Gemini Exchange Moves Toward Launch With Twin NYDFS Approvals

Gemini, the New York-based bitcoin exchange currently being developed by investors Cameron and Tyler Winklevoss, has received two key approvals from the New York State Department of Financial Services (NYDFS).

Gemini Trust Company received approval on 23rd September for its Articles of Organization, and was granted an exemption from the deposit insurance requirements of Section 32 of the Banking Law, steps president Cameron Winklevoss said put it on the "one yard line" for completing its current goal of entering the US market.

Cameron Winklevoss explained that, with its Articles of Organization approved, Gemini Trust Company is now an established entity, which he said positions it to potentially begin formalizing its relationships with banking providers and vendors.

Cameron Winklevoss told Bitcoin News:

"This doesn't mean we're open for business. It's a formality, it's one step. It does not mean we can serve customers."

He specified that the exemption means Gemini will not be eligible to provide FDIC insurance on accounts, though he said this responsibility will be shouldered by the exchange's partner banks, which will hold fiat deposits.

Gemini CEO Tyler Winklevoss stressed that its decision to form as a limited liability trust company in New York was simply one strategy to market, one that he suggested would reduce the length of time needed for the company to securing licensing.

"Going beyond that type of license into lending, that's a whole new process. It's not something we couldn't do, but if you look at perspective, it's another year or two at minimum to be successful at it," he explained.

Gemini's continued bid for licensing comes at a time when competitor itBit is already active in the market, offering not only exchange services, but an over-the-counter (OTC) trading option as well as a permissioned ledger product, announced in August.

A spokesperson for the NYDFS indicated that Gemini would need to pass subsequent approvals before being able to serve US customers, adding:

"There are still additional steps for final approval of a charter."

Banking charter

Still, both Cameron and Tyler Winklevoss defended their decision to file for a banking charter, as opposed to the recently enacted BitLicense, arguing that those who are approved for this licensing will not be able to serve institutional clients.

"I don't know if anyone has made this distinction enough. If you want to service institutional customers in New York, the BitLicense is not sufficient," Cameron Winklevoss said. "There's a good chance that when you get one you'll have to curtail or stop actually servicing NY institutions."

Further, he said that restrictions on fiat lending were unlikely to apply to its bitcoin activities, suggesting that this leaves the company open to adding other financial instruments like derivatives, swaps and futures pending dialogue with the CFTC.

Image via Pete Rizzo for Bitcoin News

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SEC Seizes Assets from Alleged Altcoin Pyramid Scheme

UPDATE (1st October 21:25 BST): This piece has been updated with additional information about the SEC’s complaint.

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A California company promoting an alternative digital currency called Gemcoin has had its assets seized by the US government amid allegations of fraud.

The San Gabriel Valley Tribune reported yesterday that US Fine Investment Arts (USFIA) Inc's offices were raided on Tuesday in connection with an ongoing investigation by the Securities and Exchange Commission (SEC). The asset seizure came after a complaint was filed by the SEC against the firm and its CEO.

This week’s raid coincided with a visit to the home of Arcadia City Councilman John Wuo, according to the Tribune. Wuo has faced calls to resign in the wake of the company’s collapse months after he made public appearances alongside executives of USFIA.

Wuo has denied any wrongdoing or connection with the firm.

In a complaint filed in federal court, the SEC accused Chen and USFIA of fraudulently selling unregistered securities. In addition to Chen and USFIA, 12 additional California entities were named as defendants. The complaint was filed under seal on 22nd September.

Michele Wein Layne, director of the SEC's Los Angeles Regional Office, said in a statement:

"We allege that the defendants' false claims of riches that investors would realize from USFIA's amber mining activity never materialized. In reality, as alleged in the complaint, the defendants were operating a fraudulent pyramid scheme that left many investors with nothing."

Separately, the California Department of Business Oversight today sent a desist and refrain order to USFIA, Chen and two other individuals in connection with the illegitimate sale of unregistered securities.

Pyramid scheme alleged

In its complaint, the SEC said that Chen began soliciting investors in 2013, raising as much as $32m.

At the time, Chen claimed that the company had under its control several mines capable of producing ambers, a precious stone that formed the cornerstone of USFIA's pitch to investors. Other claims focused on rapid returns on their investment as well as promises of a future initial public offering.

The company pushed investors to bring in new buyers of the firm's securities, promising prizes such as cars, vacations and other luxury goods, as well as what were essentially commission bonuses for bringing in new money. Ambers were also promised to investors, and according to the SEC, some investors did receive stones, albeit ones that were deemed "practically worthless" following inspection.

At first, USFIA offered investors different levels of ownership in the company that would be converted into common shares following the IPO. The value of these shares would debut for at least $20 per share, Chen said.

In September 2014, the SEC said, USFIA told investors "that instead of cash or shares, they would receive a cryptocurrency known as 'Gemcoins' in exchange for their investment in USFIA, which would greatly increase in value".

