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US steps up crypto crackdown with Coinbase suit

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US securities regulators sued Coinbase in the latest crackdown by authorities on the cryptocurrency market
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In their second major action against a big crypto player in two days, US regulators sued Coinbase on Tuesday, alleging its failure to register as a securities exchange venue exposed investors to risk.

The Securities and Exchange Commission charged that the largest digital currency trading platform in the United States had made billions of dollars by “unlawfully facilitating the buying and selling of crypto asset securities.”

Shares of Coinbase tumbled on news of the lawsuit, which comes on the heels of charges unveiled Monday against cryptocurrency exchange Binance and founder Changpeng Zhao for numerous alleged securities law violations.

Coinbase slammed the SEC for turning the screws on a market that is still largely unregulated, a criticism that was levied by Binance the day before. 

“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” said Paul Grewal, general counsel of Coinbase.

At a congressional hearing later Tuesday, Grewal called for “legislation that allows fair rules for the road to be developed transparently” without litigation. 

But more than six months after the spectacular failure of crypto exchange giant FTX and its boss Sam Bankman-Fried, Washington is still grappling with how to tighten oversight of a market that has been likened to the “Wild West.”

– Need for oversight –

The largest crypto asset trading platform in the United States, Coinbase had 110 million users and $80 billion in assets at the end of 2022.

Filing a complaint in federal court, the SEC said Coinbase’s failure to register as a securities exchange “has deprived investors of significant protections, including inspection by the SEC, record-keeping requirements, and safeguards against conflicts of interest, among others.”

The suit follows Monday’s move against Binance and Zhao for operating what the SEC called “an extensive web of deception” and “calculated evasion of the law.”

On Tuesday, the SEC asked the federal court to freeze assets affiliated with Binance and Zhao.

SEC Chair Gary Gensler told CNBC the crackdown was needed to protect US financial markets, the world’s biggest.

“We punch above our weight class in the capital markets in part because of robust oversight in the markets,” said Gensler.

Oversight “builds trust in the investing public, you become the destination of choice,” Gensler said. “The crypto markets are undermining that trust.”

But Gensler’s approach to cryptocurrency has come under fire from House Republicans, in part over criticism that his agency has overstepped its domain. 

Under the US system, securities are regulated by the SEC, while commodities are overseen by the Commodities Futures Trading Commission (CFTC). 

Ahead of its hearing Tuesday, the Republican-led House Agriculture Committee, while declining to comment on the specifics of the Coinbase case, tweeted that “regulation by enforcement is not an appropriate way to govern a market, adequately protect customers, or promote innovation.” 

At Tuesday’s hearing, CFTC Chair Rostin Behnam highlighted key problems at the center of recent failures of crypto entities, including undisclosed conflicts of interest and the comingling of funds among entities.

“This is the reason we’re here. There is confusion and uncertainty,” he said. “Hopefully we can clear that up.”

These issues are at the heart of the US criminal case against Bankman-Fried, who is scheduled to be tried in October in New York.

James Angel, a Georgetown University professor specializing in financial markets and fintech, said the SEC’s suits — while protective of investors — fall short of the comprehensive regulatory design needed for an evolving market.

“This Johnny-come-lately action is not the sign of a healthy regulatory apparatus, but it’s sort of the best we can do at this time,” said Angel, who sees little chance for congressional passage of legislation on digital oversight given the current political polarization.

Coinbase shares fell 12.1 percent to $51.61.

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California looks to Europe to rein in AI

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Legislators in the California state capitol are working on a flurry of laws aiming to crack down on abusive uses of artificial intelligence on the home turf of some of the world's powerful tech titans
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California, home to Silicon Valley, is eager to rein in the deployment of artificial intelligence and is looking to Europe’s tough-on-big-tech approach for inspiration.

The richest state in the United States by GDP, California is a hotbed of no-holds-barred tech innovation, but lawmakers in state capital Sacramento want to give the industry laws and guardrails it has largely been spared in the internet age.

Brussels has enacted a barrage of laws on US-dominated tech and sprinted to pass the AI Act after OpenAI’s Microsoft-backed ChatGPT arrived on the scene in late 2022, unleashing a global AI race.

“What we’re trying to do is actually learn from the Europeans, but also work with the Europeans, and figure out how to put regulations in place on AI,” said David Harris, senior policy advisor at the California Initiative for Technology and Democracy.

As they have in the past with EU laws on private data, lawmakers in California are looking to recent European legislation on AI, especially given the little hope of equivalent national legislation out of Washington.

There are at least 30 different bills proposed by California state legislators that relate to various aspects of AI, according to Harris, who said he has advised officials here and in Europe on such laws.

Proposed laws in California range from requiring AI makers to reveal what was used to train models to banning election ads containing any computer generated features.

“One of the aspects I think is really important is the question of how we deal with deepfakes or fake text created to look like a human being is sending you messages,” Harris told AFP.

State assembly member Gail Pellerin is backing a bill she says would essentially ban the spreading of deceptive digital content created with generative AI in the months leading up to and the weeks following an election.

“Bad actors who are utilizing this are really hoping to create chaos in an election,” Pellerin said.

– Law-breaking ‘bad guys’ –

Industry association NetChoice is dead set against importing aspects of European legislation on AI, or any other EU tech regulation.

