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$71 Million: Galaxy Digital Sells Stake in EOS Blockchain Maker Block.One

Galaxy Digital, the crypto merchant bank founded by former hedge fund manager Michael Novogratz, has received $71.2 million after selling its shares in Block.one, the maker of the EOS blockchain.

Galaxy Digital said in an announcement on May 21 that it closed the transaction on Monday after a tender offer for its position in Block.one was made on April 18. The firm claims it made a 123 percent return on the realized investment and following the transaction, its remaining shares in Block.one “will no longer maintain a material investment position.”

“The acceptance of Block.one’s tender offer reflected a decision to rebalance the portfolio to maintain an appropriate level of diversification after the position increased due to its substantial outperformance relative to the remainder of the portfolio,” Novogratz said in the release.

Galaxy Digital added it will still partner with Block.one on other businesses such as the Galaxy EOS VC Fund, which primarily backs startups that are developing applications on the EOS blockchain network. Galaxy Digital and Block.one entered a joint venture in January 2018 to launch the EOSIO Ecosystem Fund with $325 million.

In July of last year, Block.one received investment from a number of big-name investors such as PayPal co-founder Peter Thiel and Bitmain co-founder Jihan Wu.

Galaxy Digital’s exit comes as part of Block.one’s buyback program of 10 percent of its company shares.

According to a report from Bloomberg on Wednesday, Block.one’s buyback offer values itself at around $2.3 billion, up nearly 66 times from what it was valued at in a 2017 seed funding round. The repurchase price for the buyback is around $1,500 per share. It was offered at $22.5 per share during the 2017 round.

The report added that Block.one had about $3 billion in assets including cash and investments at the end of February, based on a March 19 email Block.one sent to shareholders and seen by the news outlet. Block.one is also holding as many as 140,000 bitcoin, the report further said.

Michael Novogratz image via CoinDesk

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NYSE Arca Seeks Rule Change to List ETF Backed by Bitcoin and T-Bills

NYSE Arca has formally applied to the Securities and Exchange Commission (SEC) for a rule change that would allow it to list shares in a proposed bitcoin investment trust.

The United States Bitcoin and Treasury Investment Trust, managed by Wilshire Phoenix Funds, would invest exclusively in bitcoin and short-term U.S. Treasury securities, according to a filing made by the exchange late Monday.

Coinbase’s custody arm would act as the custodian for the investment trust’s bitcoin, the filing said. Working through Coinbase, the trust has obtained up to $200 million of insurance coverage against theft from its hot and cold wallets from “a syndicate of industry-leading insurers that are highly rated by AM Best.”

This investment vehicle is a separate effort from the bitcoin exchange-traded fund (ETF) that NYSE Arca and Bitwise are seeking SEC approval to list.

Wilshire filed a prospectus for the vehicle in January, but Monday’s filing formally kicks off the regulatory approval process. The SEC now has 45 days to approve, reject or delay the proposed rule change, and up to 90 days to make a final decision, according to the filing.

Monday also saw the SEC delay a decision on a proposed exchange-traded fund (ETF), kicking forward a final determination on that proposed product to as late as October.

Treasury bond image via Shutterstock.

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I Underestimated Just How Many Subpoenas I Would Get

Steve Beauregard of the Bloq talks about his favorite work: answering subpoenas.

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Study Finds Most Ransomware Solutions Just Pay Out Crypto

A study by ProPublica found that most ransomware solutions providers have one weird trick for getting rid of hackers – paying them off.

Ransomware activity is growing weekly according to experts at Coveware . The result? Companies who just want to pay the ransom and move on.

According to Coveware, ransomware attacks were up in Q1 2019:

In Q1 of 2019, the average ransom increased by 89% to $12,762, as compared to $6,733 in Q4 of 2018. The ransom increase reflects increased infections of more expensive types of ransomware such as Ryuk, Bitpaymer, and Iencrypt. These types of ransomware are predominantly used in bespoke targeted attacks on larger enterprise targets.

Once hackers encrypt an infected computer, however, the real question is how to unlock your data. ProPublica found that many data recovery firms simply pay the ransom and then charge a premium for their trouble.

Proven Data promised to help ransomware victims by unlocking their data with the “latest technology,” according to company emails and former clients. Instead, it obtained decryption tools from cyberattackers by paying ransoms, according to Storfer and an FBI affidavit obtained by ProPublica.

Another U.S. company, Florida-based MonsterCloud, also professes to use its own data recovery methods but instead pays ransoms, sometimes without informing victims such as local law enforcement agencies, ProPublica has found. The firms are alike in other ways. Both charge victims substantial fees on top of the ransom amounts. They also offer other services, such as sealing breaches to protect against future attacks. Both firms have used aliases for their workers, rather than real names, in communicating with victims.

Going up

Ransomware is getting worse.

After US Attorney General traced and indicted two Iranian hackers for releasing ransomware called SamSam, authorities hoped the prevalence of attacks would fall. Instead, it rose, beating 2018 levels considerably.

