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Issue 44 – Four

The Justice Department's interest in Binance isn't just "FUD" anymore.

Issue 44 – Four
Issue 44 – Four

If you're following the news, you might have noticed some things have happened in the crypto industry today. I was planning to do a livestream tonight anyway, and then the Justice Department decided to make sure I was swimming in material to discuss.

If you're interested, join me at 8pm ET (in around one hour after this lands in your inbox!) for a casual chat about Binance, other enforcement actions, and whatever else comes up. If you can't make it, it will — as always — be recorded. It'll be streamed to YouTube, as usual, but I'm also going to see if I can get Twitch multistreaming to work tonight.

Without further ado…

In the courts


The years-long DOJ investigation against Binance has finally (finally!) been resolved, though not quite in the way anyone expected. Until today, Binance's chief executive, Changpeng "CZ" Zhao, has tended to be defiant towards any threat of legal action, usually dismissing claims as "FUD", vociferously denying any wrongdoing (even in the face of evidence), and vowing to charge forward for the benefit of the crypto industry. He's also seemed careful to avoid stepping foot in the US, or in countries with friendly extradition agreements. Today, however, he agreed to plead guilty to one felony money laundering charge, pay a $50 million fine, and step down as CEO of Binance — a company that is largely an extension of himself. He showed up in Seattle to enter his guilty plea in person. Prosecutors want him to do eighteen months in prison, but he could easily get off with something like probation or house arrest.

Simultaneously, Binance will pay a $4.3 billion fine over failure to implement proper anti-money laundering (AML) processes, sanctions violations, and unlicensed money transmitting. The company has agreed to a three-year-long monitoring program to ensure they are complying with anti-money laundering and sanctions requirements.

4 is how many billions Binance has to cough up.

Along with the DOJ actions, Binance reached agreements to conclude outstanding complaints from the CFTC [W3IGG], FinCen, and OFAC. Notably, the SEC case filed this summer [W3IGG] was not wrapped up as a part of this, and so seems to be ongoing.

Though the fine is massive, and the DOJ made some show of power against a company generally seen to be untouchable, the outcome is a little disappointing. "Cost of doing business" enforcement actions are far too common in the cryptocurrency world, and Binance's fine doesn't look quite as big when put in context of Binance's estimated $12 billion in revenue in 2022.1 Meanwhile, CZ's $50 million fine is a drop in the bucket for a man who is (extremely roughly) estimated to be worth more than $20 billion.2 Binance will continue to operate — albeit with a likely more risk-averse CEO and a watchdog — and CZ will retire happily with his billions (that is, if he can resist starting some other crypto scheme, or perhaps pivoting to AI as is in vogue).


The SEC has filed suit against Kraken, a US cryptocurrency exchange who has already had run-ins with the agency once this year. In February, Kraken agreed to end their crypto staking program and pay $30 million to the agency over a complaint that the program constituted an unregistered securities offering [W3IGG]. However, the SEC apparently wasn't done there — now they've filed suit against Kraken for listing a whole bunch of crypto tokens that the SEC believes are unregistered securities [W3IGG]. This is similar to the complaint against Coinbase [W3IGG] — and in fact many of the tokens at issue are the same — however, the Kraken complaint also goes further. The SEC alleges that Kraken improperly commingled company and customer funds, "at times pa[ying] operational expenses directly from bank accounts that hold customer cash." Sound familiar?


Aurelien Michel, the mastermind behind the "Mutant Ape Planet" NFT rug pull, pleaded guilty to conspiracy to commit wire fraud.3 You may remember him from January [I16], when he tried to argue he had no choice but to rug pull because "the community went way too toxic". After hearing that, prosecutors unbelievably still decided to charge him anyway. He's agreed to forfeit $1.4 million of the roughly $3 million he somehow raked in with the Bored Ape knockoffs. The fate of the remaining proceeds and his sentence remain to be determined.

Speaking of knockoff apes, I was correct in my prediction in the last issue [I43] that Yuga Labs and Ryder Ripps might have some trouble agreeing on the "reasonable attorneys' fees" which Ripps has been ordered to pay because of his less-than-stellar behavior throughout the trial. Yuga says they incurred $13.2 million in legal fees and costs, but are requesting a smaller sum — $7.89 million. Ripps argues that this is exorbitant, and that around $455,000 would be reasonable.4 Among other things, Ripps points out that the requested attorney's fees are nearly five times the $1.6 million sum he was ordered to pay in disgorgement and damages. Yuga fired back to say — in so many words — that the case was so costly thanks to Ripps' continued obstruction, and that perhaps he should have considered that before behaving so poorly he saddled himself with the bill.

