BitBlog Weekly Update

… reached a settlement with Bitqyck, Inc. (“Bitqyck”) and Bitqyck’s founders over allegations relating to the company’s $13 million initial coin offering.
Monday, September 9, 2019

The Polsinelli BitBlog Weekly Update begins with the U.S. Securities and Exchange (“SEC”) settlement with an issuer of securities, who managed to both illegally offer securities, and create an unlicensed exchange to trade those securities. We move then to news of legal action against the dubious, self-proclaimed inventor of Bitcoin, Craig Wright, who the court managed to call a fraud and liar, only in many more words. In less salacious news, Libra, Facebook’s proposed cryptocurrency, continues to face a doubting U.S. Congress, despite the best efforts of Swiss Regulators, while Telegram pushes along its plans for its own “cryptocurrency.” Not to be outdone by Congress, Swiss regulators remind blockchain businesses that anti-money laundering laws apply to everyone. And the U.S. FTC joins the alphabet soup of crypto-regulators settling with a bevy of alleged crypto-pyramid-schemers in Florida.

SEC Settles with Texas ICO Issuer Accused of Fraud and Operating an Unlicensed Exchange

On August 29, 2019, the SEC announced it had reached a settlement with Bitqyck, Inc. (“Bitqyck”) and Bitqyck’s founders over allegations relating to the company’s $13 million initial coin offering. The SEC alleged that Bitqyck had sold two digital tokens – Bitqy and BitqyM – using false representations about Bitqyck to lure in over 13,000 token buyers. According to the SEC complaint, Bitqyck’s false representations included statements suggesting that the company owned a cryptocurrency mining facility and had access to discounted electricity when, in fact, it did not own any such facility and had no access to cheap electricity.

The SEC also alleged the defendants improperly facilitated trading of Bitqy in an unregistered securities exchange created by the company, known as TradeBQ. These allegations relating to running an illegal exchange are probably the most important take away from this settlement because it follows a similar statement in the DAO Report that the creation of a platform to bring together multiple buyers and sellers of securities of the issuer can turn the platform into an entity that is deemed by the SEC to be an unlicensed exchange.

Bitqyck and its founders, Bruce Bise and Sam Mendez, consented to injunctive relief, disgorgement, prejudgment interest and civil penalties in excess of $10 million, collectively.

A copy of the SEC press release can be found here.

A copy of the SEC complaint against Bitcqyk can be found here:

Craig Wright Admonished for “Willful and Bad Faith” Conduct in Florida Federal Court

Craig Wright, the man who claims to have founded Bitcoin under the alias Satoshi Nakamoto, had a bad week in Florida Federal Court. In a convoluted story tangentially related to Wright’s claim of being Satoshi, a man named Ira Kleiman sued Wright in Florida federal court in February 2018 on behalf of Kleiman’s deceased brother, David. Ira Kleiman alleges that David Kleiman and Wright had founded Bitcoin as partners and that together they had mined a large amount of the cryptocurrency between 2009 and 2010, and since his brother’s death, Wright has failed to release David’s assets to the estate.

Wright presented a different version of events, claiming that the rampant widespread use of Bitcoin in illegal transactions eventually scared him off of the crypto platform he founded. In order to protect himself and his assets, Wright reached out to Dave Kleiman and together they founded the Tulip Trust where Wright would allegedly place up to one million bitcoins. Wright claims he lost the ability to access the Tulip Trust when Kleiman died as both men had acted as trustees and a multi-key encryption is required to access the data.

The Federal Magistrate Judge did not buy Wright’s story. In an unusually blunt order, Magistrate Judge Bruce Reinhart stated that, “Dr. Wright’s demeanor did not impress me as someone who was telling the truth” and that he completely rejected, “Dr. Wright’s testimony about the alleged Tulip Trust, the alleged encrypted file, and his alleged inability to identify his Bitcoin holdings.” The court’s order goes on to say that, “the evidence establishes that [Wright] has engaged in a willful and bad faith pattern of obstructive behavior, including submitting incomplete or deceptive pleadings, filing a false declaration, knowingly producing a fraudulent trust document, and giving perjurous testimony at the evidentiary hearing.” While the Magistrate Judge did not decide on the question of whether Wright is the founder of Bitcoin, he did rule that any Bitcoins Wright mined prior to 2013 are the joint property of Wright and Kleiman. The ruling could in theory cost Wright in excess of $5 billion if these Bitcoins really exist and are found and unlocked.

