Quantum Updates 42 | April 2025

“Ending Regulation by Prosecution” in US Crypto Industry: Deputy Attorney General Todd Blanche Issues Sweeping US DOJ Policy Reset on Digital Asset Enforcement

On 7 April 2025, the United States Department of Justice (DOJ), through a policy memorandum issued by Deputy Attorney General Todd Blanche titled “Ending Regulation By Prosecution”, announced a systemic shift in its enforcement approach to digital assets. This directive aligns the DOJ’s position with Executive Order 14178 issued by President Donald J. Trump, marking a definitive end to the prior administration’s practice of using criminal law as a substitute for clear regulatory standards in the cryptocurrency sector. The memorandum denounces this approach and outlines new boundaries for DOJ involvement, focused on investor harm and illicit finance, rather than technical or ambiguous regulatory violations.

• The memorandum officially disavows “regulation by prosecution,” wherein criminal charges were previously used to enforce unclear or undeveloped regulatory obligations in the digital asset space.
• Prosecutors are now explicitly directed to focus only on misconduct that results in direct investor harm or facilitates traditional criminal activity such as terrorism financing, narcotics trade, organised crime, and human trafficking.
• The DOJ acknowledges that it is not a regulatory agency for digital assets and will refrain from establishing de facto policy through prosecution in the absence of wilful misconduct.
• The memorandum prohibits criminal charges for technical violations—such as failures to register under the Bank Secrecy Act or securities laws—unless there is demonstrable wilfulness and material fraud.
• Prosecutors are discouraged from litigating doctrinal issues, such as whether a digital asset qualifies as a “security” or “commodity,” unless no fraud-based alternatives exist and such classification is essential to the case.
• Effective immediately, the National Cryptocurrency Enforcement Team (NCET) is disbanded, and all inconsistent investigations are to be terminated. Future digital asset-related prosecutions will proceed only through U.S. Attorneys’ Offices, and only if they meet the revised criteria.
• DOJ resources will now prioritise combating the use of digital assets in terrorist financing (e.g., by Hamas, ISIS, North Korean actors), fentanyl trafficking, and investment fraud such as rug pulls, exchange misappropriation, and hacking.
• The DOJ will initiate reforms to its asset recovery regime, seeking legislative changes that would allow victims of crypto fraud to be compensated at the asset’s present value, rather than its market value at the time of loss.
• DOJ will coordinate through the President’s Working Group on Digital Asset Markets, supporting comprehensive legal reforms and contributing to a consolidated report for the President, which, once adopted, will bind future DOJ crypto enforcement strategy.
• The shift aims to bring legal clarity for lawful blockchain businesses, software developers, and decentralised platforms, and requires that non-fraudulent regulatory breaches will not trigger criminal action.
• The broader goal is to de-risk digital innovation, reduce overlapping regulatory burdens, and encourage domestic Web3 growth by distinguishing between various token classifications and aligning enforcement with legislative intent.
• The DOJ’s redirection of resources, including the disbandment of NCET and withdrawal from doctrinal crypto litigation, reflects a reorientation toward national security, public integrity, and traditional fraud enforcement priorities.

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US CFTC Clarifies Use of U.S. Treasury ETFs as Eligible Margin Collateral for Uncleared Swaps

On 14 April 2025, the United States Commodity Futures Trading Commission (US CFTC), acting through its Market Participants Division, issued CFTC Letter No. 25-11 titled “Staff Interpretation Regarding Exchange-Traded Funds as Eligible Margin Collateral for Uncleared Swaps Transactions”, formally interpreting that certain U.S. Treasury exchange-traded funds (ETFs) may qualify as eligible margin collateral, both as initial margin (IM) and variation margin (VM), for uncleared swap transactions under United States CFTC Regulation 23.156. This clarification is intended to close a regulatory gap and enhance collateral efficiency across the derivatives market.

• The interpretative letter confirms that U.S. Treasury ETFs structured as open-end investment companies under United States SEC Rule 6c-11 of the Investment Company Act of 1940 meet the definition of “redeemable securities” under US CFTC Regulation 23.156(a)(1)(ix).
• Swap dealers (SDs) and major swap participants (MSPs), classified as covered swap entities (CSEs), may now post qualifying U.S. Treasury ETFs as eligible margin for uncleared swaps, subject to specified collateral requirements.
• This interpretation follows a 06 March 2024 recommendation from the Global Markets Advisory Committee (GMAC), which highlighted the superior liquidity, transparency, and diversification benefits of U.S. Treasury ETFs over individual securities.
• Eligible ETFs must (i) invest solely in U.S. Treasury securities and cash, (ii) issue and redeem shares daily based on market value, and (iii) refrain from securities lending or similar asset rehypothecation practices.
• The US CFTC confirmed that ETFs meeting these standards may be used as variation margin when trading with financial end users under Regulation 23.156(b).
• Margin haircuts, as required by Regulation 23.156(a)(3), may be applied using either a weighted average based on the ETF’s underlying assets or a fixed percentage tied to the longest maturity in the portfolio. This aligns with haircut methods under the Prudential Regulators Margin Rule.
• The Division’s interpretation is consistent with prior guidance under the 2016 CFTC Margin Rule, aimed at ensuring that non-cash collateral remains liquid and reliable under stress conditions.
• The US CFTC acknowledged that this move supports collateral optimisation, enhances market resilience, and addresses operational challenges in managing margin obligations for uncleared derivatives.
• The interpretative guidance is not binding on the US CFTC but will provide regulatory certainty and modernise risk management standards in derivatives markets.
• Market participants seeking clarification have been directed to contact Associate Director Liliya Bozhanova or Attorney Advisor Christine McKeveny at the Market Participants Division of US CFTC.