South Korea

Terra/Luna founder Do Kwon appealed his four month sentence in Montenegro for passport forgery, but was denied.5 There was also a Daubert hearing to determine the admissibility of some expert witness testimony, held in Manhattan on November 17, as part of trial preparation in the SEC's lawsuit against Kwon and his company Terraform Labs. Kwon, naturally, was not in attendance.6

After a South Korean court found former chair Lee Jeong-hoon of the Bithumb crypto exchange not guilty of an alleged fraud involving more than 110 billion won ($85.2 million), prosecutors have appealed and are once again asking he be sentenced to eight years in prison.7

In bankruptcies

FTX is going after the ByBit cryptocurrency exchange for almost $1 billion, hoping to recover funds that the firm was able to withdraw just before FTX stopped processing withdrawals. According to the lawsuit, ByBit used its VIP access to FTX to successfully withdraw their funds even when other customers could not, and pressured FTX employees to prioritize their withdrawals.8 The FTX team also alleges that ByBit is holding $125 million in FTX assets "hostage" on its own exchange, trying to use them as "leverage" to regain access to their $20 million remaining on FTX.

FTX also alleges in the lawsuit that ByBit is part of a "fraudulent scheme" involving BitDAO (later renamed to Mantle), a supposed decentralized and community-run organization that a ByBit executive reportedly admitted the company actually controlled. After the FTX bankruptcy and the crash of the FTT token price, BitDAO tried to undo a past deal where they had agreed to exchange BIT for FTT. When the FTX bankruptcy team did not agree to let BitDAO go back on the deal, the group came up with a scheme to effectively erase FTX's BIT holdings, which was agreed upon by "community vote" involving voters who certainly seem to be ByBit execs. (Free word of advice here: if you're an exec who wants to avoid getting caught doing this, maybe don't cast 20 million votes from your firstinitial-lastname.eth wallet).

After "extensive negotiations" between the remnants of the imploded Three Arrows Capital hedge fund and the bankrupt Genesis cryptocurrency lender, Genesis is seeking permission from the bankruptcy court to settle $1 billion in claims from Three Arrows by issuing a $33 million unsecured claim. Three Arrows had also borrowed extensively from Genesis to the tune of around $1.2 billion.9

Hodlnaut, a crypto lender based in Singapore that halted withdrawals in August 2022, is going to be liquidated.10 It's not exactly been smooth sailing over there: first it came out that the CEO apparently lied when he said they had no exposure to the Terra collapse (when in fact they realized a ~$190 million loss) [W3IGG], then the founders tried to hide financial records from court-appointed advisers brought in to oversee the company's affairs while they evaluated if they would need to liquidate [W3IGG].

Bittrex, a one-time major player among US crypto exchanges, is closing up shop completely [W3IGG]. This is not exactly a surprising development, given that they paid a then-record $29 million fine for sanctions violations in October 2022 [W3IGG], shut down US operations in March 2023 [W3IGG], filed for bankruptcy in the US in May [W3IGG], and then paid $24 million to settle a lawsuit from the US SEC in August [W3IGG].

There's been one more unfortunate event for Coin Cloud, to add to the whole series of them I wrote about in February [I19]. Hackers have claimed to have exfiltrated private information belonging to around 300,000 of the crypto ATM firm's customers, and around 70,000 selfies taken by ATM cameras as a part of know-your-customer processes. The personal information includes details like social security numbers, dates of birth, names, and addresses. The hackers also claim to have obtained the company's source code.11

In governments

Some of the usual suspects in Congress are really worried about proposed legislation on crypto taxation, writing that it could "threaten to prevent a large swath of the digital asset ecosystem from continuing to exist in the United States".12 Crypto lobbyist Kristin Smith wrote in an op-ed, "If the broker rule proceeds as is, it will surely spell the near-total collapse of the crypto industry in the United States."13 Don't threaten me with a good time.

Speaking of crypto lobbyists, CoinGecko says crypto lobbyists have spent over $20 million on their efforts already this year, and are on pace to outspend last year's $22.23 million. This is somewhat remarkable given that FTX was taken out of the picture, but Coinbase has stepped in to fill their shoes in the lobbying department. Interestingly, crypto made up almost 20% of Wall Street lobbying this year, far outsizing the industry's footprint in that sector.14

Argentina has a new president, the right-wing libertarian and self-described anarcho-capitalist Javier Milei. As you might expect, he's a fan of Bitcoin, which has some in the crypto world all excited.

