-million dollar donations from the likes of Jump Crypto to add to the nine-figure war chest they've already been preparing from the usual suspects. Coinbase, Ripple, and Andresen Horowitz. Although the midterm elections are still two years away, I think Fairshake is sending a clear signal to Congresspeople who will be up for re-election,

support the crypto industry's policies, or you're out in 2026. The revolving door is swinging fast, and former Arizona Senator Kirsten Sinema has joined the long list of former Congresspeople and other government officials to lend their names to Coinbase's global advisory count, Trump advisor Chris LaSiveta is also on their roster now. The Web 3 is going just great recap. There were nine entries between January 23rd and February 5th, averaging 0.6 entries per day. $318.97 million were added to the Grift Counter.

Coinbase has been accused of allowing $300 million a year in social engineering attacks on its customers. Renowned crypto sleuth, Zach XPT, has accused Coinbase of, quote, failing to stop its users losing 300 million plus per year to social engineering scams, identifying $65 million in thefts from Coinbase users in the past two months alone. He acknowledged that the, quote, number is likely much lower than the actual amount stolen, as our data was limited to my DMs and thefts we discovered on chain, which does not account for Coinbase support tickets and police reports. we do not have access to.

Many of the Coinbase thefts are perpetrated by scammers impersonating Coinbase support staff, who call victims and claim that their accounts have been compromised, then convince them to transfer their tokens to the scammers' own wallets. Coinbase does very little to try to thwart these types of attacks on their customers, and what little protections they have attempted to put in place seem to more frequently than anything lock legitimate users out of their accounts. lack of customer care by crypto companies is hardly a rare site in the crypto world,

as I wrote recently when I wrote, quote, crypto platforms that receive complaints from customers whose accounts were emptied, typically shrug and say, guess you shouldn't have fallen for a scam, then refer them to local law enforcement, who in turn shrug and say, we can't trace stolen crypto. Who rugpoles the rug pullers? Poor software security by the developers of a software library called Dogwif Tools, which helps meme coin creators pump and dump their tokens and fake trading

activity, has resulted in scammers, scamming scammers. Attackers were able to compromise the package to insert a remote-access Trojan, which they then used to exfiltrate crypto wallet private keys, login information, and scans of identification documents. Ultimately, around $10 million were taken from would-be scammers. Along with the virus, the people who compromised dogwift tools left an angry note on infected machines. Solana is a fucking joke and a scam from the beginning. It was designed for criminals by criminals.

As a result, we have confiscated all your crypto because you deserved it. They also published a manifesto on an onion site, explaining, quote, we specifically targeted scammers in the crypto market who were using tools to gain an unfair advantage over innocent day-to-day traders. We believe it was morally correct to confiscate money

that was not rightfully theirs. Everything else. The Alley Cat Project developer took pre-sale money to fund his gambling habit. The Dogwif Hat meme coin lied about a deal to put the meme on the Las Vegas sphere after raising $700,000 to pay for it. The Chotchkei Quantum Enhanced AI Crypto Project

appeared to be based on lies. The newly freed Silk Road founder Ross Ulbricht appeared to squander $15 million in potential meme coin profits. The on-chain micro-strategy clone, Ether Strategy, lost over $500,000 of ETH. Q-coin pleaded guilty and paid nearly $300 million in a criminal case, and the zero-hedge crypto casino entered liquidation after the founder gambled away at seed money. Worth a read, TechDirt published an article titled A Coo is a in progress in America. Shout out to Mike Brock and Techdirt for being among the first to not mince words about what Elon Musk and his allies are doing, and call it a coup. Brock writes, quote,

this is an emergency, and it demands emergency response from every American with power or influence. The window for effective resistance narrows with each passing day. History will judge harshly those who had the capacity to resist, but chose instead to wait and see how things develop. The time to act is now, before the mechanisms that would allow effective resistance are completely dismantled. Others who have told it like it is, and provided excellent journalism in addition to their accurate nomenclature, are Marissa Cabus of the Handbasket, Parker Malloy of the present age, and Jeet here in the Nation. Opposition Press If you've found yourself thinking, why isn't anyone doing anything lately? Consider this.

Some of the owners of the biggest news media in the United States have publicly bowed to pressure or sought favor with Trump. It is in their interests not to report on resistance to his and his administration's abuses because it contributes to a feeling among opponents that they are alone and that they can't possibly do anything to push back as just one person. Rather than looking to some of the biggest outlets in the mainstream media to shape your perspective, find hope in some of these publications who have been doing really exceptional journalism in the recent week and beyond. TechDirt, which I mentioned above, and which also published Mike Masnick's first cracks appear. Some conservatives admit we're in a constitutional crisis. Marissa Cabus and the Handbasket, an independent journalist who broke the story on the federal spending freeze,

wired, a well-known tech publication that has really stepped things up to report on Elon Musk's weird cohort of practically children, And 404 Media, an incredible indie newsroom that has recently published pieces like Janice Roses, You Can't Post Your Way Out of Fascism. In the News, if you want an under 10-minute recap of the Trump meme coin, I went on the BBC's more or less podcast, titled Did Trump Make Billions with his meme coin? I'm also quoted in some Trump meme coin-related coverage in Jacobin and Sludge. I spoke about Wikipedia with the Columbia Journalism Review for the article, The right takes aim at Wikipedia.

And I'm also quoted in Stephen Harrison's, A powerful conservative think tank is targeting one of the last good things on the internet in Slate. That's all for now, folks. Until next time, this has been Molly White. Thanks for listening to this issue of the citation-needed newsletter.

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