A copy of the order can be found here.

Libra Faces Continued Skepticism in U.S. Congress

In a previous update we wrote about the icy reception that Libra, the Facebook cryptocurrency, received in Congressional hearings in July. Congress’ antagonism towards Libra has apparently not changed despite a delegation of U.S. House Representatives, including Maxine Waters, Chairwoman of the House Committee on Financial Services, recently meeting with Swiss regulators about Libra. The Libra Association that will issue and manage the cryptocurrency is located in Geneva, so a group of U.S. lawmakers traveled to Europe to meet with representatives from the State Secretariat for International Financial Matters, the Federal Data Protection and Information Commissioner, and the Financial Market Supervisory Authority, as well as Swiss legislators. But the meeting apparently did little to assuage U.S. lawmakers’ concerns. In particular, Waters said she continues to be concerned, “with allowing a large tech company to create a privately controlled, alternative global currency.” Facebook, for its part, said it understands that the launch of Libra will be a long process and that it is willing to continue to engage with regulators and others.

Rep. Waters’ statement on the Swiss visit can be found here.

Messaging App, Telegram Pushes Ahead With Plans for “Gram” Cryptocurrency

Facebook is far from the only tech company looking to issue a cryptocurrency. The messaging app, Telegram has talked openly and frequently over the last few years about issuing a currency called, “the Gram” and even raised $1.7 billion dollars from investors who received a security that can be exchanged for Grams once the token is issued. Unlike the Libra, the Gram is not expected to be backed by a traditional currency. The New York Times reports that Telegram is planning to issue the first of the Gram tokens over the next few months and quotes the Chair of Polsinelli’s FinTech and Regulation Practice saying, “Anyone trying to build this type of token system has to be careful on any number of levels with regulators… I suspect that regulators will take a very close look at this offering.” Gram is likely to encounter even more hurdles than Libra given that Gram will likely be considered a securities offering by virtue of the presale of rights to the tokens.

A copy of the article from the New York Times can be found here

Swiss Regulators Issue Warnings about AML Compliance to Blockchain Companies

On August 26, 2019 Swiss Regulators published guidance instructing blockchain-based businesses to follow the country’s anti-money laundering (AML) standards. The Swiss Financial Market Supervisory Authority (FINMA) struck a familiar tone in stating that it, “recognizes the innovative potential of new technologies for the financial markets,” but cautions that, “blockchain-based business models cannot be allowed to circumvent the existing regulatory framework.” AML steps that businesses must take include verification of customer identity, establishing the identity of any beneficial owners, and filing reports with Swiss authorities if there are reasonable grounds to suspect money laundering. Whether FINMA’s instructions will have any effect on the growth of the FinTech industry in that country is doubtful.

Federal Trade Commission Settles with Alleged Crypto Pyramid Schemer

The U.S. Federal Trade Commission (“FTC”) reached a settlement in an alleged crypto pyramid scheme. The defendants, Thomas Dluca, Eric Pinkston, Louis Gatto, and Scott Chandler, allegedly promoted their chain referral scheme – a type of pyramid scheme that relies on continual recruitment of new participants to generate revenue — using the names Bitcoin Funding Team, My7Network, and Jetcoin. They used websites, YouTube videos, social media, and conference calls insisting that participants could turn $100 into $80,000 in monthly income. The FTC asserted that most participants failed to recoup their initial investments and in March 2018 obtained an order freezing the defendants’ assets and enjoining them from making deceptive marketing representations about their businesses. The recent settlement permanently bans the defendants from operating or participating in any multi-level marketing program and requires them to pay nearly $500,000 in fines and restitution. The settlement is notable because it shows that the FTC, in addition to the U.S. Securities and Exchange Commission and the Commodities Futures Trading Commission, are monitoring the cryptocurrency industry for signs of unlawful behavior.

A copy of the FTC’s announcement about the settlement can be found here.

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A Man Who Says He Invented Bitcoin Has Been Ordered By A Judge To Pay Up Billions – In Bitcoins

Craig Wright is an Australian computer engineer who has claimed the identity of Satoshi Nakamoto, pseudonymous inventor of the cryptocurrency …

Craig Wright is an Australian computer engineer who has claimed the identity of Satoshi Nakamoto, pseudonymous inventor of the cryptocurrency Bitcoin. Now, The Guardian reports that a judge in Florida has ordered him to pay a full half of all the bitcoins he earned between 2009 and 2013 to the estate of the late David Kleiman, who Wright has said was his partner before his death, as well as half of the value of his intellectual property from the time of Kleiman’s death in 2013.