“They are taking, essentially, a European approach on artificial intelligence – which is that we must ban the technology,” said Carl Szabo, the general counsel of the association, which advocates for light touch regulation of tech.

“Outlawing AI won’t stop (anything). It’s bad because bad guys don’t follow the law,” Szabo argued.

“That’s what makes them bad guys.”

US computer software giant Adobe, like most tech giants, worked with Europe on the AI Act, according to Adobe General Counsel and Chief Trust Officer Dana Rao.

At the heart of the EU AI Act is a risk-based approach, with AI practices deemed more risky getting more scrutiny.

“We feel good about where the AI Act ended up” with its high-risk, low-risk approach, said Rao.

Already, Adobe engineers carry out “impact assessments” to rate risk before making AI products available, according to Rao.

“You want to think about nuclear safety, about cybersecurity, about when AI is making substantial decisions over human rights,” Rao said.

– ‘Watching California’ –

In California, Rao said he expected the problem of deepfakes to be the first to fall under the authority of a new law.

Assembly Bill 602 would criminalize non-consensual deepfake pornography while Assembly Bill 730 bans the use of AI deepfakes during election campaign season.

To fight this, Adobe joined other companies to create “content credentials” that Rao equated to a “nutrition label” for digital content.

Assemblywoman Pellerin expects AI laws adopted in California to be replicated in other states.

“People are watching California,” Pellerin said, with a slew of US states also working on their own AI deepfake bills.

“We’re all in this together; we have to stay ahead of the folks that are trying to wreak havoc in an election,” she said.

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Big tech told to identify AI deepfakes ahead of EU vote

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EU parliamentary elections are taking place in the bloc's 27 member states on June 6-9
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The EU called on Facebook, TikTok and other tech titans on Tuesday to crack down on deepfakes and other AI-generated content by using clear labels ahead of Europe-wide polls in June.

The recommendation is part of a raft of guidelines published under a landmark content law by the European Commission for digital giants to tackle risks to elections including disinformation.

The EU executive has unleashed a string of measures to clamp down on big tech, especially regarding content moderation.

Its biggest tool is the Digital Services Act (DSA) under which the bloc has designated 22 digital platforms as “very large” including Instagram, Snapchat, YouTube and X.

There has been feverish excitement over artificial intelligence since OpenAI’s ChatGPT arrived on the scene in late 2022, but the EU’s concerns over the technology’s harms have grown in parallel.

Brussels especially fears the impact of Russian “manipulation” and “disinformation” on elections taking place in the bloc’s 27 member states on June 6-9.

In the new guidelines, the commission said the largest platforms “should assess and mitigate specific risks linked to AI, for example by clearly labelling content generated by AI (such as deepfakes)”.

The commission recommends that big platforms promote official information on elections and “reduce the monetisation and virality of content that threatens the integrity of electoral processes” to diminish any risks.

“With today’s guidelines we are making full use of all the tools offered by the DSA to ensure platforms comply with their obligations and are not misused to manipulate our elections, while safeguarding freedom of expression,” said the EU’s top tech enforcer, Thierry Breton.

While the guidelines are not legally binding, platforms must explain what other “equally effective” measures they are taking to limit the risks if they do not adhere to them.

The EU can ask for more information and if regulators do not believe there is full compliance, they can hit the firms with probes that could lead to hefty fines.

– ‘Trusted’ information –

Under the new guidelines, the commission also said political advertising “should be clearly labelled as such” before a tougher law on the issue comes into force in 2025.

It also urges platforms to put in place mechanisms “to reduce the impact of incidents that could have a significant effect on the election outcome or turnout”.

The EU will conduct “stress-tests” with relevant platforms in late April, it said.

X has already been under investigation since December over content moderation.

And the commission on March 14 pressed Facebook, Instagram, TikTok and four other platforms to provide more information on how they are countering AI risks to polls.

In the past few weeks, several of the companies including Meta have outlined their plans.

TikTok on Tuesday announced more of the measures it was taking including push notifications from April that will direct users to find more “trusted and authoritative” information about the June vote.

TikTok has around 142 million monthly active users in the EU — and is increasingly used as a source of political information among young people.

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Ousted WeWork co-founder bids to buy company: reports

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The pandemic exacerbated WeWork's woes as people avoided offices for fear of Covid-19
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Ousted WeWork co-founder Adam Neumann recently bid more than $500 million to buy back the struggling office-sharing group, according to media reports Monday.

Neumann recently submitted the offer, but it was not clear how he would finance such a deal, the Wall Street Journal and CNBC reported, citing sources close to the matter.

Neumann is seeking to buy the company out of bankruptcy, according to a letter to WeWork seen by AFP last month.

WeWork went into bankruptcy in November with its major creditors set to take control of the company.

At its height, WeWork was the biggest private renter of office space in Manhattan, with co-working spaces in cities across the globe.

But investors became concerned not only about WeWork’s business model and unbridled growth, but also about Neumann’s reliability as a boss.

A charismatic figure, Neumann was known for his sometimes abrupt decisions.

In September 2019, the Board of Directors dismissed him, shortly after the company’s stock market debut was postponed. 

Neumann was forced out of the company with a $1.7 billion exit package, while the company’s value was slashed to $8 billion.

WeWork was then disrupted by the Covid-19 pandemic, which emptied offices as workers went remote, and the company never fully recovered.

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