Category: Illegal

Categories
Australia DeFi Illegal Regulation

ASIC Sues Aussie Fintech Company Block Earner Alleging Unlicensed Services

Australia’s financial markets watchdog is taking Aussie crypto platform Block Earner to court for allegedly providing unlicensed financial services and running an unregistered managed investment scheme. 

The Australian Securities and Investments Commission (ASIC) announced Wednesday November 23 that it had commenced civil penalty proceedings against Block Earner — the trading name for Web3 Ventures — in the Federal Court.

“We are concerned that Block Earner offered financial products without appropriate registration or an Australian Financial Services licence, leaving consumers without important protections. Simply because a product hinges on a crypto-asset, does not mean it falls outside financial services law.”

ASIC Deputy Chair Sarah Court

ASIC has been active when it comes to enforcement in the crypto space of late, taking legal action against the company being the Qoin token in October this year.  

Block Earner CEO Cites Lack of Regulatory Clarity

Bringing decentralised finance to the masses has been the catch-cry of Block Earner, which offers a range of fixed annual yield products backed by crypto, USD reserves and physical gold. ASIC said Block Earner’s crypto-asset-related offerings were financial products, which comes with a requirement to hold an AFS licence — which Block Earner does not have.

Speaking to Business News Australia, Block Earner co-founder and CEO Charlie Karaboga described the legal action as a “disappointing outcome”. He said the startup had invested in infrastructure to be able to operate compliantly and protect its customers against crypto market volatility. 

“Needless to say, lack of clarity around regulation in Australia for cryptocurrency-related products creates friction between regulators and innovators like Block Earner in our industry. In an ideal world, we would build these products in a regulatory sandbox with more clarity around licensing regimes. In the future, we look forward to working with ASIC and other regulators in this space to make Australia an innovative space for the crypto industry.”

Block Earner co-founder and CEO Charlie Karaboga

ASIC Supports Regulation to Protect Consumers

ASIC said it supports the development of an effective regulatory framework covering crypto assets in order to protect Australian investors — who have demonstrated a strong interest in crypto. 

Research released by ASIC in August 2022 found many new, young investors had become active in financial markets and 44 percent reported holding crypto. Just 20 percent of crypto owners considered their investment approach to be ‘risk-taking’, and many said they sourced information from social media, podcasts and financial influencers.

In its statement about legal proceedings against Block Earner, ASIC highlighted its concerns about consumers’ vulnerability in their rush to embrace crypto:

“Crypto-assets are risky, inherently volatile and complex and ASIC remains concerned that potential investors in crypto-assets may not fully appreciate the risks involved. ASIC supports the development of an effective regulatory framework covering crypto-assets to protect consumers and investors.” 

ASIC Deputy Chair Sarah Court
Categories
Crypto News Illegal Markets Regulation

SEC Wins Case Against LBRY – LBC Tokens Ruled as Securities

Gavel with a bookshelf background

A court ruling in favour of the US Securities and Exchange Commission (SEC) that upholds allegations that LBC tokens were illegally sold as securities has caused the token’s value to plummet by over 36 percent.

US District Judge Paul J. Barbadoro said in his ruling that the evidence shows “LBRY promoted LBC as an investment that would grow in value over time through the company’s development of the LBRY network.”

Following its loss, LBRY tweeted it would not give up, and warned that the ruling had set “an extraordinarily dangerous precedent that makes every cryptocurrency in the US a security, including Ethereum.”

Upon news that LBRY had been found to have violated the law by offering its LBC tokens as unregistered securities, LBC’s value dropped sharply and was trading at just US$0.012636 at the time of writing. 

LBC token price plunges. Source: CoinMarketCap

Precedent Applied Could Cripple US Crypto

Founder and CEO of the LBRY network, Jeremy Kauffman vented his frustration on Twitter: 

Kauffman also tweeted his belief that the ruling “threatens the entire US cryptocurrency industry.” 

The blockchain-based LBRY network is a protocol for building apps that enable creators and users to publish and purchase digital content including videos, music and ebooks.

Judge Barbadoro said he was not persuaded by LBRY’s argument that it hadn’t received fair notice that its offering was subject to securities laws, particularly given the network did not issue an Initial Coin Offering (ICO).

