\n<\/p>\n
2024 could go down in history as the last year in which prominent members of the\u00a0Crypto Crime Cartel\u00a0were made to face actual justice, as United States regulatory scrutiny loosens and enforcement agencies brace for \u2018stand down\u2019 orders.\u00a0<\/p>\n
Among the year\u2019s most memorable legal events was the culmination of the criminal prosecutions stemming from the\u00a0FTX exchange\u2019s dramatic November 2022 implosion.\u00a0Sam Bankman-Fried\u2019s transition from \u2018crypto\u2019 poster boy to the blockchain sector\u2019s Bernie Madoff was as abrupt as it was shocking, and FTX\u2019s former customers are still awaiting full and final compensation for the damage they suffered from\u00a0SBF\u2019s fraud.\u00a0\u00a0<\/p>\n
In March, SBF was\u00a0sentenced to 25 years in prison\u00a0after\u00a0a truly WTF legal defense\u00a0that basically amounted to \u2018I\u2019m a good boy who got in over his head, now let me go cuz I\u2019m cooking up another Ponzi and I need to finish the white paper before my parents get home.\u2019<\/p>\n
A couple of months later,\u00a0Ryan Salame, former co-CEO of FTX Digital Markets, received\u00a0a 90-month sentence\u00a0for his role in funneling FTX customer cash to political candidates\u2019 campaign funds. Like SBF, Salame was dismissive of his legal peril and discovered too late that social media snark is rarely a winning court strategy.<\/p>\n
Faring far better was\u00a0Caroline Ellison, the last CEO of the FTX-affiliated market maker\u00a0Alameda Research, who got\u00a0two years in prison\u00a0in September after striking a deal with prosecutors. Two other cooperators\u2014FTX\u2019s former director of engineering\u00a0Nishad Singh\u00a0and co-founder\/former CTO\u00a0Zixiao \u2018Gary\u2019 Wang\u2014each got away with time-served and a few years of supervised probation, which suggests that honesty, even the truly belated kind, is indeed the best policy.\u00a0<\/p>\n
Binance\u2019s post-CZ era looks kinda familiar<\/strong><\/p>\n The event that kicked off FTX\u2019s downfall was\u00a0the leaking of an Alameda balance sheet\u00a0that showed an unhealthy reliance on in-house sh*tcoins of dubious value. It\u2019s never been proven, but suspicions are that the leak had something to do with\u00a0Changpeng \u2018CZ\u2019 Zhao, founder of the\u00a0Binance\u00a0exchange, who reportedly didn\u2019t like how SBF was badmouthing him behind the scenes to regulators and investors.\u00a0<\/p>\n CZ\u00a0served four months in prison\u00a0in 2024, a criminally short stay given the extent of the criminality described in the\u00a0$4.3 billion settlement\u00a0he and Binance reached with U.S. federal authorities in November 2023. CZ was also required to relinquish any managerial role in Binance, although he remains its biggest shareholder.\u00a0<\/p>\n New CEO Richard Teng is doing his best to present Binance as a changed entity, but that narrative took a hit early in 2024, when Nigerian authorities\u00a0jailed two Binance execs\u00a0over suspicions of facilitating money laundering and manipulation of the local Naira currency. One of those execs quickly jumped bail and fled the country, but compliance chief Tigran Gambaryan\u00a0spent eight months in custody\u00a0before being allowed to leave Nigeria due to his deteriorating medical condition.\u00a0<\/p>\n Binance is still\u00a0locked in civil litigation\u00a0with the U.S. Securities and Exchange Commission (SEC) but Donald Trump\u2019s second term as U.S. president means\u00a0new leadership at the SEC\u00a0and the strong possibility of all ongoing crypto litigation being mothballed.\u00a0<\/p>\n That could portend a revival of\u00a0Binance.US, the shell exchange that Binance set up to\u00a0transfer American customers\u2019 funds out of the country\u00a0to the\u00a0Binance.com\u00a0mothership.