Hi! It’s Monday, August 7th, 2023.
The Rundown
Coinbase fired back this week in an ongoing legal battle against the SEC. In June, the US regulator alleged 13 crypto assets on the exchange were unregistered securities. The SEC’s logic dates back to a legal precedent set in 1946 (“the Howey Test”) that classifies an investment as a security if: (1) there’s an investment of money; (2) the investment is made in a common enterprise; and (3) there’s an expectation that profits will be derived from the “efforts of others.” In a statement released Friday [full text], Coinbase pushed back on account of #3 not holding true: “The transactions over Coinbase’s platform…are not, and do not involve, contractual undertakings to deliver future value reflecting the income, profits, or assets of a business." It’s a whole he-said, she-said of securities law.
But wait…there’s more. It came to light last Monday that prior to the lawsuit against Coinbase, the SEC had asked the exchange to de-list all cryptocurrencies other than Bitcoin. The request implies that the SEC views a whopping 200+ listed tokens as securities under its jurisdiction, a much more expansive list than the 13 cryptocurrencies identified in the June statement. Had Coinbase not balked at this request, de-listing those tokens could have set a precedent effectively rendering the majority of US crypto businesses illegal. The SEC has until October 3rd to respond to the Coinbase statement. As for the future of US crypto innovation, we likely won’t see much of it until the suit is resolved.
On August 3rd, Ilya Lichtenstein and Heather Morgan, known as the "crypto couple” were identified in court filings as the people responsible for both hacking and then laundering $4.5 billion stolen from Bitfinex in 2016. The couple was arrested back in February for laundering the money, but it was not revealed publicly until this week that Lichtenstein was also responsible for the original hack. The case has resulted in the largest financial seizure in federal history. Press coverage of the legal proceedings has been salacious enough to draw attention beyond the fintech community, with the unprecedented hack overshadowed by Morgan’s public persona, "Razzlekhan," a self-described "cringe" rapper. You just can’t make this stuff up. Our Take: Crypto is traceable, don’t believe anyone trying to tell you otherwise.
German regulators are probing Sam Altman’s Worldcoin project due to concerns about its large-scale processing of sensitive biometric data. Worldcoin, which launched last week, is a crypto project led by the OpenAi founder aiming to uniquely identify human beings to distinguish them from AI, and “show a potential path to AI-funded [Universal Basic Income]”. Regulators in Germany question the legality of the project and whether users have given explicit consent for Worldcoin to collect their data. British and French authorities are also requesting additional information. We’re getting Libra vibes…
Apple’s savings account is proving to be quite a-peel-ing… the tech giant announced that their high-yield savings account offered in partnership with Goldman Sachs reached over $10 billion in deposits (reminder that the product was launched in April!). According to Apple, “97% of Savings customers have chosen to have their Daily Cash automatically deposited into their account.”
Laso, a too-good-to-be-true, no-KYC, stablecoin-funded prepaid debit card, is coming under fire for its questionable business model. The company, which claims to let you “use your stablecoins like cash,” issues prepaid debit cards with a 6.8% fee charged at time of deposit, and relies on infrastructure from Stripe, Celtic Bank, and Visa. Laso prominently advertises that they do not comply with anti-money laundering laws (so-called “know your customer” or KYC), and appears not to have a cardholder agreement, terms and conditions, or much in the way of disclosures. A recent website update, indicating that their services are “Temporarily paused while we integrate new issuing partners,” suggests their partners have intervened. Our Take: It’s unlikely they’ll be able to replicate their existing product with a new issuer.
The SEC ended its investigation into digital mortgage lender Better.com ahead of its planned SPAC vote. The regulator was looking into possible violations of securities law related to how Better positioned the health of its business as it looked to go public via SPAC. Better is struggling financially, it’s down to 950 employees from its peak of ~10k in Q4 2022, and it posted a loss of $89.9M in Q1.
FTX (might be) back. Bankruptcy administrators for the defunct crypto exchange have proposed a plan to restart FTX.com. The revived exchange would only be available to offshore customers, and FTT token holders would receive nothing from the plan.
American Express partnered with Skipify to connect Amex’s consumer cards seamlessly into checkout by identifying “select Amex customers via their email address, enabling them to automatically link their eligible Amex Cards to check out with participating merchants.” AmEx Ventures invested in Skipify in early 2021, making this one of the few times that a corporate venture capital fund investment has actually resulted in a commercial agreement!
Stripe launched Stripe Tax for platforms, an embedded tax product for businesses and their customers. Firms using Stripe Connect can now offer the tax service to customers for help with sales tax and VAT.
Robinhood posted its first profitable quarter since going public in July 2021, with a net income of $25 million, or earnings of 3 cents per share, on revenue of $486 million. The good news comes as Robinhood faces regulatory challenges to its business model, as we covered last week.
Selected fundings
Petal, the credit card company that helps people build credit and spend responsibly, announced that it secured a $200 million debt facility from Victory Park Capital, closed a new term loan facility of up to $20 million from Trinity Capital and raised $20 million in equity financing from existing investors.
Insurance infrastructure provider Lula raised $35.5 million in Series B funding.
Knot, the company that enables card issuers to automatically switch saved payment methods at the request of their users, raised $10 million in a Series A funding round led by Nava Ventures with participation from Plaid and AmEx Ventures.
Pockit, the UK fintech targeting people underserved by traditional banks, raised $10 million in new funding.
Interesting read!