He said the SEC’s case was backed by a Supreme Court precedent that had been applied in hundreds of cases for more than 70 years. “While this may be the first time it has been used against an issuer of digital tokens that did not conduct an ICO, LBRY is in no position to claim that it did not receive fair notice that its conduct was unlawful,” Barbadoro said.

“Because no reasonable trier of fact could reject the SEC’s contention that LBRY offered LBC as a security, and LBRY does not have a triable defense that it lacked notice, the SEC is entitled to judgment.” 

US District Judge Paul J. Barbadoro
Categories
Australia Crypto News Illegal Regulation

ASIC Sues Financial Firm Over Aussie Crypto Token ‘Qoin’

The Aussie company behind the controversial crypto token Qoin is being sued by the Australian Securities and Investments Commission (ASIC), alleging its marketing included false, misleading and deceptive claims about how investors could use the tokens.

ASIC’s civil court legal action against BPS Financial Limited — the company that launched Qoin in late 2019 — also alleges unlicensed conduct and that BPS falsely conveyed that the company and its wallet app were regulated and legally compliant.

In a statement issued on Tuesday October 25, ASIC Deputy Chair Sarah Court said:

“ASIC is particularly concerned about the alleged misrepresentation that the Qoin Facility is regulated in Australia, as we believe the more than 79,000 individuals and entities who have been issued with the Qoin Facility may have believed that it was compliant with financial services laws, when ASIC considers it was not.”

ASIC Deputy Chair Sarah Court

An announcement on the Qoin website states that BPS is reviewing the allegations, does not agree with ASIC’s position, and will be defending the matter. 

Limits on Exchanging Tokens Raises Concern for Consumers

The idea behind Qoin tokens is that they can be used by consumers as a digital currency within a large ecosystem of participating businesses, to enable secure and contactless payments — upon its launch, BPS claimed to have more than 35,000 merchants signed up. 

BPS also marketed that Qoin tokens could be swapped for crypto and Australian dollars, via Block Trade Exchange Limited, aka the BTX Exchange, which is linked to BPS and has the same directors.

Early critics argued this closed system reduced the token’s utility and created a potential conflict of interest. Frustrated investors have long been complaining about difficulties in selling Qoin.

Core allegations being made by ASIC related to the current civil court action include that BPS falsely assured investors that they could exchange their Qoin tokens for other crypto assets or fiat currency, and that they could use Qoin tokens to purchase goods and services from a growing number of merchants. 

“We allege that, despite what BPS represented in its marketing, Qoin merchant numbers have been declining, and that there have been periods of time where it was not possible to exchange Qoin tokens through independent exchanges.”

ASIC Deputy Chair Sarah Court

ASIC is seeking declarations, pecuniary penalties, injunctions and adverse publicity orders from the Court.

Coin’s Chequered Crypto Journey

In its short history, the Qoin token has been embroiled in controversies including: 

Categories
Australia Crime Crypto.com Illegal

Melbourne Couple to Face Trial Over $10.4M Crypto.com Blunder

crypto.com

A Melbourne couple who spent most of a A$10.4 million refund they received in error from cryptocurrency exchange Crypto.com are set to face trial. An administrative mistake made by an employee in Bulgaria saw the couple receive the huge sum instead of what should have been a A$100 refund.

Jatinder Singh, 37, and his partner, Thevamanogari Manivel, 40, appeared in Melbourne Magistrate’s Court on October 11 to hear the charges against them. 

At the hearing, Singh pleaded not guilty to theft and dealing with property that is the suspected proceeds of crime while Manivel pleaded not guilty to negligently dealing with property that is the suspected proceeds of crime. 

Employee Blunder Turns $100 Into $10.4M

The error which led to the couple’s unintended windfall occurred on May 12, 2021 when a Crypto.com employee based in Bulgaria was processing a refund. Rather than entering the correct cash amount of A$100 in the ‘amount’ field, the employee inadvertently entered an account number. This simple mistake resulted in over A$10 million being deposited into Manivel’s Commonwealth Bank account.

