The DOJ found 119,754 bitcoins stolen from crypto exchange Bitfinex in a hack in 2016. Federal officials were able to seize 94,643.29 BTC ($3.6 billion). The rest is still out there. (Washington Post)
On Jan. 31, those funds were spotted moving out of the hacker’s wallet, but nobody realized at the time it was the feds moving the funds. Most people assumed it was the hackers themselves!
Heather Morgan, 31, and Ilya Lichtenstein, 34, were charged with trying to launder the bitcoins. They were arrested in NYC, where they live. (DoJ press release, Complaint, Statement of facts)
Lichtenstein is Russian-American. Morgan is a U.S. citizen, who grew up in California. We don’t know if the pair were behind the actual theft, but they probably were given the majority of the coins were in the same wallet as when they left Bitfinex.
David Gerard describes the 2016 hack in Chapter 8 of his book “Attack of the 50-foot Blockchain,” as told to him by Phil Potter. He summarized it on Twitter.
Morgan is a rapper with loads of embarrassing videos online. (Vice)
She had an active TikTok account featuring her rap moves.
Morgan was also a prolific Forbes contributor, which should surprise nobody. (Forbes)
And she gave a talk at NYC Salon on how to social engineer your way into anything. (Youtube)
The couple sat on those coins from August 2016 to January 2017, before trying to launder some of them. Almost all of the BTC they moved went through AlphaBay, which they used as a mixer. The feds were able to spot this because they seized AlphaBay in July 2017.
This arrest underscores how difficult it is to actually launder bitcoin. All of the transactions are traceable. Even when you are sitting on piles of BTC, as these two allegedly were, it is really difficult to cash out.
A judge ruled the pair could be released on bonds — $5 million for Lichtenstein; $3 million for Morgan. But the government, which originally asked for a $100 million bond, ordered a review of the detention order, saying the couple have the means to flee — $330 million in BTC have yet to be found. Also, Russia has no extradition treaty with the U.S. (Stay of release)
It’s not clear what will happen to the recovered funds at this point, but likely they will be held up by the U.S. government for a long time to come. (Decrypt)
Bitfinex is absolutely convinced it will receive the recovered funds. It wants to use 80% of them to “burn” one of its shitcoins — LEO. (Bitfinex blog)
Naturally, LEO saw a surge in value after the announcement. (Defiant)
Bitfinex is the sister company of Tether. The 2016 hack set off a string of calamities for the two firms. Rather than claim insolvency, Bitfinex gave its customers a 36% haircut, repaid them in BFX tokens, and then lost its banking. Thus began a prolific printing of tethers, telling lies and other nonsense that has continued to this day. Also, it was Bitfinex’s reliance on third-party payment processors after it lost its banking that led to all the problems with Crypto Capital, some missing $850 million in funds, and the NYAG telling Tether to take its business out of New York. I detail most of this in my timeline.
Bitfinex never really paid its customers back for the 36% haircut. Ultimately, all of those customers were paid back in tethers, so why should Bitfinex get that money?
BlockFi to pay $100M
Crypto lender BlockFi is paying $50 million to the SEC and $50 million to various state regulators to settle claims that it illegally offered high-yielding crypto lending products, say sources. (Bloomberg)
It’s clear as mud how BlockFi is able to offer the rates it does. “Executives at BlockFi have said they are able to pay such high yields to customers because institutional investors will pay them even more to borrow the deposits. But the companies don’t provide a detailed accounting of how the funds are used or in what circumstances investors could lose their cryptocurrency,” writes Bloomberg.
Crypto lending programs are obviously securities subject to SEC regulation. BlockFi was funding its crypto lending operations and proprietary trading through the sale of unregistered securities. The SEC similarly warned Coinbase against launching “Lend.” And the regulator is currently looking into Celsius, Voyager Digital, and Gemini Trust regarding crypto yield products.
I didn’t realize this earlier, but apparently BlockFi is one of the largest holders of GBTC, buying it for the premium. GBTC is now trading at -24% of NAV, according to Ycharts.