\u00a0Cut off from U.S. banks\u00a0while the SEC litigation proceeds,\u00a0Binance.US has been limping along with a fraction of its former trading volume, existing on pure momentum and hope that someday its owners\u2019 sins will be truly forgiven.\u00a0<\/p>\n Those hopes appear to be more rooted in reality following a December 18\u00a0blog post\u00a0by\u00a0Binance.US\u00a0interim CEO Norman Reed, who said \u201cwe are closer than ever to restoring USD services and our plan is to achieve this important milestone in early 2025.\u201d While Binance CEO Teng told\u00a0Bloomberg\u00a0earlier this month that any discussion of Binance returning to U.S. shores was \u201cpremature,\u201d Reed predicted \u201ca breakout year for\u00a0Binance.US, and our teams are hard at work building a comeback story for the ages.\u201d<\/p>\n In India, Binance\u2019s sins are only just beginning. In August, the exchange was hit with an\u00a0$86 million bill for unpaid taxes\u00a0on its Indian operations. In December, Indian authorities labeled Binance\u00a0the country\u2019s biggest crypto tax scofflaw, accounting for around 87% of all unpaid crypto taxes. Binance also\u00a0continues to deny ownership\u00a0of Indian exchange\u00a0WazirX, which suffered an apparent exploit by North Korean hackers in July that could spell WazirX\u2019s permanent demise.\u00a0<\/p>\n Mixing it up<\/strong><\/p>\n Blockchain researchers Chainalysis issued\u00a0a report\u00a0on December 19 that showed the total value of funds stolen via crypto hacks hitting $2.2 billion in 2024. That\u2019s up more than one-fifth from 2023, while the number of individual hacking incidents rose 7.5% to 303.<\/p>\n The bulk of those funds were stolen in the first half of the year, the figures boosted by a couple of major hacks of centralized exchanges (DMM Bitcoin in May, WazirX in July) in which the attackers got away with nearly $540 million worth of tokens.<\/p>\n A good portion of these ill-gotten gains end up being laundered through\u00a0coin mixing\u00a0services that obfuscate tokens\u2019 digital evidence trail. Mixers have come under increased scrutiny in recent years but December brought\u00a0a U.S. federal court ruling that crypto bros hailed as a victory of code over government.\u00a0<\/p>\n The appeals court ruled that the U.S. Treasury Department\u2019s Office of Foreign Assets Control (OFAC) had overstepped its mandate by imposing economic sanctions on the\u00a0smart contracts\u00a0underpinning\u00a0Tornado Cash, the\u00a0Ethereum-based mixer that\u2019s wildly popular with\u00a0North Korean hackers. (NK hackers accounted for 61% of all funds stolen in 2024, the dollar value of which was more than twice NK\u2019s 2023 total.)<\/p>\n While the ruling doesn\u2019t throw out the\u00a0criminal case\u00a0filed against two Tornado Cash founders, there are real questions surrounding the incoming administration\u2019s willingness to pursue cases against crypto operators left over from the previous department chiefs. This could also impact the criminal charges filed this spring against the co-founders of the\u00a0Samourai Wallet\u00a0mixer.<\/p>\n None of this will help Alexey Pertsev, the Tornado Cash developer who received\u00a0a 64-month sentence\u00a0in a Dutch court this spring. European authorities appear steadfast in their commitment to rein in crypto holders\u2019 ability to muddy their digital tracks, as evidenced by\u00a0this summer\u2019s Europol report\u00a0that labeled the\u00a0Lightning Network\u2014a \u2018Layer 2\u2019 solution to the\u00a0BTC blockchain\u2019s transaction bottlenecks\u2014\u201can obstacle for criminal investigations, especially in relation to evidence admissibility.