Upon receiving the enormous payment, Singh claims he thought he had won a competition run by Crypto.com after supposedly receiving a notification from the Crypto.com app. However, Crypto.com claims there was no competition that involved a $10 million prize at the time, and even if there were, the company doesn’t notify winners of competitions through in-app notifications.

Couple Bought Up Big Time

After receiving the erroneous refund, the court was told Manivel bought four houses, numerous vehicles, furniture and art. The court was also told A$4 million was transferred to a bank account in Manivel’s home country of Malaysia.

Crypto.com was unaware of the mistake until it was revealed in an audit of the company’s finances in December 2021, around six months after it occurred.

Despite Attempt to Flee, Couple Couldn’t Escape the Fallout

Manivel was arrested in March of this year at Melbourne airport with a one-way ticket to Malaysia, in what prosecutors say was an attempt to flee the country.

Both Manivel and Singh have been committed to stand trial at a later date, Manivel was released on bail while Singh remains in custody awaiting trial.

Crypto.com is also pursuing civil action against the couple in an attempt to recover almost A$3 million dollars which is yet to be paid back.

Categories
Crime Crypto Exchange Illegal Stablecoins

Terra Co-founder Do Kwon Denies $39.6M Crypto Asset Freeze

Do Kwon, the CEO of Terraform Labs and the man behind the collapsed LUNA ecosystem, has denied a report from South Korean news outlet News1 claiming local prosecutors have frozen some of his crypto assets valued at 56.2 billion won (US$39.6 million).

In response to the report, Kwon tweeted that it’s a ‘falsehood’ and that he doesn’t have time to trade crypto.

Mounting Reports Matched by Kwon Denials

In his tweet Kwon also denied having accounts on the crypto exchanges KuCoin and OKX — this was a reference to his earlier denial of a September report that South Korean authorities had asked these exchanges to freeze 3,313 Bitcoin (BTC) linked to Kwon held on their platforms. 

Just a day earlier, Bloomberg had reported that South Korean prosecutors were claiming that Interpol had issued a red notice for Kwon, meaning law enforcement organisations globally had been asked to locate and apprehend him if he attempts to cross national borders.

Yet more claims against Kwon were reported back in July, when he was accused of rug pulling LUNA holders by quietly cashing out US$80 million per month in the lead-up to the blockchain’s collapse.

Despite these mounting reports against him and the fact he appears to have gone into hiding, Kwon maintains his innocence and claims to be cooperating with authorities.

Kwon Wanted in Relation to May LUNA Collapse

The legal troubles for Kwon stem from the spectacular collapse of the LUNA ecosystem in May 2022 in which the algorithmic stablecoin UST lost its peg with the US dollar, falling to virtually zero and taking down its sister token LUNA with it. 

This collapse wiped out around US$26 billion of investor value, triggered the collapse of Three Arrows Capital, contributed to the bankruptcy of crypto lenders Voyager and Celsius, and plunged the entire crypto market into a deep winter from which it is yet to emerge.

For his part in LUNA’s collapse, Kwon is now wanted by South Korean authorities for numerous crimes, including breaching the country’s capital-market laws.

Categories
Crypto News Illegal Regulation Social media

Kim Kardashian Fined $1.26 Million by SEC Over Unlawful Crypto Promo

Kim Kardashian adjusting hair

High-profile influencer and star of the reality TV show ‘Keeping Up With The Kardashians’, Kim Kardashian, has paid a total of US$1.26 million to settle charges brought against her by the US Securities and Exchange Commission (SEC) relating to her promotion of the cryptocurrency EthereumMax (EMAX) in 2021. 

The SEC filed the charges against Kardashian for failing to disclose that she received a US$250,000 payment to promote EthereumMax to her social media followers. 

Kardashian’s Promotion Biased, Banned From Promoting Crypto

The Instagram post from Kardashian that attracted the charges contained a link to the EthereumMax website and provided instructions to buy EMAX tokens, the cryptocurrency sold by EthereumMax.

Kardashian’s post was part of EthereumMax’s aggressive 2021 marketing push which saw numerous other celebrities, including boxer Floyd Mayweather Jr. and former basketball player Paul Pierce, endorse the cryptocurrency on social media. 