The company allegedly told investors that the cryptocurrency tokens were backed by real-life assets in the form of South American amber mines and, among other fraudulent statements, that the US government had purchased a tranche of Gemcoins. As part of the new arrangement, Chen told investors, the IPO would be delayed for two years.

The SEC further stated:

"In fact, Chen, through his various business entities, is operating nothing more than a pyramid scheme, where investors are encouraged to build out a network of downstream investors and are compensated on their ability to do so. The USFIA amber-mining investments that Chen and his related business entities sold to investors, with the prospect of receiving pre-IPO shares, as well the Gemcoin offering constitute securities under the federal securities laws."

Chen is said to have used the funds collected from customers – of which roughly $19m came from Asian bank accounts – for personal expenses.

According to the agency, after being interviewed by police in Arcadia, California, Chen attempted to wire $7.5m overseas from a Bank of America account he controlled. Of that amount, $3.5m was successfully sent to China while the remainder was held by the bank.

The SEC is seeking civil penalties as well as the collection of any gains related to the alleged pyramid scheme.

Civil action possible

Despite the federal government's action against USFIA, some investors are moving to take their fraud claims to civil court as well.

Attorney Long Z Liu of the Liu Law Firm, based in San Gabriel, California, is reportedly moving to file a class-action lawsuit on behalf of investors. Liu was not immediately available for comment.

The main website associated with Gemcoin is listed as "under maintenance", directing users to USIAF’s website, though another website, InvestGemcoin.com, is still accessible.

The main phone number listed for USFIA on its website was not connecting calls at press time.

The full SEC complaint can be found below:

USFIA Complaint

Image via Wikimedia

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Bitcoin Websites Experience Service Outage in Venezuela

A number of bitcoin websites experienced downtime today over a period of roughly four hours due to what appears to be a DNS server error at a major Internet service provider (ISP).

Affected websites included local Latin American exchanges such as BlinkTrade, BitInka and SurBTC, as well as larger international startups such as Bitstamp, Blockchain, BTC-e and Coinbase.

Other outlets such as Bitcoin.org and LocalBitcoins remained accessible during this time, and at press time, all websites said to have been affected were once again online. However, a video provided to Bitcoin News by local bitcoin users illustrated how pages suffered from long load times, eventually proving inaccessible.

Members of the local Venezuelan bitcoin community first began reporting the outages earlier today on Bitcoin Venezuela, a local Facebook group with more than 6,000 members.

An analysis by Bitcoin News indicated the error was most likely due to an ISP issue, but that an error at distributed DNS services provider CloudFlare could have also caused the issue. Local reports connected the issue to a DNS server of state-owned ISP CANTV.

An examination of traceroute information provided by local users indicated the websites were not being blocked.

At the time, group admins indicated that the websites were reachable via broadband and DSL connections, and that mobile ISPs such as Digitel, Movistar and Movilnet were allowing access to pages, factors that pointed to CANTV as the source of the issue.

Speculations flare

Due to CANTV's affiliation with the country's government, the outage stoked concerns that the websites were being purposefully blocked.

Similar incidents have already occurred this year in Russia, where the state's media watchdog group restricted access to five sites. Representatives of affected businesses later brought their case to court in April, at which time a judge restored access to the websites.

Founded in 1930 as a telephone service provider, CANTV was privatized in the early 1990s, but was taken over by the Venezuelan government in 2007 when the Hugo Chavez administration acquired a controlling stake in the publicly traded firm.

At press time, CANTV did not respond to requests for further information on the developments.

Website error image via Shutterstock

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Head of London FinTech Hub Steps Down to Lead Blockchain Lab

The head of one of Europe's biggest FinTech hubs is stepping down to lead the development of a blockchain lab.

Eric van der Kleij, who led London-based Level39 for three years, is returning to Entiq, an innovation consultancy he co-founded in 2013, to explore the real-world applications of blockchain technology.

The lab, van der Kleij said, will seek to help organisations gain a better understanding of distributed ledgers, smart contracts and related technologies.

He told Bitcoin News:

"The Entiq Lab has undertaken testing of fundamental financial services functions such as territoriality, finality, delivery versus payment and is developing proof of concepts. We are exploring the capabilities of distributed ledger technology and have been approached by a number of financial institutions to see if we can help them develop prototypes."

Van der Kleij, a serial entrepreneur and former CEO of the UK Government's Tech City Investment Organisation, is credited with playing a pivotal role in helping Level39 become one of the most prominent accelerators in the European FinTech scene.

The accelerator, located in London's business district, made headlines earlier this year when Swiss investment bank UBS announced the opening of a blockchain research lab to explore the application of distributed ledgers in the wider financial services industry.

Canary Wharf image via IR Stone / Shutterstock.com

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Six Arrested in Money-Laundering Probe Involving Bitcoin

Police have arrested six people in connection with an ongoing international money laundering investigation involving bitcoin.

The authorities, which became suspicious following a series of large bitcoin trades, carried out various raids in and near Rotterdam – a city in the south of the Netherlands – leading to the arrests of four people in the country and two individuals abroad.