\u201d<\/p>\n It wouldn\u2019t be a crime story without a Tether reference<\/strong><\/p>\n The year started on a sour note for the world\u2019s largest stablecoin by market cap, as the United Nations Office on Drugs and Crime detailed the importance of Tether\u2019s USDT to\u00a0Southeast Asia\u2019s transnational organized crime networks. This was swiftly followed by an academic paper detailing USDT\u2019s pivotal role in Asian gangs\u00a0laundering the proceeds of pig-butchering scams\u00a0and in the summer by a report detailing USDT\u2019s\u00a0popularity on pig butchering marketplaces.<\/p>\n Things got worse when a representative from Tether\u2019s closest stablecoin rival\u00a0Circle\u00a0(issuer of USDC) suggested to Congress that federal law enforcement looking to interdict some of this USDT-fueled criminality should\u00a0target the alleged custodian\u00a0of Tether\u2019s\u00a0billions of Treasury bills, the Wall Street financial services firm Cantor Fitzgerald (NASDAQ: ZCFITX).<\/p>\n That seems unlikely now that Cantor founder\u00a0Howard Lutnick\u00a0has been named Trump\u2019s new Secretary of Commerce. In December, the Wall Street Journal reported that Tether owner Giancarlo Devasini was confident that Lutnick would \u201cuse his political clout to try to defuse\u00a0threats facing Tether.\u201d<\/p>\n Regardless,\u00a0stablecoin legislation that favors Circle over Tether\u00a0appears likely to pass soon after the new Congress takes its seats in January. What\u2019s shaping up is a battle for political influence that pits Lutnick against Circle\u2019s USDC partner\u00a0Coinbase\u00a0(NASDAQ: COIN), which has shown a real ruthlessness in\u00a0funneling campaign contributions\u00a0to members of Congress it likes and being equally generous in funding challenges of incumbents who won\u2019t play ball.<\/p>\n While USDT might face deportation from U.S. shores, it\u2019s already facing banishment from the European Union due to Tether\u2019s\u00a0refusal to comply\u00a0with the stablecoin banking requirements of the EU\u2019s\u00a0Markets in Crypto-Assets\u00a0(MiCA) regulation. Coinbase has already delisted USDT\u2014pushing users toward the\u00a0MiCA-compliant USDC\u2014and Binance has\u00a0suggested that it will likely follow suit\u00a0by the December 30 deadline for full MiCA implementation.\u00a0<\/p>\n Memecoins breeding like bunnies<\/strong><\/p>\n The January launch of\u00a0Pump.fun\u00a0ushered in a new golden and\/or sh*tstain brown age of crypto crime by enabling anyone to launch a new\u00a0utility-free token\u00a0in a matter of minutes. Originally based on\u00a0Solana,\u00a0Pump.fun\u00a0expanded to Coinbase\u2019s \u2018layer 2\u2019 network\u00a0Base\u00a0in April. In one year,\u00a0Pump.fun\u00a0helped launch close to four\u00a0million<\/em>\u00a0new tokens, many of which soared in fiat value only to plummet just as quickly as their issuers pulled the rugs out from under retail speculators.\u00a0<\/p>\n Blockchain security firm Blockaid recently estimated that\u00a0nearly 60% of tokens launched in 2024 were \u201cmalicious in nature\u201d with over one-quarter of these malicious tokens resulting in deliberate rug-pulls. That last category may or may not include Haliey \u2018Hawk Tuah\u2019 Welch\u2019s memecoin HAWK, which\u00a0lost over 90% of its value\u00a0on the day of its launch after insiders apparently began dumping tokens.\u00a0<\/p>\n Analysis by crypto media outlet Coinwirez\u00a0tracked 1,567 memecoins promoted by 377 X\/Twitter influencers and found that two-thirds of these promoted tokens are now dead as a dodo. Worse, 80% of these memecoins lost 70% of their value in the first week of existence, and 86% lost 90% of their value in three months.