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HK SFC and HKEX Host Hong Kong’s First International Carbon Markets Summit

On 15 April 2025, the Hong Kong Securities and Futures Commission (HK SFC) and Hong Kong Exchanges and Clearing Limited (HKEX) jointly organised the city’s first International Carbon Markets Summit, reinforcing Hong Kong’s commitment to emerging as a leading global hub for green and sustainable finance. The summit brought together key international stakeholders to address pressing challenges and future strategies for voluntary carbon markets, underscoring the importance of credible and transparent carbon finance infrastructure.

• The summit was attended by more than 200 global participants, including financial regulators, carbon credit traders, institutional investors, and environmental policy experts.
• Central themes of the event was the need for internationally recognised standards in voluntary carbon markets, enhanced cross-border market connectivity, and greater adoption of digital infrastructure.
• Hong Kong’s Secretary for Financial Services and the Treasury, Mr. Christopher Hui, and Secretary for Environment and Ecology, Mr. Tse Chin-wan, led a policy-focused fireside discussion.
• The event is a step towards Hong Kong’s broader ambition under its Climate Action Plan 2050 to attract carbon-related investments and foster sustainable development through regulated and innovative market mechanisms.

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ASIC to Launch New AFS Licensing Portal on 5 May 2025 as Part of Digital Overhaul

On 16 April 2025, the Australian Securities and Investments Commission (ASIC) announced that its newly developed digital portal for Australian financial services (AFS) licensing will be launched on 5 May 2025 as part of a broader digital infrastructure overhaul designed to enhance regulatory efficiency and accessibility for financial service providers operating under the AFS regime.

• The portal is designed to facilitate the application, variation, and cancellation of AFS licences through an upgraded interface that prioritises automation, data pre-fill, and streamlined user interaction.
• ASIC confirmed that existing eligibility and policy frameworks under Regulatory Guides 1, 2, and 3 will remain unchanged, although guidance will be updated at launch to incorporate the portal’s new digital functionality.
• The initiative supports ASIC’s ongoing move towards data-driven regulation, offering faster turnaround times and improved user experience for both traditional and fintech applicants.
• The existing AFS Licensing portal will remain operational until the new platform is officially launched.
• ASIC has committed to publishing transition resources, including guidance notes and FAQs, to assist stakeholders in navigating the change and ensuring continuity in licensing processes.

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US CFTC Opens Public Consultation on 24/7 Derivatives Trading and Clearing

On 21 April 2025, the United States Commodity Futures Trading Commission (US CFTC) launched a formal Request for Comment (RFC) seeking public feedback on the viability, benefits, and regulatory implications of transitioning derivatives trading and clearing infrastructure to a 24/7 model. This aims to align regulatory frameworks with the round-the-clock activity characteristic of global digital asset markets.

• The consultation is led jointly by the US CFTC’s Divisions of Market Oversight, Clearing and Risk, and Market Participants, reflecting the cross-functional importance of the initiative.
• The RFC addresses potential operational, liquidity, and systemic risks associated with continuous trading, with a specific focus on real-time margin requirements during weekends and non-banking hours.
• Key concerns highlighted include the resilience of trading and clearing systems without traditional maintenance windows, adequacy of collateral sourcing during off-hours, and market surveillance capabilities during non-standard periods.
• The US CFTC is particularly interested in the readiness of market infrastructure to detect and prevent abusive trading practices in a 24/7 environment.
• The move is especially relevant for crypto-derivatives and digital asset-linked contracts, which already trade continuously on unregulated global platforms.
• Market participants, clearinghouses, exchanges, technology providers, and members of the public are encouraged to submit comments electronically or by mail by 21 May 2025.
• Acting Chairman Caroline D. Pham elaborated onthe importance of proactive regulatory foresight, noting the global shift toward extended trading hours and the need to adapt existing frameworks to preserve market integrity and investor protection.
• The outcome of this consultation could influence the regulatory posture on whether compliant, regulated crypto-derivatives markets in the United States may operate on a 24/7 basis.

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Paul S. Atkins Sworn In as 34th Chairman of the United States Securities and Exchange Commission

On 21 April 2025, Paul S. Atkins was sworn in as the 34th Chairman of the United States Securities and Exchange Commission (US SEC), following his nomination by President Donald J. Trump on 20 January 2025 and confirmation by the United States Senate on 9 April 2025. His appointment marks a return to the agency after previously serving as an SEC Commissioner from 2002 to 2008 during the George W. Bush administration.

