Issue 34 – The issue is you got hacked by North Korea

This week was much quieter compared to the 4,000-word-newsletter-inducing events of last week — but a "quiet week" in crypto can still feature almost $69 million in losses.

In the courts

Sam Bankman-Fried

Sam Bankman-Fried was the source of the diary entries that were quoted by the New York Times in a feature story (archive) about Alameda Research CEO and former girlfriend of SBF, Caroline Ellison. She's quoted saying she's all broken up about her romantic split with Bankman-Fried — "I felt pretty hurt/rejected" — and doesn't feel qualified for her role at the hedge fund. The NYT did not disclose that SBF was a source for the article. The article also revealed that Ellison was massively underpaid compared to her male counterparts, receiving a measly $6 million in compensation compared to the $246 million, $587 million, and $2.2 billion that went to FTX engineering director Nishad Singh, FTX co-founder and CTO Gary Wang, and Sam Bankman-Fried respectively.

The government is not pleased that SBF leaked these documents to the press, and alleged in a request for an order to limit his statements to press that he "selectively shar[ed]" the diary entries in an attempt to portray Ellison as "a jilted lover who perpetrated these crimes alone". They say he was trying to taint the jury pool and intimidate other possible witnesses.

Sam Bankman-Fried and his legal team say that he was simply exercising his rights to free speech, and railed against the "toxic media environment". They write that the press has "for months has continuously written—almost uniformly negatively—about him and the subject matter of his case", apparently shocked that that's what happens when you lose billions in customer funds.

The government proposed an order to limit "extrajudicial statements by parties and witnesses likely to interfere with a fair trial by an impartial jury." SBF's team said they'd agree to the order — only to "avoid unnecessary collateral litigation", they say — but want it applied to "all current and former employees of FTX, Alameda Research, and the FTX Debtor entities, including [current FTX CEO in bankruptcy] John Ray".

The hearing was scheduled for today, and Judge Kaplan asked both the government and SBF's defense team to be prepared "to address, among other things, the adequacy and continuation of the current bail conditions." Methinks his patience with SBF's shenanigans is running thin. At the hearing, the government ended up asking him to remand Sam Bankman-Fried — the first time they've requested this, previously having asked only for modifications to his bond conditions. Judge Kaplan didn't rule on this at the hearing, instead asking for the requests in writing. He did, however, grant the motion to limit SBF from "publicly disseminating or discussing with any public communications media anything about the case". Inner City Press covered the hearing in more detail.

Also, Sam Bankman-Fried was apparently spotted walking somewhere near the office of SDNY prosecutors, maybe while in town (early?) for his bail hearing. It sure does look like him. Crypto Twitter has decided this means he's turned state's witness, particularly when combined with new redacted filings in ongoing Tether litigation.¹

A new lawsuit was filed by FTX bankruptcy lawyers against Sam Bankman-Fried and other executives personally. Among other things, it alleges that SBF improperly transferred $10 million of FTX's assets to his father, Joseph Bankman-Fried. "On information and belief, Bankman-Fried's father has been using this 'gift' to finance Bankman-Fried's criminal defense," they say.

It also alleges that SBF's brother, Gabriel Bankman-Fried, planned to buy the tiny sovereign nation of Nauru "in order to construct a 'bunker / shelter' that would be used for 'some event where 50%-99.99% of people die [to] ensure that most EAs [effective altruists] survive'". According to his plans, the island would also be used for a human genetic enhancement lab. "[There are] probably there are other things it's useful to do with a sovereign country, too," he wrote in the memo. Extremely normal, not-supervillainy things, I'm sure.

Bitfinex hack money laundering

The couple charged with laundering the proceeds of the 2016 hack of the Bitfinex crypto exchange have reached a plea deal, and are scheduled for a hearing on August 3. The plea agreement is not publicly available.

The pair are accused of laundering around 25,000 BTC (currently priced at $733 million), and reportedly had access to another 94,000 BTC (~$2.8 billion). You might remember the female half of the couple, Heather "Razzlekhan" Morgan, an aspiring rapper and "motherfucking crocodile of Wall Street" with hits(?) including "Versace Bedouin". We can only hope her plea agreement doesn't stifle her artistic talents.²

Ripple

It seems even more likely that the SEC will appeal last week's decision in their case against Ripple, because SEC lawyers argued at a hearing for a separate case against Terra/Luna founder Do Kwon that "Respectfully, those portions of [SEC v.] Ripple were wrongly decided, and this Court should not follow them." They added that "SEC staff is considering the various available avenues for further review and intends to recommend that the SEC seek such review".³

Quantstamp

A blockchain security company called Quantstamp was charged by the SEC over its 2017 initial coin offering, in which it allegedly raised more than $28 million. They've agreed to a settlement which will require $2.5 million in disgorgement and a $1 million penalty. Such is the cost of doing business in crypto, apparently.⁴

In bankruptcies

Celsius has reached settlements in two lawsuits against the company, which, if approved in an August 10 hearing, could help clear the way towards customer disbursements by the end of the year.⁵

In government

In the U.S.