The court hasn’t yet made a determination of exactly how many bitcoins Wright has, but the Nakamoto identity’s bitcoin wallet would be valued at almost $10.5 billion as of this writing. That means that he would have to pay more than $5 billion worth of bitcoins to the Wright estate.

Dan Kitwood/Getty Images

You can probably already gather that this is a pretty complicated case, and in fact the court ruling isn’t a clear cut victory for Kleiman’s estate. That’s because despite Wright’s claim to be Nakamoto, he also says he can’t access the billions worth of bitcoins that are the digital property of that identity. He reportedly explained in court that after a crisis of conscience regarding Bitcoin’s use in illegal activities in 2011, he locked the bitcoin behind an encryption that was then placed in a blind trust. The encrypted key was, Wright says, given to Kleiman, who then cut it up and distributed it to several other people. According to Wright, the complete key won’t be delivered to him until sometime early next year, when a bonded courier is slated to place it in his hands.

If that sounds more like a spy novel than real life to you, you’re in agreement with the presiding Judge Bruce Reinhart, who reportedly said the story was “inconceivable.” He went on:

“During his testimony, Dr. Wright’s demeanor did not impress me as someone who was telling the truth…When it was favorable to him, Dr. Wright appeared to have an excellent memory and a scrupulous attention to detail. Otherwise, Dr. Wright was belligerent and evasive.”

Now, the case of the missing bitcoins will probably take quite a while to get totally straightened out.

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Nakamoto Candidate Ordered to Surrender Bitcoin

Satoshi Nakamoto is the name attached to the Bitcoin whitepaper that launched the cryptocurrency in 2009. However, the name is a pseudonym and …

Dr. Craig Wright, the self-proclaimed Bitcoin inventor, has been ordered to surrender half of his cryptocurrency assets.

The ruling, which came from a Florida judge earlier this week would be run-of-the-mill. That is, if we weren’t talking about billions of dollars and the potential unmasking of Satoshi Nakamoto.

Who Is Satoshi Nakamoto?

Satoshi Nakamoto is the name attached to the Bitcoin whitepaper that launched the cryptocurrency in 2009. However, the name is a pseudonym and the real creator’s true identity has remained a mystery.

Naturally, people have been out to solve that mystery but have encountered nothing but dead ends. Some people claim to be him, others claim to know him. In 2015, WIRED magazine proposed to have found him.

Who Is Craig Wright?

Dr. Wright, according to WIRED, had been potentially outed by a dark web hunt. The search revealed deleted emails and blog posts attributed to Wright referencing elements of Bitcoin before it launched.

Craig WrightCraig Wright
Craig Wright

The following year, the Australian publicly claimed to be Nakamoto to major news publications and magazines. He still identifies himself as Nakamoto on his personal blog. That is, despite the fact that the evidence that he provided to the BBC and others was later found to be fraudulent.

That brings us to this week. The order to hand over his crypto wasn’t part of a crypto case, but rather an estate case. The ruling, reported by The Sydney Morning Herald, says that AU$5.9b belongs to the estate of Wright’s late partner.

Wright could still argue the case in court and potentially avoid handing over the crypto. However, this might play into his hands. His representative said that if he hands over the coins it might help prove that he is the real Satoshi Nakamoto.

Why the Case Is Significant

For the cryptocurrency community, this could play out in a number of ways.

Many might be intrigued to know who the real Satoshi Nakamoto is. However, some Bitcoin zealots are not likely to accept anyone as the real creator.

What’s more intriguing is what might happen to crypto markets if that many coins were returned into circulation. If Wright has access to them – which he claims he doesn’t – they’re just sitting somewhere. “Sitting somewhere,” is what they’ll be doing if he’s not the real Nakamoto and can’t access the coins. That is to say, he claims to both be Nakamoto and to not have access to the coins. Some say those things don’t go together.

Supposing he does hand over the coins, everything falls into the hands of his late partner’s estate. The estate could HODL the coins and everything would continue on. However, if they cash in their chips, it could flood the market and drop the value. At least, temporarily.

This is definitely a story to follow. It could play out in a number of ways and what happens next could change Bitcoin forever.