According to the SEC, Kardashian’s failure to disclose the payment she received for her part in the promotion was a breach of the anti-touting provisions of US federal securities laws, which are intended to protect consumers from biased and self-interested promotion of securities. Speaking about the case, SEC Chair Gary Gensler said:

“The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion…Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”

SEC Chair Gary Gensler

As part of her settlement, Kardashian also agreed to cooperate with the SEC’s ongoing investigation into EthereumMax and to refrain from promoting any cryptocurrencies for three years.

What Is EthereumMax?

Despite having ‘Ethereum’ in its name, EthereumMax’s EMAX tokens aren’t related to Ethereum’s native ETH cryptocurrency. Rather EthereumMax is simply an ERC-20 token built on top of the Ethereum blockchain. It has a total supply of 2,000,000,000,000,000 — that’s right, two quadrillion tokens — and an unknown current circulating supply.

EthereumMax’s founders claim it’s a “progressive coin” that provides “lifestyle perks and financial rewards” to holders. However, it’s unclear exactly what these perks and rewards are. 

At the time of writing, EMAX is down over 98 percent from its all time high, which it hit on May 31, 2021, on the back of its aggressive celebrity endorsement drive.

SEC Charges Follow Investor Lawsuit

Kardashian’s charges aren’t the first legal stoush related to EthereumMax — in January 2022 a lawsuit filed in the US District Court of California’s Central District alleged the founders of EthereumMax, Steve Gentile and Giovanni Perone, and their celebrity spruikers were effectively running a pump and dump scheme. 

The complainant claims that while the celebrities pumped the price by promoting the cryptocurrency to their followers, they, along with the founders, were already dumping their EMAX tokens for a significant profit, while their followers were left holding the bag.

Categories
Audius Hackers Illegal Tokens

Hacker Exploits ‘Audius’ for $1 Million in Malicious Governance Proposal

Decentralised music streaming platform Audius has announced that it lost around US$1 million to an unknown hacker early on July 24.

The hacker was able to gain the funds after the platform mistakenly passed a malicious governance proposal that saw more than US$6 million worth of the platform’s AUDIO tokens transferred:

The hacker was able to transfer 18 million AUDIO tokens from the community treasury, an action that was approved by the Audius community, then assigned himself as the sole guardian of the contract by calling the smart contract function “initialize()”.

Once the platform detected that attack, it paused smart contracts and AUDIO tokens initially to prevent further loss of funds but resumed smart contract functionality soon after. Funds in both the community and the foundation treasury are now said to be safe.

Slippage in AUDIO Price

The attacker sold the tokens on decentralised exchange Uniswap for US$1.08 million, triggering a slippage in the AUDIO price. Slippage refers to the difference between the expected price of a token and the price when the order executes, and is expressed as a percentage of a dollar amount.

According to a tweet from security analysis firm PeckShield, the fault is said to have been caused by inconsistencies discovered in the storage layout of Audius:

Audius Designed to Cut Out the Middleman

Audius was established to connect music fans with artists without having the need for an intermediary like a record label. Initially designed to be a blockchain version of SoundCloud, it is a place where artists can produce immutable songs that fans can listen to free of charge.

The platform gives artists the freedom to choose how they monetise their work and ensures that artists receive 90 percent of the revenues collected. The remaining 10 percent is issued to node operators. Audius has become so popular that popular music artists such as Katy Perry, Steve Aoki and the Chainsmokers have invested in the crypto-powered streaming platform.

Audius now has over six million monthly active users and is a community-owned and operated protocol. The platform recently introduced AUDIO Tipping, enabling fans to tip their favourite artists using the native AUDIO token.

Categories
Crypto News Illegal NFTs Scams

29 Moonbird NFTs Worth $1.5 Million Stolen in Phishing Attack

NFT owners have been urged to remain vigilant after 29 Moonbird tokens were stolen in a phishing attack when a malicious link netted a scammer US$1.5 million worth of Moonbird NFTs from a Proof Collective member:

Moonbirds’ Massive Launch Success Makes it a Target

Moonbirds launched with a bang in April, racking up US$200 million in sales with one Moonbird in particular netting a massive US$1 million within a week of the launch.