• Chairman Atkins brings extensive regulatory and private sector experience, having served as chief executive of Patomak Global Partners since 2009, a consultancy influential in shaping corporate governance and digital asset compliance standards.
• He served as an independent director and non-executive chairman of BATS Global Markets, Inc. from 2012 to 2015, gaining direct oversight experience in exchange operations and market infrastructure.
• His early US SEC tenure include, roles like the staff of former US SEC Chairmen Richard C. Breeden and Arthur Levitt from 1990 to 1994, rising to the position of chief of staff and counselor.
• He is a qualified member of the New York and Florida bars and earned his Juris Doctor from Vanderbilt University School of Law in 1983 and graduated Phi Beta Kappa with an A.B. from Wofford College in 1980.
• Prior to public service, he practised corporate law in New York, specialising in securities, mergers and acquisitions, and cross-border transactions, and was also admitted as a conseil juridique during a professional residency in Paris.

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US SEC Awards $6 Million to Joint Whistleblowers Following Successful Enforcement Action

On 21 April 2025, the United States Securities and Exchange Commission (US SEC) announced a whistleblower award of approximately $6 million granted to joint whistleblowers whose credible and timely disclosures initiated an US SEC examination that led to a successful enforcement action. The award reaffirms the agency’s commitment to incentivising individuals who assist in detecting violations of federal securities laws.

• The whistleblower award was issued under the United States Dodd-Frank Wall Street Reform and United States Consumer Protection Act, which authorises payments of between 10% and 30% of monetary sanctions collected, provided the total sanctions exceed $1 million.
• The awarded funds were drawn from the US SEC’s Investor Protection Fund, which is financed entirely through monetary penalties imposed on securities law violators and does not impact taxpayer funds.
• The identity of the whistleblowers remains strictly confidential, in accordance with statutory protections under the United States Dodd-Frank framework.
• The US SEC acknowledged that the whistleblower’s original information directly prompted the launch of an examination that culminated in formal enforcement proceedings.
• Jonathan Carr, Acting Chief of the SEC’s Office of the Whistleblower, emphasised that awards may follow not only from tips that initiate investigations, but also those that catalyse examinations leading to enforcement outcomes.

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US SEC Charges PGI Global Founder in $198 Million Crypto and Forex Fraud Scheme

On 22 April 2025, the United States Securities and Exchange Commission (US SEC) filed a civil complaint in the United States District Court for the Eastern District of Virginia against Ramil Ventura Palafox, founder of PGI Global (Praetorian Group International Corporation), alleging a large-scale crypto and Forex investment fraud totalling approximately $198 million. The enforcement action demands a jury trial and alleges extensive investor deception through unregistered securities offerings and misappropriation of funds.

• The US SEC alleges that between January 2020 and October 2021, Palafox orchestrated a global scheme by selling unregistered “membership packages” that falsely promised daily returns of 0.5% to 3%, with total profits of up to 200%.
• Investors were solicited through social media, promotional events, and direct communications, with additional incentives via multi-level marketing-style referrals.
• The complaint states that over $57 million of investor funds were diverted for Palafox’s personal expenses, including purchases of luxury vehicles, watches, jewellery, and real estate.
• Remaining investor funds were used in a Ponzi-like manner to pay supposed returns to earlier investors, sustaining the scheme until its collapse in October 2021.
• PGI Global falsely claimed regulatory authorisations in the Philippines and Estonia and created fake dashboards and promotional materials to simulate legitimate trading operations.
• The US SEC’s complaint identifies four relief defendants, BBMR Threshold LLC, Darvie Mendoza, Marissa Mendoza Palafox, and Linda Ventura, who allegedly received misappropriated funds without lawful entitlement.
• The fraud was conducted through email, telephone, and blockchain transactions, with investor events held in Alexandria, Virginia, and fund transfers executed via Bitcoin and fiat currencies.
• The scheme came to a halt in October 2021 following the seizure of PGI Global’s website by the IRS and the issuance of a fraud alert by the Philippine Securities and Exchange Commission.
• The US SEC seeks permanent injunctive relief, civil penalties, disgorgement with prejudgment interest, and bans on future securities offerings by Palafox, particularly those involving crypto assets or multi-level marketing.
• Charges include violations of Section 10(b) and Rule 10b-5 of the United States Securities Exchange Act of 1934, and Sections 5(a), 5(c), and 17(a) of the United States Securities Act of 1933, applying the investment contract test established in SEC v. W.J. Howey Co.
• The litigation is managed by the US SEC’s Philadelphia Regional Office and supervised by the Cyber and Emerging Technologies Unit, with legal representation from Spencer Willig, Gregory Bockin, and Eugene Hansen.
• The US SEC acknowledged collaboration with the Department of Justice, FBI, and IRS in the investigation and urged investors to consult its fraud prevention tools on Investor.gov.

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