According to a statement, the authorities arrested three men aged between 19 and 23. A fourth suspect was subsequently arrested in Capelle, in the western part of the country. A 24-year-old man was arrested in Malta and a sixth and final suspect is currently being held and questioned by police in Latvia.

The investigation is ongoing but most of the suspects are due to appear in front of a judge tomorrow.

Authorities found drugs and weapons during the searches.

 

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Coinbase Makes 'Instant' Bitcoin Buying Available in 26 Countries

Coinbase has announced customers across 26 countries can buy bitcoin "instantly" from today.

Previously, users could top up their accounts via bank transfer, however the exchange now supports 3D Secure credit and debit cards – having trialled the technology in the UK and Spain.

In a blog post, the company stated:

"Since credit and debit cards will not require a customer to pre-fund their Coinbase account with a bank transfer, customers can now receive bitcoin much faster."

Visa's 3D Secure protocol, which requires users to verify their identity via password, is supported by most banks in Europe. While instant, Coinbase will charge a 3% 'convenience fee' for the faster service.

Currently only Visa, Mastercard and Maestro cards are accepted, while all purchases must be over £1, according to the company's website.

More countries added

In conjunction with its instant buying rollout, Coinbase – which has raised $106m in VC funding to date – announced that bitcoin users in Liechtenstein and Slovenia can now buy and sell on its platform, though it users will use SEPA transfers, not its instant functionality.

We're now live in 30 COUNTRIES!! Users in Liechtenstein & Slovenia can now buy & sell bitcoin with @coinbase! 🎉🎉 http://pic.twitter.com/pl5f8ZhGMg

— Coinbase (@coinbase) October 1, 2015

The two new additions come as the exchange continues its march across Europe. The exchange, which began expanding in the region last September, has now made good on its pledge to service 30 countries by 2016.

In addition, the company has so far added 36 US states – the most recent being South Dakota yesterday.

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Europol: Bitcoin May Become Sole Currency for EU Cybercriminals

Europol has said in a new report that it believes bitcoin could become the go-to currency for digital criminals in the region.

The European Union's top law enforcement agency released its Internet Organised Crime Threat Assessment for 2015 on 30th September, outlining its view of the top cybercrime threats facing the European Union.

The report focuses on the topic of bitcoin and digital currencies in a number of contexts, including the state of criminal financing and specific elements of illicit activity involving the technology.

Europol said that, according to its data, bitcoin accounts for as much as 40% of criminal-to-criminal payments online, with PayPal accounting for 25% of those reported. The figures build on previous statements from the agency regarding cryptocurrencies as a key factor in the development of the so-called "crime-as-a-service" ecosystem.

The agency noted in its new report:

"Although there is no single common currency used by cybercriminals across the EU, it is apparent that bitcoin may gradually be taking on that role. Bitcoin features as a common payment mechanism across almost all payment scenarios, a trend which can only be expected to increase."

OpenBazaar seen as threat

The report includes a section on the progression of law enforcement activities surrounding dark marketplaces, noting developments in the ecosystem since Operation Onymous, a November 2014 operation that resulted in the shuttering of Silk Road 2.0 and a number of other illicit sites.

Europol, pointing to that effort as "a message" to cybercriminals, acknowledged in the report that "hidden services continue to grow, multiply and evolve" despite the crackdowns.

As part of a look at future threats regarding dark markets, Europol identified OpenBazaar as an area of concern for law enforcement officials due to its peer-to-peer nature.

"As the 'market' is peer-to-peer, there would be no website or server to be targeted by investigating law enforcement and intervention is a considerable challenge, mirroring the issues law enforcement currently has with investigations involving bitcoin," the report noted, adding:

"Payments on the OpenBazaar use a multi-signature approach involving a third-party ‘notary’ to control the release of funds. This means that there is no possibility of performing an exit scam with customers’ and vendors’ funds."

The report recommended that law enforcement officials work “to pursue investigative and research opportunities related to emerging technologies such as decentralised marketplaces like OpenBazaar” in conjunction with the private sector and applicable academic sources.

Regulatory effectiveness questioned

The report's authors cast doubt on the effectiveness of regulation being developed by both EU-level bodies as well as countries within the region.

The Europol report stated:

"Any regulation of cryptocurrencies would likely only be applicable and enforceable when applied to identifiable users such as those providing exchange services. The inability to attribute transactions to end users makes it difficult to imagine how any regulation could be enforced for everyday users."

It further added that "it is clear that cybercriminals will continue to use whichever payment mechanism is convenient, familiar or perceived to be safe, including those that are already regulated and maintain anti-money laundering controls".

Europol went on to encourage broader cooperation between law enforcement agencies on digital currencies, and further suggested that agencies "monitor the alternate payment community" for further intelligence into payment mechanisms.

The full 2015 Internet Organised Crime Threat Assessment can be found below:

2015 Internet Organised Crime Threat Assessment

Image via Shutterstock

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