BlockFi says funds are SAFU. (Tweet)
Forbes is taking Binance money
Forbes, the publication that featured alleged bitcoin money launderer Heather Morgan as a contributor, is now taking $200 million from Binance, the crypto exchange that has been thus far kicked out of every corner of the world for blatantly ignoring laws and regulations. (CNBC)
The funds will help Forbes follow through on its plan to merge with a special purpose acquisition company (SPAC) in the first quarter. Forbes is owned mainly by Chinese Firm Integrated Whale Media, which bought a controlling stake from the Forbes family in 2014.
This will make Binance one of the biggest owners of Forbes after its listing. Binance will also have two director positions on Forbes’ board of executives. Binance tried to sue Forbes in 2020 for defamation, but the suit was quietly dropped.
If you are looking for an unbiased crypto news source in the future, you probably want to look elsewhere.
More ‘Bitcoin Widow’ Reviews
The Toronoto Star has a review of Jennifer Robertson’s “Bitcoin Widow.” This one is worth reading:
“Does she have regrets? I kept waiting to hear them and she comes closest in the final few pages (after chapters of what does seem like a Kafkaesque nightmare in both legal and emotional terms). ‘I regret every moment of every day of the terrible year that followed Gerry’s death,’ is what she confesses. A weaselly mea culpa that reminded me of when people, often on reality shows, apologize by saying, ‘I am sorry you feel that way.’”
The Sun also has a review of the book. It’s mostly just… a review of the book. Nice photos of Jen and Gerry though.
If you missed my review earlier, it’s here.
Another day, another blockchain bridge hack
On Feb. 5, a loophole in the Meter Passport smart contract allowed an attacker to siphon 1,391 ETH ($4.2 million) and 2.74 wrapped Bitcoin ($83,000) from the Meter Passport blockchain bridge.
Blockchain bridges allow you to conveniently spend crypto from one blockchain — such as ETH or, in this case, BTC — on another blockchain.
@ishwinder explains the hack in layman’s terms. (Twitter)
This is one of three recent hacks on blockchain bridges lately! On Feb. 3, we had the Wormhole exploit, with $320 million in funds stolen. And on Jan. 17, Qubit was hacked for $80 million in crypto.
What does this tell you about blockchain bridges?
Meter urged its users not to trade any meterBNB, which are currently unbacked, and said that they were “working on compensating funds to all affected users.” (Twitter)
What’s new in crypto regulations?
The U.S. Department of Treasury released a report: “Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art.” The report was mandated by Congress in the AML Act of 2020. It specifically mentions NFTs. (Press release, Study, Blockchain Law Center)
According to the report, NFTs are vulnerable to money laundering because “NFT platforms range in structure, ownership, and operation, and no single platform operates the same way or has the same standards or due diligence protocols.”
The report specified that NFTs used for payment or investment may fall under the virtual asset definition, and some NFT platforms may qualify as virtual asset service providers (VASPs), depending on the characteristics of the NFTs that they offer.
The report makes it clear that the Treasury department is carefully monitoring digital art assets, including NFTs, and the online marketplaces where they are traded. (JDSupra)
Grayscale wants to turn its Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund. The SEC is seeking advice from the public about whether ETFs tied to Bitcoin’s spot price could be a vehicle for fraud. The SEC has denied six similar applications since November, including those from VanEck, WisdomTree and SkyBridge Capital. (SEC notice, Coindesk)
Only licensed banks should be allowed to issue stablecoins, according to Jean Nellie Liang, the under secretary for domestic finance at the Department of the Treasury. She appeared before the House of Representatives Committee on Financial Services to reaffirm the PWG’s November report on stablecoins. (Liang’s written testimony, Bloomberg)
Time is running out for crypto firms to be approved for the UK’s anti-money laundering register before the end of March. Ninety-six applicants are still waiting for a decision on their application. Without approval before a March 31 deadline, the future of these crypto firms’ UK operations — including exchanges, wallets and other businesses — hangs on a limb. (The Block)
Crypto shilling at the Super Bowl, and other NFT news
It’s Super Bowl weekend. Expect to see a massive amount of marketing dollars go toward shilling crypto and NFTs. Crypto.com, FTX, and Binance are among the major advertisers. (Hollywood Reporter) (NYT)
Bored Apes are also rumored to appear at the Super Bowl, in some shape or form. (Bloomberg)
Twitter accounts that have been speaking out against NFTs are being reported by bots, their accounts suspended and/or locked. This happened to @NFTEthics and @interlunations. (Twitter)
Sotheby’s is planning to auction off a set of 104 CryptoPunks on Feb. 23. The set is expected to bring $20 million to $30 million in crypto. The original buyer was 0x650d, who scooped them all up in July 2021. Here is the Etherscan confirming his purchase. (Artnet News)
He bought them for $7 million because he “chose wealth.” (Twitter)
Following the news of the Sotheby’s auction, the celebrity shilling begins. German-American model Heidi Klum just announced on Twitter she owns a Punk. (Tweet)
Who paid for her Punk? That’s not exactly clear. Mike Burgersburg (not his real name, obviously) has tracked down links between Bitclout investor Reade Seiff and Klum’s Punk. (Dirty Bubble)
Burgersburg also says whoever is funding Reese Witherspoon’s NFT purchases probably has a financial interest in promoting the WOW project. (Dirty Bubble)
In addition to proper FTC disclosure requirements, fans and retail buyers deserve more transparency about how these deals are made and who’s providing the money to pump up these assets.