<\/p>\n Pump.fun\u2019s new daily token creation volume hit an all-time high of over 69,000 on November 20, while its daily active addresses hit 262,000. These numbers have since fallen off somewhat, likely due to\u00a0Pump.fun\u00a0disabling its livestream channel\u00a0after several influencers engaged in ever more outrageous stunts\u2014including fake suicide attempts, threats of mass shooting incidents and child abuse\u2014to promote specific tokens.<\/p>\n How invasive were memecoins in 2024? Even\u00a0Taliban members are now speculating on memecoins. And if current trends continue, ArkStream Capital\u00a0estimated\u00a0that memecoins could account for nearly 8% of overall crypto market capitalization by 2030, presumably with similar volumes of scams. And people wonder why \u2018crypto\u2019 struggles to gain mainstream acceptance.<\/p>\n Are we the baddies?<\/strong><\/p>\n Another 2022 casualty, the defunct digital asset lending outfit\u00a0Celsius Network, returned to the headlines in December when disgraced ex-CEO\u00a0Alex Mashinsky\u00a0reached a plea deal\u00a0with U.S. prosecutors.\u00a0A fraud from its inception, Celsius left a lot of customers missing a lot of money, and they will be counting on a lengthy sentence when Mashinsky is sentenced in April.<\/p>\n A week before Christmas,\u00a0HEX\u00a0founder\u00a0Richard Heart\u00a0(aka Richard James Schueler) found himself added to Europol\u2019s list of\u00a0Europe\u2019s Most Wanted Fugitives, while Interpol has\u00a0issued a \u2018red notice,\u2019\u00a0requiring law enforcement around the globe to arrest Heart on sight. Already facing\u00a0civil fraud charges\u00a0in America, Finland is now looking to arrest Heart for failing to file tax returns to avoid payments totaling \u201chundreds of millions of euros.\u201d Heart is also accused of attacking a 16-year-old \u201cby grabbing their hair, dragging them into the stairwell and knocking them to the ground. While the victim was lying on their back on the floor, Schueler punched them 4 \u2013 5 times in the face, nose, eyes and head area.\u201d<\/p>\n Around the same time, the SEC announced it had reached\u00a0a $123 million settlement\u00a0with Tai Mo Shan Ltd, a subsidiary of Chicago-based Jump Trading Group. Tai Mo Shan admitted misleading investors regarding the efficacy of the algorithm allegedly pegging the value of\u00a0Terraform Labs\u2019\u00a0UST\u00a0stablecoin to Terra\u2019s\u00a0LUNA\u00a0token.\u00a0When UST lost its peg\u00a0in May 2021, Tai Mo Shan secretly bought more than $20 million worth of UST to restore the peg, leaving investors in the dark about Terraform\u2019s \u2018all is well\u2019 public statements being lies. The $123 million represents the $86 million in profit (and interest on that profit) Tai Mo Shan earned from this deception, plus a $36.7 million penalty.<\/p>\n Other notable brushes with the law this year include Roger Ver being arrested and charged with\u00a0mail fraud and tax evasion, Jack Dorsey\u2019s Block being\u00a0probed by U.S. authorities\u00a0for facilitating transactions by sanctioned individual\/entities and Telegram founder\u00a0Pavel Durov\u2019s arrest by French authorities\u00a0for failing to assist a probe into drug trafficking and child sex abuse material on the platform.<\/p>\n In December, a Texas man was\u00a0sentenced to two years in prison\u00a0for failing to declare the full proceeds of BTC sales on his tax returns, the first (but almost certainly not the last) such conviction in U.S. history. In June, Michael Saylor, founder of\u00a0MicroStrategy\u00a0(NASDAQ: MSTR)\u00a0and the man\u00a0singlehandedly responsible for BTC\u2019s elevated token price, was forced to\u00a0pay $40 million\u00a0in the District of Columbia\u2019s largest ever income tax fraud recovery.<\/p>\n Tron\u00a0founder\u00a0Justin Sun\u00a0managed to stay relatively scandal-free for most of 2024, although he lost some mojo when\u00a0Circle pulled its USDC stablecoin from Tron\u00a0due to doubts over the \u201csuitability\u201d of the Tron network.