Dollar, a popular Twitter personality and NFT holder, has claimed that the culprit is already “half doxxed” by the crypto exchange and that Proof Collective and its members are currently working on a full report in collaboration with the Federal Bureau of Investigation (FBI):

It is still unclear how many victims in total have fallen victim to the scam, but it serves as a harsh reminder that even the savviest of NFT investors need to be on their toes when it comes to scammers.

Recent crypto scams also serve as a harsh wake-up call for NFT owners to exercise caution when dealing with a third-party platform and to double-check anything shared by others.

Categories
Bored Ape Yacht Club Hackers Illegal NFTs Scams

Bored Ape Yacht Club’s Instagram Compromised in $2.8 Million NFT Phishing Scam

Bored Ape Yacht Club’s (BAYC) Instagram account has been hacked in a phishing scam resulting in an exploit of US$2.8 million worth of NFTs:

Yuga Labs, the creator of BAYC, is investigating the attack, tweeting followers not to click on links or mint new tokens. The attacker stole 133 NFTs after using BAYC’s Instagram account to promote a fake “airdrop”. The scam promised people free tokens if they connected their MetaMask wallets to the site linked through the post.

No Compensation As Yet

It is not yet known how the hacker accessed the Instagram account, and Yuga Labs has yet to announce whether it will compensate those affected by the scam:

According to Yuga Labs, “At the time of the hack, two-factor authentication was enabled and security surrounding the Instagram (IG) account followed best practices.” It added: “We’ve regained control of the account, and are investigating how the hacker gained access with IG’s team.”

According to blockchain data, the hacker’s wallet, which has been identified in connection with the attack, holds 91 NFTs and is said to be worth US$2.8 million based on the floor prices of the respective collections. The attack has seen 24 Bored Apes and 30 Mutant Apes stolen.

Yet Another Attack on BAYC

The news of this latest attack comes only weeks after the BAYC Discord servers suffered a phishing scam which led its governance token to plunge by 20 percent. Another possible hack was witnessed a couple of weeks ago when a BAYC NFT worth US$350,000 was sold for just US$115. Many question whether it was an exploit or just a massive error.

Categories
Crypto News Ethereum Illegal NFTs Scams

$34 Million ‘AkuDreams’ NFT Project Locked Permanently by Smart Contract Error

An error in a smart contract has led to NFT project AkuDreams locking up US$34 million worth of Ethereum. The project was hit by an exploit through its refundable Dutch auction on April 22 in which the hacker did not profit but managed to lock up the funds:

Cryptocurrency developer Foobar tweeted coding (see above) showing that “$34 million, or 11,539 ETH, is permanently locked into the AkuDreams contract … It cannot be retrieved by individual users or by the dev team.”

‘No Malice Intended’

The AkuDreams Twitter account confirmed the exploit and said: “We are locked down and consulting with some of the best on the next steps. We will mint your NFTs, and reveal them as soon as humanly possible. We will also be working to issue funds for those passholders who bid with the intention of securing a price .5 ETH below the final price.”

Refunds and Withdrawals Blocked

The auction opened at 3.5 ETH on the premise that the lowest bid would set the final price, and anyone who placed a higher bid would receive a refund. AkuDreams passholders were also promised a 0.5 ETH discount on each NFT they minted. But due to a bug in the contract, an exploiter was able to halt refunds and withdrawals from the contract, which meant that auction participants who bid above the final NFT price could not receive the ETH they were owed. As a result, refunds and withdrawals from the contract could not be passed.

AkuDreams acknowledged the issue in saying that the exploit “was not done out of malice” and that it was looking into the incident. The announcement that followed contained the admission, “To be clear, this is our fault.”

The project has promised to return funds to the community and later confirmed that the NFTs would be airdropped to bidders, and that it would honour refunds for the passholders who are owed a 0.5 ETH discount.

Exploits, Exploits, and More Exploits

The crypto space has of late been rife with exploits taking place in every sector. In October 2021, a bug in the DeFi protocol Compound saw its users mistakenly rewarded with US$80 million in COMP tokens. Qubit Finance earlier this year lost US$80 million after its protocol was hacked, making it one of the biggest exploits so far this year.