The reason, many believe, is because ransomware is so lucrative. Hackers can launch an attack and then, when the victims discover the hack, they negotiate briefly with companies like MonsterCloud and others to unlock the computers. However, many of these companies offer recovery methods and many security researchers work on free methods this one for the popular WannaCry ransomware.

Unfortunately, the hacks are getting worse and the software necessary is getting more complex.

Coveware admits to actually negotiating with scammers. They’ve found it to be one of the simplest methods for getting data back. The concern, however, is that these efforts are inadvertently funding terrorism. Further, they write, it is taking longer to decrypt hacked computers, thanks to new versions of the ransomeware. In Q1 2019, wrote Coveware, the “average downtime increased to 7.3 days, from 6.2 days in Q4 of 2018.”

Pattern recognition

Coveware CEO Bill Siegel has found that the average ransomware recovery isn’t really a negotiation with “terrorists” as US Government officials believe. They’ve negotiated a “few hundred” ransomware cases this year and find that each hacker is different and often just frustrated.

“Our sense based on our study of the industry and experience is that the vast vast majority are relatively normal people that don’t have legal economic prospects that match their technical abilities,” Siegel said. “They also live in parts of the world that are beyond the jurisdiction of Western law enforcement, and are ambivalent about stealing from the West.”

Their process for talking with the hackers is also quite precise.

“We study their communications patterns so that we can build up a database of experience. There is a surprisingly small group of threat actors that are active at any given time, so identifying them is relatively straight forward. From there, we have scripts and tactics that we have honed over our experience. We draw on those to develop a negotiation strategy on behalf of our client. We know the hackers based on the profile and patterns they exhaust. We don’t communicate with them outside of representing our clients in a negotiation. All of the data exhaust we create from our cases is provided to law enforcement on a quarterly basis as well.”

Zohar Pinhasi of MonsterCloud said his company worked hard to use both methods – recovery and ransom.

The recovery process varies from case to case depending on the scope and nature of the cyber attack. Our methods for achieving data recovery and protection are the product of years of technical experience and expertise and we do not disclose the process to the public or to our customers. That is communicated clearly up front. However, what I can tell you is that we are a cyber security company, not a data recovery company. We have vast knowledge and experience dealing with these criminals, and we spend countless hours staying atop their evolving methods in order to provide our clients with protections against all future attackers, not just the one infiltrating their data at the time they come to us. We offer a money back guarantee to any client if we are unable to recover their data, and to date we have not had a single client report a follow-up attack from the same criminals or any other attacker.

While sending a few thousand BTC to a strange address might not sit well with many victims, it still looks like the best way to reduce downtimes. After all, it’s the organization’s fault for catching the ransomware bug in the first place. Prevention, as they say, is often better than the cure.

Image via Coindesk archive.

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Facebook Hires Two of Coinbase’s Former Compliance Managers

Facebook hired two Coinbase veterans to work in compliance this month, and at least one of them is involved with the social media giant’s blockchain effort.

Jeff Cartwright left Coinbase in March after nearly five years at the U.S. cryptocurrency exchange in various compliance roles. He joined Facebook as a policy and compliance manager this month, according to his LinkedIn profile.

The profile does not address how involved he will be in Facebook’s blockchain projects, which include a secretive plan to create a price-stable cryptocurrency. Reached by CoinDesk Monday evening, Cartwright said he could not discuss his new role. Facebook spokesperson Elka Looks said the company does not comment on personnel.

Meanwhile, Mikheil Moucharrafie, who left Coinbase in April after more than three years, also joined Facebook this month. He is a compliance officer for blockchain at the social media giant.

A lawyer by training, Cartwright joined Coinbase in 2014 after working in compliance roles at American Express and Goldman Sachs and as an anti-money-laundering (AML) consultant at Big Four professional services firm KPMG.

He spent the first three years at Coinbase managing the startup’s AML and Bank Secrecy Act (BSA) compliance, was promoted to head of internal audit in March 2017, and then to director of regulatory risk and exams in December of last year.

Moucharrafie has a similar pedigree, having worked as an AML/BSA investigator, compliance manager and risk manager during his time at Facebook.

Facebook’s coin

The two hires’ legal and regulatory chops may prove valuable to Facebook given the scrutiny its cryptocurrency plans have started to attract in Washington.

Last week, the U.S. Senate Banking Committee wrote an open letter to Facebook founder and CEO Mark Zuckerberg, asking him to share details about the cryptocurrency project, with a particular focus on consumer privacy.

Little is known about the crypto initiative, called Libra. The company quietly began building up a blockchain research team last year, headed up by vice president and former Coinbase board member David Marcus.

The company has posted numerous job listings for the team since, and notable figures in the space such as crypto economist Christian Catalini, a researcher with MIT, have also joined the project.

The company is reportedly looking to raise as much as $1 billion for the project to use as collateral to back a stablecoin.

Anna Baydakova contributed reporting.

Facebook image via Shutterstock.