FTX executives Caroline Ellison and Gary Wang plead guilty to criminal charges, are cooperating with investigation

December 21, 2022

FTX executives Caroline Ellison and Gary Wang plead guilty to criminal charges, are cooperating with investigation

Side-by-side photos of Caroline Ellison and Gary Wang

Caroline Ellison and Gary Wang (attribution)

Two of Sam Bankman-Fried's inner circle, Caroline Ellison and Gary Wang, have pled guilty to federal criminal charges and are cooperating in the case against Sam Bankman-Fried. Ellison was the CEO of Alameda Research, the trading firm founded by Sam Bankman-Fried in 2017. Wang was a co-founder of FTX alongside Bankman-Fried, and served as its CTO.

Ellison's and Wang's pleas were announced in a short message by U.S. Attorney Damian Williams, who did not elaborate on what the charges were. He again urged any others who had knowledge of criminal activity at FTX to come forward, and warned that these were not the last charges he expected to file.

Simultaneously with the charges from the Justice Department were civil complaints from the Securities and Exchange Commission, which alleged that both had been involved "in a multiyear scheme to defraud equity investors in FTX". In particular, the SEC accused Ellison of artificially manipulating the price of FTT, the FTX-issued token that formed a large portion of Alameda's balance sheet. The SEC accused Wang of creating a backdoor in FTX software that allowed Alameda to move customer funds from FTX for use in its trading activities.

The CFTC filed an amendment to their complaint against Sam Bankman-Fried, adding Ellison and Wang as defendants.

Announcement from the U.S. Attorney's Office for the Southern District of New York
"Two Executives in Sam Bankman-Fried's Crypto Empire Plead Guilty to Fraud", The New York Times
"TECH FTX’s Gary Wang, Alameda’s Caroline Ellison plead guilty to federal charges, cooperating with prosecutors", CNBC

December 21, 2022

Paxful crypto marketplace delists ether, citing "scams that have robbed people of billions"

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Peer-to-peer crypto marketplace Paxful announced that it will be delisting ether, citing "scams that have robbed people of billions".

So close. You're almost there.

Paxful CEO Ray Youssef said in an email to the platform's claimed 11.6 million customers that the decision was based on Ethereum moving from proof-of-work to proof-of-stake, not being decentralized, and spawning an ecosystem of scammy Ethereum-based altcoins. The email featured a header photo of Youssef himself posing triumphantly, and Youssef spent much of the subsequent day tweeting memes he made from pictures of himself.

With the loss of ether, the platform will only allow swaps of Bitcoin, Tether (USDT), and USDC — despite both Tether and USDC being Ethereum-based tokens.

Tweet by Ray Youssef

December 21, 2022

Swan Bitcoin releases a new product to streamline the process of losing your house speculating on Bitcoin

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"Convert home equity into Bitcoin", Swan Bitcoin advertises with their new home equity product. Relatively few details are available on the new loan product they're offering, but they advertise that you can close on the loan in "as little as 5 days", obtain loans with no income or credit check, and obtain loan amounts from $20,000 to over $1 million. What could go wrong?

"Rates starting at 7.5%, with 80% Bitcoin upside appreciation", they say. Downside risk is, naturally, not mentioned.

For those unfamiliar, Swan Bitcoin is a US-based Bitcoin-only crypto platform (although CEO Klippsten would surely yell at me for saying it is a "crypto platform", as he insists at every opportunity that "Bitcoin is not crypto").

December 21, 2022

Core Scientific Bitcoin mining firm files for bankruptcy

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Core Scientific warned in October that it was teetering on the edge of bankruptcy, so it was no huge surprise when the company filed for bankruptcy protection on December 21. Core Scientific is one of the largest Bitcoin miners, responsible for around 10% of the computing power on the Bitcoin blockchain. The company operates around 143,000 miners, and host an additional 100,000.

Core Scientific is only one of many Bitcoin miners in distress, as low Bitcoin prices and other factors make mining much less profitable. Other mining firms, including Argo Blockchain and Greenidge Generation, have warned that they may face bankruptcy in the near future. Some firms, such as Iris Energy, have powered off a significant amount of their mining capacity.

December 20, 2022

Auros files for bankruptcy

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Crypto market maker Auros filed for bankruptcy protection in the British Virgin Islands, not long after a missed loan repayment to the Maple defi lender in late November signaled something was amiss. At the time, Auros attributed the missed payment of 2,400 wETH (valued at ~$3 million at the time) to a "short-term liquidity issue as a result of the FTX insolvency".

Now, however, Auros is seeking a "light touch" liquidation path that would allow them to continue operations while they develop a restructuring plan. Meanwhile, they have missed another Maple loan repayment, this time for $7.5 million.

Court filings have revealed that "a significant proportion of the Company's assets" are frozen with FTX, leaving the company insolvent. These assets have an estimated value of $20 million.