In… AI?

You might have heard that Sam Altman was ousted from his company, OpenAI, in a dramatic and tumultuous few days. The company almost seemed to go back on the plan, employees threatened to quit, and a statement by the board about his firing included verbiage that — for a board statement — seemed to suggest he had engaged in something truly heinous.

 Molly White @molly0xFFF that's the kind of statement you make as the shadow of the other shoe dropping above you begins to blot out the sun Quote Kylie Robison @kyliebytes · Nov 17 Replying to @kyliebytes "Mr. Altman's departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities." https://fortune.com/2023/11/17/sam-altman-out-as-openai-ceo/

You will find no shortage of explainers and thinkpieces about what happened and what might have happened. Instead, I'm here to bring you the crypto angle.

You may recall that Altman is also behind Worldcoin, which he promises will be the universal basic income-adjacent solution to all of the AI problems he is also creating.

Worldcoin holders watched the prices of their tokens yo-yo as crypto speculators reacted to the news of Altman's firing, and drew inferences on what it might mean for the token. The token slipped around 25% on the news of his ouster, but fluctuated wildly as more news and speculation continued.15

Personally, I can't wait for the future in which tokens I've been allocated to pay for basic necessities once AI takes my job suddenly can only pay for 3/4 of the groceries they once could because an affiliated guy maybe did something bad at another company.

In funnier related news, crypto prediction markets went nuts with the extremely vague announcement about his firing. Around $250,000 have been wagered on one website over whether Altman will be reinstated as OpenAI's CEO.16 Over on a non-crypto prediction site where people bet with play money, the question "Why was Sam Altman fired?" has more than 150 answers. The top bet as I write this is "The board caught him lying several times", but other responses range from plausible ("lied about training data", "misalignment with nonprofit mission", "raising money without prior board agreement", sexual abuse) to the more absurd ("too suspicious constant half-smile", "hidden, poorly internally labeled 'fiat@' account", "copy-pasted ChatGPT answers to the board").17

Elsewhere in crypto

Crypto media outlet CoinDesk has finally sold, as parent company Digital Currency Group (DCG) sought to offload the organization as it handles its current financial and legal difficulties. The buyer is a firm called Bullish, a cryptocurrency exchange that's also among the groups vying for the remains of FTX. Bullish claims that they plan to maintain CoinDesk's current leadership team and keep CoinDesk as an "independent subsidiary", so fingers crossed that that bodes well for their reporting and editorial independence.18

An early advisor to the Ethereum project, Steven Nerayoff, has for months now been heavily promoting what he says is evidence that Ethereum and its co-founders Vitalik Buterin and Joseph Lubin were engaged in massive fraud "bigger than FTX". However, he's been cagey and slow about actually releasing any evidence or going into detail on what the supposed fraud even was, and ultimately decided he would release a recorded conversation with Buterin as… NFTs on a platform he created. He dropped the recording on November 16, only for people to be somewhat underwhelmed by its general lack of substance — that is, except for fans of some of Ethereum's competitors, who believe the recordings cast their own tokens and the founders of those tokens in a better light.19

The Web3 is Going Just Great recap

There were 14 entries between November 9 and November 21, averaging 1.1 entries per day.21 $320.30 million was added to the grift counter.

Poloniex definitely isn't bluffing after $100 million+ theft


Justin Sun's Poloniex cryptocurrency exchange suffered a theft of crypto assets including Bitcoin, Ethereum, and Tron's TRX token — altogether priced at over $100 million. On the day of the hack, they offered a 5% "bounty" (~$5 million) to the hacker if they returned the stolen assets.

Now, they've triumphantly announced that they have definitivel y identified the thief. Despite that, they've upped the bounty to $10 million, and they sent their on-chain messages with their offer in fifteen different languages. Okay then.20

Hacker steals millions and then destroys them

For your convenience, I have included a brief clip from "Yakety Sax" for you to play as you read the following.

Yakety Sax

A hacker managed to discover a bug in the Raft defi project that allowed them to mint 6.7 million of the "R" stablecoin. They then tried to convert this into ETH, which would allow them to launder and then cash out the stolen funds. However, the intrepid thief had written a bug into their own code, which ultimately caused 1,570 ETH ($3.25 million) of the 1,577 ETH in profits to be burned — that is, effectively destroyed by sending it to a destination where it is permanently inaccessible to anyone.

Adding insult to injury, despite the remaining 7 ETH (~$14,000), the up-front costs paid by the attacker to enable the attack meant that they ultimately lost around 4 ETH (~$8,000) in the whole fiasco.

