February 18, 2023

🥛 The SEC is suing crypto’s “where’s Waldo”

Gm. This is Milk Road, the perfect crypto newsletter to read before doing your Saturday morning crossword. We’re like 1-Across: short, quick, and easy.

Here’s what we’ve got for you today:

  • The SEC’s Do Kwon/Terraform charges

  • You have to pay taxes on lost Celsius funds

  • Top Mt. Gox creditor wants an early Bitcoin payout

  • Judge to SBF: stop using the internet

SEC COMES FOR DO KWON

The best part about a filed SEC complaint is all the juicy bits that fall out.

Like a big ole tender cheeseburger, cooked medium rare, when you bite right into it. Ohhhhhh yeeeeeeeahhhhhh.

This time, it’s the SEC’s charges against none other than our fav Waldo, Do Kwon. The agency officially charged him and his company—Terraform Labs—with fraud over misleading investors in its algorithmic stablecoin TerraUSD.

Turns out, it wasn’t all that stable. Despite Kwon’s tall tales about it increasing in value over time, the coin crashed and set off a contagion in crypto.

Here are all the juicy (alleged) details layed out, Whopper-style:

  • The bun → Kwon’s charged with selling unregistered securities & unregistered security-based swaps, among other claims

  • The lettuce → The scheme amounts to losses worth ~$40B

  • The tomato → Kwon/Terraform worked with an unnamed US trading firm which bought massive amounts of the stablecoin when its peg fell 10 cents in May 2021 👀 The Block reported that the firm is Jump, which pocketed ~$1.28M from the pact

  • Tha cheeze → Terraform/Kwon brazenly lied that a Korean payments app called Chai was using Terraform’s blockchain to settle payments (it wasn’t) and “deceptively replicated” the app’s transactions onto its blockchain to make it look like its tech had that kind of adoption. Wowza

  • And THE MEAT → Kwon transferred 10,000 Bitcoin from Terraform to a cold wallet and slowly moved funds from it to a Swiss bank starting in May 2022. From June of that year to now, over $100M in fiat has been withdrawn from that bank

And before you ask, no, not even the SEC knows where Kwon is. This guy is playing the best game of hide-and-seek we’ve seen since the Narnia movies.

He couuuuuld be in Serbia; South Korea sent some peeps that a-way recently to go scouting for him. But so far, no dice.

And because today ends in “y,” people are mad about the SEC calling another crypto asset a security.

Its skipper, Gary G., referred to TerraUSD and LUNA (Terraform’s native token) as crypto asset securities in the filing. They said it was because investors were able to convert TerraUSD into LUNA (which it says is a security) at market price.

Leave it to Gensler to get everyone riled up going into the weekend.

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IRS TO CELSIUS CUSTOMERS: PAY TAXES ON YOUR TRAPPED FUNDS

It’s tax-filing time, and you’re crying into your glass of wine. You’re shouting at your Turbotax screen. You’re hoping you correctly guess how much you owe so the IRS doesn't haul you off to jail.

But this time, you’re extra stressed because you’re being handed a tax bill on your funds that bankrupt lender Celsius has trapped on its platform. *pours more wine*

Some customers spoke to Bloomberg about the 1099 forms they were dealt (official notices of what someone earned in interest.) To hell with the fact that you lost all the money you deposited to earn interest; you still have to pay taxes on it.

Take Doug Stringer. He lives in San Antonio (yee-haw) and said he has $2.8M frozen on the platform, an amount worth $100M at its peak. But he still got a $67,000 tax bill for the interest income on his holdings.

This is all made worse because the likes of Celsius were promising interest that was much higher than traditional financial groups; 18% versus ~0.06%.

And hold onto your britches for the IRS’s response; it confirmed to both Bloomberg and Business Insider that it was… aware of the issue. That’s it, that’s the response.

Oh, and apparently this is happening with customers of fellow bankrupt lender Voyager, too.

We 100% needed another reason to dread tax season. Absolutely.

MT GOX'S TOP CREDITOR WANTS 1 MARSHMALLOW NOW, NOT 2 LATER

Mt. Gox is a bankrupt crypto exchange that lost everyone’s money ~~before it was cool~~ in 2014.

And its top creditor seems to have never heard of The Marshmallow Test.

Mt. Gox Investment Fund wants an early payout in Bitcoin instead of waiting for a larger payout in fiat after all the legal hullabaloo wraps up. That might not be for another nine years, though.

It’s a decision that all Mt. Gox creditors have to make by March 10: get paid 90% of your trapped funds in Bitcoin in September, or recover potentially more of your funds via fiat in almost a decade.

They have just under three more weeks to decide. *Cue Jeopardy theme song*

MILK AND COOKIES

Makin’ money moves. Binance moved $400M from a Binance.US account to a trading firm that CZ manages in 2021, Reuters reported. The SEC had reportedly been investigating Binance.US’s links to the firm.

Reduce your screen time. A federal judge suggested putting SBF in jail if he doesn't curb his internet use. He recently used an encrypted app to message an FTX employee and a VPN to watch the Super Bowl.

Shell of a case. Bankrupt lender Blockfi wants SBF’s shell company Emergent Fidelity’s bankruptcy case thrown out because it wants legal access to the 56M Robinhood shares it holds. Blockfi says the case was made in bad faith.

MILKY MEMES

🤣🤣

That's a wrap for today. Stay thirsty & see ya tomorrow! If you want more, be sure to follow our Twitter (@MilkRoadDaily)

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.