California Court Grants Summary Judgment to ICON Foundation in Dispute Over Millions in Bug-Generated ICX Tokens

News | June 14, 2024 By:

On Thursday, June 6, 2024, the United States District Court for the Northern District of California granted summary judgment in favor of the ICON Foundation in a lawsuit against Mark Shin regarding unauthorized cryptocurrency tokens generated on the ICON Network.

The case involved allegations that Shin exploited a software bug on the decentralized ICON Network in August 2020 to generate nearly 14 million ICX tokens, which is the native cryptocurrency used on the ICON blockchain, without authorization.

ICON is a nonprofit foundation that launched the ICON Network, which uses blockchain technology and aims to build a decentralized network to connect different blockchains. The Network allows users to stake their ICX tokens, and delegates who receive the most tokens can help validate transactions.

ICX tokens are generated on the Network as rewards for staking and governance participation through an incentivization system. However, in 2020 a software update called Revision 9 contained an unknown bug affecting a small percentage of accounts. For Shin’s account, each time he unstaked his existing 25,000 ICX tokens using the “SetDelegation” function, the Network mistakenly generated an additional 25,000 new tokens due to this bug. Shin repeated this process 557 times over a short period, accumulating nearly 14 million unauthorized tokens worth around $9 million at the time.

When ICON discovered Shin’s actions, they proposed a software fix to the other Network delegates that was ultimately deployed as Revision 10. This update removed the bug and blacklisted Shin’s wallet containing the unauthorized tokens to freeze them.

Shin then filed a lawsuit against ICON, asserting claims of conversion and trespass to chattels regarding the frozen tokens. ICON counterclaimed for unjust enrichment.

In its summary judgment order, the District Court found that Shin did not have a legitimate claim to the bug-generated tokens. While exploitation of software bugs is not explicitly against the rules, Shin understood the tokens were a result of anomalous network behavior and not the standard staking and rewards process.

The court also noted he made no investment of any kind to obtain the tokens. Given Shin exploited a flaw in the system for private financial gain in a way that undermined the Network’s intended purpose, the court concluded he did not have an exclusive interest in the tokens. Therefore, it granted summary judgment to ICON, rejecting Shin’s claims and leaving the remedy on ICON’s counterclaim to be determined.

Please contact BlockTribune for access to a copy of this filing.