Republicans have introduced a new draft of their market structure bill, the "Financial Innovation and Technology for the 21st Century Act" (H.R. 4763). I haven't had a chance to read through it in detail yet, but fortunately the (far more qualified) Professor Hilary Allen has. She also wrote about the previous draft of the bill in a statement of opposition co-authored with Lee Reiners and Mark Hays. This new version of the bill went to markup today, but it seems the Democrats weren't having it.⁶ Here's the recording of the multi-hour discussion.

A bill on stablecoins is also being marked up tomorrow, and it seems it may be more popular among the Democrats. That's H.R. 4766, the "Clarity for Payment Stablecoins Act of 2023", and its livestream, scheduled to start at 9:00 a.m. Eastern.

Senators have introduced the Crypto-Asset National Security Enhancement Act of 2023 (or the "CANSEE Act", how cute). It's a bipartisan bill that would require bank-like regulations on decentralized finance (defi) protocols. Senators Jack Reed (D-RI), Mike Rounds (R-SD), Mark Warner (D-VA), and Mitt Romney (R-UT) are behind it.

The Federal Reserve launched FedNow, a long-anticipated service for instant payments (no cryptocurrency required). Some think this could be a "crypto killer". No luck so far, but hey, it's only been a week.

The SEC has started reviewing the latest volley of Bitcoin ETF applications.⁷

In Canada

The Office of the Superintendent of Financial Institutions (OSFI) has proposed changes to requirements around crypto asset liquidity for federally regulated deposit-taking institutions (such as banks and credit unions) and for insurers.⁸

In companies having a bad time

Binance

Binance has withdrawn its license application in Germany, a month after FinanceFwd reported that the regulator had decided to deny it. "You can't fire me, I quit!"⁹

Binance has also terminated a five-year, estimated $40 million deal with the Argentinian Football Association, citing lack of contractual compliance — though speculation has run rampant that this is related to Binance's finances. Binance sniped the AFA deal away from fellow crypto industry player Socios in January 2022, and Socios sued the AFA for unilaterally terminating the deal they'd already signed.¹⁰

According to my tally, since the SEC filed suit against Binance in early June, the company has has abandoned its licensing attempts in Germany, Cyprus, Austria, and the UK. Regulators have declined Binance's license applications in the Netherlands, and the company has been ordered to cease operations in Belgium. Various authorities have raided offices in France and Australia related to separate investigations, multiple countries in the EU are assisting the US SEC in their investigation, and EU authorities believe the company is faking operations in Ireland and Malta (where it is not licensed as an exchange). Several executives have jumped ship, and Binance has reportedly fired more than 1,000 employees in a spate of layoffs estimated to eventually impact 1,500–3,000 people.

Everyone else

KuCoin is reportedly planning to lay off 30% of its nearly 1,000-person workforce. KuCoin says these are not layoffs, but rather "part of a normal process of organization development" — a normal process that just happens to involve firing more than 300 people, I guess.¹¹

ATMTA, the developer of the NFT-focused space exploration game Star Atlas, laid off 122 people in a 73% cut. This was not "a path I desired", said CEO Michael Wagner. ATMA lost about half its funds — around $16 million — in November 2022 thanks to the collapse of FTX.¹²

The Web3 is Going Just Great recap

There were 10 entries between July 17 and 26, averaging 1 entry per day. $68.69 million was added to the grift counter.

Crypto gambling payments processors exploited, likely by North Korean Lazarus Group

[link, link]

More than $60 million was stolen on July 22 from the crypto payment processor Alphapo, which provides payments services to a number of online casinos. This caused online "mystery box" platform HypeDrop to suspend deposits and withdrawals, and they've not yet restored that functionality.

On July 25, another crypto payments platform suddenly suspended withdrawals under mysterious circumstances, causing many to suspect a hack. As it turns out, CoinsPaid and Alphapo appear to be closely linked, if not the same company.

CoinsPaid wants everyone to pipe down and wait for an official announcement 🙏

Conic Finance exploited twice within hours

[link, link]

Shortly after being hacked for $3.2 million and then announcing that the remaining services were safe, Conic Finance was proven wrong when another $934,000 was drained out of a different portion of the project. Oops.

These were only two of the re-entrancy attacks this week, with another siphoning $3.4 million out of EraLend [W3IGG].

Neopets to remain in web2

[link]

Neopets' rather unpopular pivot to web3, announced in 2021, has been undone as the franchise was sold to a firm that seems to want nothing to do with blockchains. The announcement that the new ownership's plans for a World of Neopets game will be NFT-free and "NOT built on a crypto model" sparked much rejoicing among Neopets fans, except among those who had already bought Neopets NFTs that they'd hoped might be used in an upcoming game.

Though my interest in Neopets waned sometime in the early 2000s, around when I accidentally sent my beloved Gelert to the pound and couldn't get him back, it does hold a special place in my heart as its HTML/CSS editing capabilities were my first taste of web development.

Everything else

• EraLend exploited for $3.4 million [link]
• IEGT token rug pulls for $1.14 million [link]
• Party Parrot team prepares to "vote" to allocate themselves 80% of initial offering funds, around $60 million [link]
• Melania Trump's space NFTs likely violate NASA policy [link]
• Feds seize tens of millions from Deltec Bank in connection to fake crypto investment schemes [link]

Worth a read

That's all for now, folks. Until next time,

– Molly White