"Auros bankruptcy protection filings show funds tied up on FTX", The Block
"Crypto market maker Auros misses $7.5 million Maple Finance loan repayment", The Block

December 20, 2022

Waves founder announces a new, "undepeggable" stablecoin as USDN even more dramatically de-pegs

A one year chart of the USDN price, showing it repeatedly dipping below the intended $1 peg, and becoming very unstable beginning in late August 2022

USDN price over the last year (attribution)

Apparently adopting Do Kwon's belief that the solution to a crashing algorithmic stablecoin project is creating another project, Waves founder Sasha Ivanov has announced, "I will launch a new stable coin". This comes after Neutrino USD — aka USDN — has spent much of the year de-pegged, recently plunging dramatically to around $0.50.

The USDN stablecoin remained within a few cents of its intended USD peg for about a year, before losing its peg in April. Since then, it has had a pretty bumpy road, spending much of the year more than a few cents off the dollar peg, and dropping much farther below it in early November.

A less-than-enthused commenter responded to Ivanov's Twitter announcement of a new coin, writing, "My brother in Christ more stablecoins to depeg is not the answer". "It will be undepeggable", replied Ivanov. Well, in that case.

Tweet by Sasha Ivanov
"Waves founder announces new stablecoin as USDN depegs", CoinTelegraph

December 17, 2022

Scammer steals fourteen Bored Apes from one victim, flips them for over $1 million

A Bored Ape with grey fur, wearing a red baseball cap, a green army jacket, and a blindfold over its eyes

BAYC #2060, which the scammer claimed to want to license (attribution)

A scammer spent a month setting up a con in which they stole fourteen Bored Ape NFTs belonging to one individual. Posing as a casting director at a real film production company—complete with a fake website, a fake partner company, and fake individuals pretending to have signed deals with the company—a scammer was able to convince the collector that they were interested in paying $13,000–$17,000 to license a Bored Ape for use in an animation.

After some back-and-forth, with legitimate-looking contracts and falsified emails appearing to come from the real company's real founding director, the NFT collector was asked to use their crypto wallet to sign a contract, via the fake company partner website that had been set up.

When the collector did so, the smart contract drained the collector's wallet of its fourteen pricey Bored Ape NFTs, then accepted the highest offers that were outstanding on each of the Bored Apes, netting 852.9 ETH. The scammer converted the stolen ETH to the DAI stablecoin, making off with $1,075,000 in DAI.

December 16, 2022

Over 100 Bitcoin moved from dormant QuadrigaCX wallets in "unauthorized" transfer

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QuadrigaCX was a Canadian crypto exchange that shut down and filed for bankruptcy in early 2019, with hundreds of millions more in liabilities than in assets. It later became apparent that the exchange's founder, Gerald Cotten, had taken customer funds for his own personal use. Cotten reportedly died shortly before the exchange's collapse, though there have been questions around whether he may have faked his own death to pull off an exit scam. Poor accounting processes have made the bankruptcy process — which is still ongoing — a nightmare for those in charge of trying to locate and recover assets.

Now, someone has moved 104 BTC (priced at $1.75 million today) from what is supposed to be a Quadriga cold wallet. In 2019, Quadriga's bankruptcy trustee Ernst & Young revealed they had erroneously transferred these roughly 100 Bitcoin to that wallet, which they could not access. Oops.

Most of the stolen BTC was transferred to a privacy service to obfuscate its ultimate destination. Ernst & Young subsequently confirmed the transfers were "unauthorized transactions" and not performed by them.

"QuadrigaCX Has Had an Improbable Week", CoinDesk

December 16, 2022

Raydium exploit results in ~$5 million loss

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An exploit on the Solana-based Raydium decentralized exchange project resulted in a total loss to the platform of $4.4 to $5.5 million. The attacker's actual spoils were less — somewhere around $2–3.5 million.

Raydium claims the exploit was a trojan attack, though they've provided no further evidence to substantiate this. According to Raydium, a trojan allowed an attacker to compromise the private key belonging to the pool owner account. With control over the private key, the attacker was able to withdraw a mix of assets from the pools. They bridged at least $2 million to Ethereum and tumbled them through Tornado Cash; another $1.5 million remained on the Solana chain, where some projects began freezing assets.

Raydium has offered a 10% "bug bounty" to the hacker if they return the stolen funds.

December 16, 2022

Auditing firm cuts ties with crypto clients, deletes Binance's "proof of reserves" report they issued days prior

The accounting firm Mazars Group has ceased working with cryptocurrency clients, including Binance, KuCoin, and Crypto.com. A statement from the firm attributed their decision to "concerns regarding the way these reports are understood by the public".

On December 7, a branch of Mazars Group had published a "proof of reserves" report for Binance — though it only accounted for Bitcoin, and did not reflect liabilities for Binance's lending product. On December 9, Crypto.com also published a "proof of reserves" report that had been produced by the firm.

As of December 16, the Binance audit — which had been hosted on Mazar's website — had been deleted.

"Proof of reserves" reports have been offered by various cryptocurrency exchanges in lieu of proper audits, but have reasonably failed to reassure many customers of those exchanges. These reports do not involve the scrutiny that would be applied by a full audit — they only reflect a snapshot of assets at a point in time, and do not show a firm's liabilities.

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