Jon Jaehnig is an American freelance writer specializing in Technology and Health. Jon has degrees in Scientific and Technical Communication and Journalism from Michigan Technological University and lives in Michigan’s Upper Peninsula with his wife and cat. For more from Jon, you can follow him on LinkedIn and Twitter.

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Bitcoin: Self-proclaimed cryptocurrency creator Craig Wright ordered to pay billions

The self-proclaimed inventor of bitcoin has been ordered to pay up to $5bn over a dispute relating to the inception of the cryptocurrency. Australian IT …

The self-proclaimed inventor of bitcoin has been ordered to pay up to $5bn over a dispute relating to the inception of the cryptocurrency.

Australian IT consultant Craig Wright was told by a US district court in Florida to hand over half of the bitcoin he mined to the family of David Kleiman.

Mr Kleiman’s estate claimed that the pair were business partners before he passed away in 2013.

We’ll tell you what’s true. You can form your own view.

From 15p€0.18$0.18USD 0.27 a day, more exclusives, analysis and extras.

Between bitcoin’s inception in 2009 and the time of his death, it is estimated up to 1 million bitcoin were mined by Wright.

In recent weeks, the price of bitcoin has been hovering around $10,000, meaning Kleiman’s family could be entitled to up to $5bn worth of cryptocurrency.

ShapeCreated with Sketch.Bitcoin’s volatile history in pictures

Show all 8
leftCreated with Sketch.rightCreated with Sketch.

1/8 Satoshi Nakamoto creates the first bitcoin block in 2009

On 3 January, 2009, the genesis block of bitcoin appeared. It came less than a year after the pseudonymous creator Satoshi Nakamoto detailed the cryptocurrency in a paper titled ‘Bitcoin: A peer-to-Peer Electronic Cash System’
Reuters

2/8 Bitcoin is used as a currency for the first time

On 22 May, 2010, the first ever real-world bitcoin transaction took place. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $90 million at today’s prices
Lazlo Hanyecz

3/8 Silk Road opens for business

Bitcoin soon gained notoriety for its use on the dark web. The Silk Road marketplace, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoin

4/8 The first bitcoin ATM appears

On 29 October, 2013, the first ever bitcoin ATM was installed in a coffee shop in Vancouver, Canada. The machine allowed people to exchange bitcoins for cash
REUTERS/Dimitris Michalakis

5/8 The fall of MtGox

The world’s biggest bitcoin exchange, MtGox, filed for bankruptcy in February 2014 after losing almost 750,000 of its customers bitcoins. At the time, this was around 7 per cent of all bitcoins and the market inevitably crashed
Getty Images

6/8 Would the real Satoshi Nakamoto please stand up

In 2015, Australian police raided the home of Craig Wright after the entrepreneur claimed he was Satoshi Nakamoto. He later rescinded the claim
Getty Images

7/8 Bitcoin’s big split

On 1 August, 2017, an unresolvable dispute within the bitcoin community saw the network split. The fork of bitcoin’s underlying blockchain technology spawned a new cryptocurrency: Bitcoin cash
REUTERS

8/8 Bitcoin’s price sky rockets

Towards the end of 2017, the price of bitcoin surged to almost $20,000. This represented a 1,300 per cent increase from its price at the start of the year
Reuters

1/8 Satoshi Nakamoto creates the first bitcoin block in 2009

On 3 January, 2009, the genesis block of bitcoin appeared. It came less than a year after the pseudonymous creator Satoshi Nakamoto detailed the cryptocurrency in a paper titled ‘Bitcoin: A peer-to-Peer Electronic Cash System’
Reuters

2/8 Bitcoin is used as a currency for the first time

On 22 May, 2010, the first ever real-world bitcoin transaction took place. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $90 million at today’s prices
Lazlo Hanyecz

3/8 Silk Road opens for business

Bitcoin soon gained notoriety for its use on the dark web. The Silk Road marketplace, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoin

4/8 The first bitcoin ATM appears

On 29 October, 2013, the first ever bitcoin ATM was installed in a coffee shop in Vancouver, Canada. The machine allowed people to exchange bitcoins for cash
REUTERS/Dimitris Michalakis

5/8 The fall of MtGox

The world’s biggest bitcoin exchange, MtGox, filed for bankruptcy in February 2014 after losing almost 750,000 of its customers bitcoins. At the time, this was around 7 per cent of all bitcoins and the market inevitably crashed
Getty Images

