The SEC's lawsuit also targets six other promoters of the NovaTech scheme, all of whom the agency says used "religious overtones" when attracting new investors. Ultimately, the scheme was revealed to be a Ponzi scheme, with new investors' money being used to pay out previous investors, as the promoters also took money for themselves.
SEC charges promoters of NovaTech pyramid scheme
Following a lawsuit from the New York Attorney General in June, the SEC has filed a lawsuit against the promoters of the NovaTech crypto pyramid scheme and affinity fraud. Cynthia and Eddy Petion particularly targeted victims of Haitian descent, promoting their schemes in Creole, leveraging their victims' religion, and promising them "financial freedom" and "freedom from the plantation".
- "SEC Charges NovaTech and its Principals and Promoters with $650 Million Crypto Fraud", US Securities and Exchange Commission [archive]
FTX settles complaint from the CFTC with $12.7 billion payout
FTX will pay $8.7 billion in restitution and another $4 billion in disgorgement to settle the lawsuit from the CFTC, which was filed shortly after FTX collapsed in November 2022. All $12.7 billion, or what is available of it among FTX's remaining assets, will go to creditors rather than to the agency.
Defendants Sam Bankman-Fried, Caroline Ellison, and Gary Wang, as well as the FTX and Alameda Research companies, will be prohibited from commodities trading, including trading bitcoin, ether, USDT, or other assets considered "digital asset commodities" by the CFTC. However, with Bankman-Fried already beginning a 25-year prison sentence, and Ellison and Wang due to be sentenced, this may be low on their list of worries.
- "Judge approves $12.7 billion settlement between FTX and CFTC, bringing 20-month-long lawsuit to an end", The Block [archive]
- Permanent injunction, document #44 in CFTC v. Bankman-Fried [archive]
North Korean developers steal $1.3 million from crypto project treasury
According to blockchain investigator zachxbt, North Korean developers using fake identities were able to steal $1.3 million from a cryptocurrency project after pushing malicious code.
zachxbt traced the payment addresses for roughly 21 developers involved in this kind of activity, which he found had been working for at least 25 different cryptocurrency projects. They had earned around $375,000 over the past month.
Ripple fined $125 million by the SEC
A judgment has been issued in the long-running case against Ripple by the SEC, and the company has been fined $125 million for violations of securities laws in its institutional sales of its XRP token. The SEC has also obtained an injunction against the company, with the judge in the case opining that there was a "likelihood that [Ripple] will eventually (if it has not already) cross the line" again with respect to securities laws.
Ripple and others in the crypto world have been celebrating the judgment as a victory, in part because it is a substantially smaller penalty than the $1 billion in disgorgement and $900 million in penalties sought by the agency.
The SEC has already signaled throughout the case that they were likely to appeal an eventual outcome, after objecting to the judge's decision that several other types of token sales were not unlawful securities offerings.
Trump-themed $DJT token rug-pulls, people blame Martin Shkreli or Barron Trump
Surprising just about no one, a wallet holding around 20% of the supply of the $DJT Trump-themed memecoin suddenly dumped its holdings, crashing the token price by around 90%. The token price had briefly spiked in June, when it was falsely reported that the token was "an official Trump token". However, the token's price had already dwindled since that time, and before the sudden dump.
People were quick to blame those behind the project, primarily "Pharma Bro" Martin Shkreli (who has been accused of dumping his own token before). Shkreli was quick to shift the blame to Donald Trump's youngest son, Barron, who he has also claimed is behind the token (although this has not been independently confirmed). However, the owner of the wallet that dumped its tokens is not definitively known.
$12 million taken by whitehats from Ronin bridge
The Ronin bridge, which bridges crypto assets to the Ronin Network used by Axie Infinity and other gaming projects, has once again suffered a breach — though a considerably smaller one than the recordbreaking $625 million theft in March 2022. An update to the bridge code introduced a flaw with respect to how transactions were confirmed.
Fortunately for the Ronin team, it seems that most of the losses actually went to whitehats and MEV bots that were frontrunning transactions by would-be exploiters. ETH and USDC priced at around $12 million were taken — the maximum amount before triggering a safety feature in the code. Later that day, Ronin announced that the ETH (worth around $10 million) had been returned, and that the USDC was in the process of being returned. They also announced that they would reward the whitehats with a $500,000 bug bounty reward.
The Ronin bridge was taken offline shortly after the flaw was detected, and the team announced it would undergo an audit before being brought back online.
CFTC subpoenas former company of Ben "BitBoy" Armstrong over crypto promotion
The CFTC has sent a subpoena to Hit Network, the crypto media company that was previously headed up by Ben "BitBoy" Armstrong until his rather public meltdown. According to The Block, the subpoena requested information about fifteen tokens, including the BitBoy-themed $BEN token, and the videos in which figures including BitBoy talked up their potential for price appreciation. The CFTC noted that the investigation was into a person who had engaged in crypto fraud.
Kujira token tanks as team's leveraged bets melt down
The team behind the Kujira project wound up with around $2 million in bad debt after taking some of their operational funds and using it to make leveraged bets on their own platform. They blamed "a series of events over the last few months, including exploits, socially engineered attacks and fallouts within the ecosystem" for causing the positions to be liquidated. The $KUJI token price crashed by more than 60% as a result of the team's poor risk management.
The Kujira team apologized for the fiasco, and announced a plan to create a DAO to take over the project treasury.
ConvergenceFi hacked for $210,000
An attacker took advantage of a flaw in the code for the yield farming project ConvergenceFi, draining it of all the tokens that had been allocated for staking emissions. Because a function call in the smart contract did not do proper validation, an attacker was able to provide their own smart contract that set the amount of tokens to return to anything they wanted. Naturally, the attacker set it to return all 58.7 million tokens available to them, which they quickly swapped to around $210,000 and laundered through Tornado Cash.
Although ConvergenceFi described itself as audited, they admitted they had made changes to that portion of the code after the audits.
They assured their users that all user funds were safe, but recommended that users remove their staked funds from the platform.
- "Post-mortem | 08/01/2024", ConvergenceFi Medium [archive]
ZKX decentralized exchange shuts down in what some VCs are describing as a rug pull
The Starknet-based decentralized exchange ZKX abruptly shuttered operations on July 30, with an announcement from founder Eduard Tur explaining that they had "been unable to find an economically viable path for the protocol."
ZKX had raised $4.5 million in seed funding from investors including the now-bankrupt Alameda Research, Starkware, HTX, Amber Group, ArkStream Capital, and HashKey Capital. The project had announced a second, $7.6 million raise only a few weeks before its shutdown.
People at Amber Group, ArkStream, and HashKey publicly criticized the lack of transparency from ZKX around its financial situation. Ye Su, a founding partner at ArkStream, explained that he felt they had been "rug pulled".
Blockchain sleuth zachxbt joined the VCs in characterizing the project as a rug, and further elaborated that he felt the retail investors who had purchased the project's token only weeks earlier had been tricked into buying a token by the project team, who "misled the community/retail ... by giving the appearance the project was healthy and strong when in reality they were in a bad position and about to shut down."