The R stablecoin lost its $1 peg as a result of the attack, dropping to $0.70 shortly after and then drifting towards its current price of around $0.02 over the next couple of days.

In fairness to the hacker, perhaps this was all intentional.

It's not about money... it's about sending a message.

Everything else

  • Binance fined over $4 billion, founder pleads guilty and resigns [link]
  • Aragon DAO votes to sue its founding team [link]
  • Bittrex finally closes up for good [link]
  • DOJ reportedly seeking $4 billion resolution to Binance investigation, with possible criminal charges against CEO [link]
  • Kraken sued by U.S. SEC [link]
  • DOJ cracks down on $225 million crypto romance scam [link]
  • dYdX insurance fund loses $9 million in apparent attack [link]
  • Kronos trading firm suffers key breach [link]
  • Network of fake Twitter accounts impersonating crypto security firms phish panicked victims [link]
  • Up to $1 billion stored in early Bitcoin wallets may be at risk due to "Randstorm" vulnerability [link]
  • Wallet drainer steals more than $60 million in six months [link]
  • Wallet linked to Binance deployer loses $27 million in apparent hack [link]

In the news

The Lever. "What The Sam Bankman-Fried Verdict Means For Crypto" (Podcast)

I had a conversation with Frank Cappello over at The Lever to talk about the FTX trial and its likely impacts on the cryptocurrency industry and possible regulation.

Worth a read

. "On OpenAI: Let Them Fight"

For those of you curious about the OpenAI saga, Dave Karpf has got you covered.
TechDirt. "Congrats To Elon Musk: I Didn't Think You Had It In You To File A Lawsuit This Stupid. But, You Crazy Bastard, You Did It!"

Elsewhere in the "tech-adjacent people do batshit things" department, Elon Musk filed a lawsuit against Media Matters for America over an article in which they observed that you can, in fact, see advertisements next to posts by neo-Nazis, despite whatever Linda Yaccarino says. It's an absolute trashfire of a lawsuit, so if you're someone who likes reading about lawyers filing ridiculous lawsuits to placate their egomaniacal clients, this one's for you. For folks on Bluesky, Mike Dunford and Akiva M. Cohen both did great threads as they read through it.

For those who aren't on BlueSky but who want to be, feel free to DM me for an invite code, I have some extras. Just let me know the email address you signed up for this newsletter with (free or paid, doesn't matter to me) so I can do some kind of filtering in case ne'er-do-wells are Googling around to try to find invite codes and stumble across this.

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

– Molly White


  1. "How Binance really operates: The world's largest crypto exchange boasts vast profits, hefty influencer payouts, and a ticking time bomb on its balance sheet", Fortune.

  2. Bloomberg Billionaires Index: Changpeng Zhao.

  3. "Nonfungible Token (NFT) Developer Pleads Guilty to an International Scheme to Defraud NFT Purchasers", press release by the U.S. Attorney's Office, Eastern District of New York.

  4. Statement filed on November 20, 2023. Document #435 in Yuga Labs v. Ripps.

  5. "Do Kwon denied appeal in Montenegro as possible extradition to South Korea or U.S. looms", Fortune.

  6. Tweet thread by Inner City Press.

  7. "Prosecutors file appeal in alleged fraud case involving ex-Bithumb chair: report", The Block.

  8. FTX Trading Ltd. v. Mirana Corp.

  9. "Genesis, Three Arrows Capital Reach Agreement on $1B of Claims", CoinDesk.

  10. "Crypto Lender Hodlnaut to Be Liquidated, Court Filing Shows", CoinDesk.

  11. "Hackers claim to have compromised bankrupt Bitcoin ATM firm Coin Cloud: Report", The Block.

  12. Letter in RE: IRS Proposed Rulemaking REG–122793–19, US Congressmembers led by Patrick McHenry.

  13. "Congress Gets the Runaround From Regulators, Again", CoinDesk.

  14. "Crypto US Lobby Spend Already $20M in 2023, vs $22M in 2022", CoinGecko.

  15. "Sam Altman's OpenAI ouster sees rollercoaster Worldcoin price", Cointelegraph.

  16. Polymarket tech markets

  17. "Why was Sam Altman fired?" on Manifold.

  18. "A look into Bullish, the crypto exchange buying CoinDesk", Protos.

  19. Tweet by Steven Nerayoff.

  20. "Poloniex says hacker's identity is confirmed, offers last bounty at $10M", Cointelegraph.

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