The criminal charges out of the US add to civil charges he's facing from the SEC, as well as an investigation out of South Korea.
US prosecutors file criminal charges against Do Kwon
Only hours after Do Kwon was arrested in Montenegro, federal prosecutors in New York filed eight criminal charges against him: conspiracy to defraud, conspiracy to defraud and engage in market manipulation, and two counts each of commodities fraud, securities fraud, and wire fraud. Prosecutors accuse Kwon of defrauding people by selling LUNA and UST (Terra) based on false claims about the technology, degree of adoption, and effectiveness of the algorithm intended to maintain Terra's stability.
Terra/Luna founder Do Kwon arrested
The founder of Terra/Luna, the stablecoin that crashed dramatically in May 2022 and has subsequently been alleged to be a massive fraud, has been arrested in Montenegro.
After the collapse, Kwon became a fugitive. South Korea issued a warrant for his arrest in September, and Interpol issued a red notice. However, he's remained on the lam for some time, reportedly hiding in Serbia for a time — a country with no extradition agreement with South Korea.
Now, officials in Montenegro have announced they arrested Do Kwon, who was attempting to travel through the country using falsified documents. Montenegro is a Balkan country bordering Serbia.
SEC sends a Wells notice to Coinbase
The SEC sent Coinbase a Wells notice, which is basically their way of saying "we're about to file a complaint against you, here's your chance to convince us not to."
According to Coinbase, the Wells notice related to "aspects of the company's exchange, our staking service Coinbase Earn, and Coinbase Wallet". It's not terribly surprising that the SEC might have Coinbase Earn in its crosshairs, as it has recently taken action against similar products, such as Kraken's staking service. In the wake of the action against Kraken, Coinbase seemed to try to pre-empt SEC arguments by sending an email to customers emphasizing things like "You earn rewards from the protocol, not Coinbase". It doesn't look like this has shifted the SEC's thoughts much, though.
This should be an interesting saga to watch, partly because Coinbase has expressed willingness in the past to go head to head with the SEC.
Lindsay Lohan, Jake Paul, and other celebrities charged for illegally touting Justin Sun's tokens
Celebrities Lindsay Lohan, Jake Paul, Soulja Boy, Austin Mahone, Kendra Lust, Lil Yachty, Ne-Yo, and Akon were all charged by the SEC for violating anti-touting laws that would require them to disclose if and how much they were being paid to promote securities. The alleged securities in question are TRX and BTT, two tokens both closely tied to Justin Sun, who was also charged in relation to the scheme.
With the exception of Soulja Boy and Mahone, the celebrities paid a total of more than $400,000 in disgorgement, interest, and penalties to settle the charges without admitting or denying them.
Justin Sun charged with offering unregistered securities and market manipulation
His (former?) Excellency Justin Sun has been charged by the US Securities and Exchange Commission for offering unregistered securities. His businesses, the Tron Foundation and two BitTorrent-related entities, were also named in the complaint. According to the SEC, Sun offered the unregistered securities TRX and BTT, and "fraudulently manipulat[ed] the secondary market for TRX through extensive wash trading". He also allegedly "orchestrat[ed] a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation".
Eight celebrities were also charged with violations of anti-touting law.
International group of law enforcement agencies shuts down down ChipMixer
Law enforcement from the United States, Germany, and the European Union worked together to take down the ChipMixer cryptocurrency tumbler, which they allege had been used to launder $3 billion since 2017 related to "ransomware, darknet market, fraud, cryptocurrency heists and other hacking schemes". The US Department of Justice also charged an individual with money laundering, operating an unlicensed money transmitting business, and identity theft in connection with the project.
According to the US DOJ, ChipMixer had been used to process, among other things, proceeds of the massive March 2022 Axie Infinity hack by a North Korean cybercrime group.
US law enforcement seized two domains and a Github account tied to the organization, and German law enforcement seized ChipMixer's back-end servers and $46 million in cryptocurrency.
New York Attorney General sues KuCoin, claims ETH is a security
New York Attorney General Letitia James announced a lawsuit against the Seychelles-based KuCoin crypto exchange, after finding that users could trade on the exchange despite it not being registered in the state.