6/8 Would the real Satoshi Nakamoto please stand up

In 2015, Australian police raided the home of Craig Wright after the entrepreneur claimed he was Satoshi Nakamoto. He later rescinded the claim
Getty Images

7/8 Bitcoin’s big split

On 1 August, 2017, an unresolvable dispute within the bitcoin community saw the network split. The fork of bitcoin’s underlying blockchain technology spawned a new cryptocurrency: Bitcoin cash
REUTERS

8/8 Bitcoin’s price sky rockets

Towards the end of 2017, the price of bitcoin surged to almost $20,000. This represented a 1,300 per cent increase from its price at the start of the year
Reuters

Judge Bruce Reinhart said at the hearing that he was not convinced by Mr Wright’s claim that he did not have access to the bitcoin.

“During his testimony, Dr Wright’s demeanour did not impress me as someone who was telling the truth,” Judge Reinhart said. “When it was favourable to him, Dr Reinhart appeared to have an excellent memory and a scrupulous attention to detail. Otherwise, Dr Wright was belligerent and evasive.”

In 2016, Mr Wright said he was the pseudonymous creator of bitcoin, Satoshi Nakamoto. Many cryptocurrency experts questioned the legitimacy of his claim.

Asked to provide evidence that he invented bitcoin, Mr Wright backed down and said he did “not have the courage”.

Dr Craig Wright first claimed he was bitcoin founder Satoshi Nakamoto in 2016, but failed to prove it (PA)

He wrote in his blog at the time: “I believed that I could do this. I believed that I could put the years of anonymity and hiding behind me. But, as… I prepared to publish the proof of access to the earliest keys, I broke.”

However, he continued to maintain that he is Nakamoto, and told the court the private access key to the billions of dollars worth of bitcoin is held by a bonded character who will deliver it in January 2020.

Judge Reinhart did not accept Mr Wright’s claim that he could not access the bitcoin, describing the courier situation as “inconceivable”.

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Craig Wright Might Lose Half of his Bitcoin Funds to Kleiman Estate

But that is not a fact yet. That is a puzzle we will have to wait to uncover with time. In the meantime, the elusive myth of Satoshi Nakamoto will continue …
Craig Wright Claims his Bitcoin Inventor

The year long battle between the two supposed brains behind the world largest cryptocurrency, Bitcoin(BTC)trade, might have reached its end already. The presiding judge Judge Bruce E. Reinhart, on Tuesday, gave his final ruling on the case, compelling the self-proclaimed Bitcoin founder Craig Wright to give up half of his Bitcoin wealth to his late partner’s estate, David Kleiman.

You will recall that the court already found Wright’s testimony as unreliable following a series of inconsistent evidence and testimonies. I guess it is a no brainer declaring David Kleiman’s estate the winner of the case. According to the judge’s ruling, Mr. Wright will give up half of all his wealth before December 2013, seeing that his partner died in 2013.

In addition to that, the Australian scientist will have to give up half of his intellectual properties before the end of the year 2013. Should his story of being the inventor of Bitcoin turn out true then the court ruling automatically makes Kleiman a part of the Nakamoto pseudonym.

Filed about a year ago, the estate of late David Kleiman believes that the self-proclaimed Bitcoin inventor must have defrauded them of over a million Bitcoins that rightly belong to David Kleiman due to his partnership with Mr. Wright before his death.

Although Mr. Wright has contested the claim from the beginning, he has failed to produce a convincing evidence that his claims are right. In fact, Judge Beth Bloom of the Florida federal court found him ‘not credible’ after several inconsistencies in his testimonies and documents.

While that may mean that his stand in the case is false, it fails to tell exactly if he is the real founder of Bitcoin or by any means related to the pseudonym.

Who Is Satoshi?

From the onset of the case, the people of the crypto sphere and other members of the public have been of hope that the case may finally reveal whether or not Mr. Wright is the Nakamoto we all seek or, as it is much more probable, there is another out there. So far, the court is yet to determine the credibility of the statement.

From the look of things, however, it is pointing to the direction that Wright is most likely not the real Satoshi in spite of his dogged persistence to prove otherwise. But that is not a fact yet. That is a puzzle we will have to wait to uncover with time.

In the meantime, the elusive myth of Satoshi Nakamoto will continue to grow.

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