\u00a0Sun\u2019s legal fight with the SEC remains ongoing but it\u2019s anyone\u2019s guess for how much longer, given Sun\u2019s pricey efforts to\u00a0ingratiate himself with the Trump family.<\/p>\n As the year drew to a close, the Sun-linked BiT Global lost its bid to\u00a0prevent Coinbase from delisting wBTC, the \u2018wrapped\u2019 version of the BTC token that allows it to be used in\u00a0smart contracts\u00a0on networks that don\u2019t suffer from\u00a0BTC\u2019s technical limitations. Coinbase minced no words in its response, saying that the delisting was due to Sun having \u201crepeatedly been accused of, investigated for, and sued for financial misconduct, and reports of his alleged misdeeds abound in the press and crypto community more broadly.\u201d<\/p>\n On December 18, the U.S. District Court rejected BiT Global\u2019s request for a temporary restraining order on Coinbase. In response, Coinbase\u2019s chief legal officer Paul Grewal\u00a0tweeted\u00a0that the court had refused BiT Global\u2019s bid to stop Coinbase from \u201cdelisting wBTC to protect our customers.\u201d<\/p>\n It\u2019s too bad that Coinbase isn\u2019t always so diligent in protecting its customers. After Trump\u2019s re-election, Coinbase began aggressively listing utility-free memecoins like PEPE and DOGWIFHAT, apparently secure in the belief that these actions wouldn\u2019t result in fresh\u00a0\u2018unregistered securities\u2019 actions by the SEC.<\/p>\n Predictably, the value of the listed memecoins has since plummeted, leaving retail buyers in the red but Coinbase in the black, as it earns commissions on all transactions. Coinbase has\u00a0announced still more memecoins\u00a0in its token listing roadmap, guaranteeing more disappointment for customers seeking the financial windfalls that so many influencers have promised and Coinbase provides access.<\/p>\n This time really is different<\/strong><\/p>\n If it\u2019s not too cold where you are this holiday season, pour out a 40 for Gary Gensler, outgoing chair of the SEC, who initiated more crypto-related enforcement actions than any previous chair. But Gensler will be remembered as a general who won many victories but ultimately lost the war.<\/p>\n As mentioned above, the likelihood of ongoing SEC litigation being pursued to its conclusion appears remote. We got further evidence of that following\u00a0reports\u00a0of a visit to Trump\u2019s Mar-a-Lago resort by Kris Marszalek, CEO of the\u00a0Crypto.com exchange, on December 16. The same day,\u00a0Crypto.com\u00a0voluntarily dismissed\u00a0the\u00a0pre-emptive lawsuit it filed\u00a0against the SEC in October. The suit was dismissed with prejudice, meaning it can\u2019t be refiled, which suggests Marszalek no longer sees any need for it.<\/p>\n The next four years will start with overtly pro-crypto individuals in charge of the U.S. federal agencies tasked with overseeing digital assets. Trump\u2019s team has made it clear that regulations will be loosened, crypto will gain greater access to traditional banking, and many new forms of exotic crypto-based financial \u2018instruments\u2019 will be unleashed upon an unsuspecting American public.<\/p>\n Initially, this lack of oversight and looser guardrails will make it appear that \u2018crypto crime\u2019 is on the wane, with fewer announcements of criminal or civil charges to remind the public of the risks of investing in the sector. Sadly, the only indication that something is awry will come once the fate of a platform or protocol is sealed and there\u2019s nothing to be done except count one\u2019s losses and vow \u2018never again.\u2019<\/p>\n Happy new year\u2026<\/p>\n Watch: Bringing the Metanet to life with Teranode\u00a0<\/p>\n