The NYAG took the additional step of alleging that ETH is a security. Many have argued that Bitcoin and ETH, the native token of Ethereum, are not securities because they are "sufficiently decentralized". The NYAG, however, wrote in the press release announcing the lawsuit that, "This action is one of the first times a regulator is claiming in court that ETH, one of the largest cryptocurrencies available, is a security. The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH."
The NYAG is also going after KuCoin for offering a lending and staking product, a category of product that has recently been a focus of various enforcement actions. They claim that KuCoin did not comply with a subpoena.
BitBNS discloses that they were hacked in February 2022, hid it as "system maintenance"
An investigation by crypto sleuth zachxbt uncovered that the Indian crypto exchange BitBNS had been hacked on February 1, 2022, but hid it from users. After experiencing a $7.5 million theft, the exchange tweeted "system maintenance in progress", suggesting they were having problems with Amazon Web Services.
After zachxbt's investigation, BitBNS admitted that they had hidden the hack from customers. "Law enforcement advised us that the users should be educated about the incident only after the investigation is completed or reaches a dead end," said BitBNS CEO Guarav Dahake, who also said that some funds were ultimately recovered thanks to law enforcement and cooperation from other exchanges.
FTX co-founder Nishad Singh pleads guilty, agrees to co-operate against SBF
Nishad Singh, a co-founder of FTX and its former director of engineering, has agreed to plead guilty to six criminal charges and co-operate against his former boss, Sam Bankman-Fried. Singh has pled guilty to one count of wire fraud, three counts of conspiracy to commit fraud, one count of conspiracy to commit money laundering and one count of conspiracy to defraud the United States by violating campaign finance laws.
In direct messages to a Vox journalist in November 2022, shortly after the FTX bankruptcy, Bankman-Fried wrote that Singh had left, and that he was feeling "ashamed and guilty" because customer deposits were missing.
According to bankruptcy filings, Singh had received a $543 million loan from Alameda Research. Some of this may have gone towards illegal political donations, which Singh admitted in court to making, saying they were intended to bolster Bankman-Fried's and FTX's influence among politicians.
- "FTX Co-Founder Nishad Singh Pleads Guilty to Fraud Charges", The Wall Street Journal
- "FTX's Singh pleads guilty to six U.S. fraud, conspiracy charges", Reuters
Per a court order, Oasis rewrites the rules for Jump Crypto to recover stolen assets
In a world where "code is law", crypto users don't necessarily expect that the smart contracts might change out from under them — particularly given contracts are often assumed to be immutable once they're deployed. However, for various reasons including the need to patch bugs in deployed contracts, some projects use upgradable smart contracts.
This decision was what allowed Jump Crypto to obtain a court order requiring the Oasis platform to "upgrade" a smart contract in such a way that Jump Crypto could remove stolen funds from where the hacker had placed them on the Oasis protocol. Oasis released a defensive statement, writing that their cooperation in the recovery was "only possible due to a previously unknown vulnerability in the design of the admin multisig access", and that "we will be making no further comment at this time". Oasis is a frontend for the MakerDAO project, which was originally started as part of MakerDAO but later spun into a separate entity, though it still appears to enjoy preferred status by MakerDAO.
The stolen funds in question were the proceeds of the February 2022 Wormhole bridge exploit, in which attackers stole 120,000 wETH (then ~$326 million; now $192 million). After the hack, Wormhole's parent company Jump Crypto plugged the hole left by the hack with their own funds. Since then, the attackers have been moving the funds throughout the cryptocurrency ecosystem, even taking out a highly-leveraged position on in Lido-staked Ether last month.
Ultimately, Jump was able to recover around $140 million via their "counter-exploit". While many celebrated the recovery, some were concerned about the precedent of a so-called defi platform changing a smart contract to remove funds from a wallet at the direction of a court. Some described the upgradability as a "backdoor". "If they'd do it for Jump, what does that say about possible coercion via state actors?" wrote one trader on Twitter.