John Reed Stark was chief of the SEC office of internet enforcement for 11 years. He has a few things to say about NFTs: Market manipulation of NFTs appears not only rampant and tolerated, but also encouraged. Fraud not only rewarded, but also taught. (Linkedin)
The counterfeit NFT problem is getting worse. Bots are scraping artists’ online galleries, or even keyword searches on Google Images, and then creating collections with auto-generated texts. Those listings have proliferated on OpenSea. (Verge)
Sotheby’s made headlines last year when it sold Kevin McCoy’s Quantum NFT (2014) for $1.47 million. Now, that sale is in the headlines once more, this time for a lawsuit being filed against McCoy and the auction house by a holdings company whose owner claims he owns Quantum. (Artnews)
Indie game platform itch.io has come out strongly against NFTs: “NFTs are a scam. If you think they are legitimately useful for anything other than the exploitation of creators, financial scams, and the destruction of the planet the we ask that [you] please reevaluate your life choices.”(Twitter, PC Gamer)
YouTube is launching new creator tools to expand monetization, including allowing creators to sell content as NFTs so fans can “own” videos. (NBC News)
The Alfa Romeo Tonale SUV is the “first car on the market” to come with an NFT digital certificate that the automaker says will increase the car’s residual value. How? Technical details are thin. (Verge)
A group supporting WikiLeaks founder Julian Assange raised $50 million in ETH by selling an NFT of a clock to a DAO (called AssangeDAO) set up to support his legal bills. The NFT, titled “Clock,” is a joint creation by Assange and digital artist Pak. AssangeDAO contributors receive $JUSTICE. (Wired)
Other newsworthy bits
David Rosenthal’s talk at Stanford is a summary of everything that is wrong with crypto and blockchain technology. This is a great read. (DSHR blog)
Vice interviewed Dan Olsen, whose Youtube video on NFTs went viral. “I’ve been keeping my thumb on what’s going on in crypto. By and large, it’s been the story of the evolution of fraud.” (Vice)
The BBC published and then took unpublished a story about a “self-made crypto millionaire giving back” without mentioning his scam coin. (archive)(missing story)
“City Coins — free, magical money for your city! Maybe” (David Gerard)
Fais Khan’s part II of his work explaining how VCs cash out on tokens: “The Unstoppable Grift: How Coinbase and Binance Helped Turned Web3 into Venture3.” (Fais Khan)
The U.S. government’s system for spotting money laundering has received a surge of suspicious activity reports from a set of San Francisco financial companies that includes some of the world’s leading crypto exchanges. (FT, Dynamics Securities Analytics report)
Mark Zuckerberg is lying about the Metaverse. The CEO of one of the most valuable companies in the world is shoving $10 billion into a concept he cannot describe. (Ed Zitron)
The Russian government will treat bitcoin and digital assets as currency. The proposal includes subjecting crypto transactions (not just within exchanges) to AML/KYC rules, which, being technically impossible to execute, should be equivalent to a ban…(Blockworks)
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