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Jump Trading Fails to Move Terra Crypto Manipulation Case to California

On Thursday, June 6, 2024, the United States District Court for the Northern District of Illinois denied a motion to transfer a class action lawsuit surrounding the collapse of the Terra cryptocurrency system to the Northern District of California.

The class action was filed in May 2023 by Taewoo Kim against Jump Trading, LLC and its president Kanav Kariya. Kim alleges that Jump Trading manipulated the price of TerraUSD (UST), a stablecoin associated with the Terra blockchain, and Luna, another digital currency tied to Terra.

Kim claims that in May 2021, when UST began fluctuating from its $1 peg, Jump Trading secretly purchased over 62 million UST tokens to artificially inflate the price back to $1. According to the lawsuit, Terraform Labs, the company behind Terra, then rewarded Jump Trading with over 61 million Luna tokens worth $1.28 billion.

Jump Trading filed a motion to transfer the case to California, where a similar lawsuit called Patterson v. Terraform Labs had been pending since June 2022 in the Northern District. That case named Jump Trading and Kariya as defendants over the Terra collapse.

In considering the motion, Judge Nancy Maldonado analyzed both private factors like the convenience of parties/witnesses, as well as public factors such as court congestion. On private factors, the court found witnesses would be inconvenienced in both forums, but that litigating in Illinois would disadvantage Kim in getting access to former Jump Trading witnesses. Maldonado also noted material events appeared to have emanated from Jump Trading’s headquarters in Illinois.

Regarding public factors, Maldonado determined the case would likely progress faster by staying in Illinois rather than transferring to California, where the Patterson case has been stayed pending appeal. The court also believed Illinois had a stronger public interest than California, given Jump Trading is based in the state.

Ultimately, the judge ruled Jump Trading failed to demonstrate transferring would better serve convenience or justice. Both private and public factors had to support transfer, but neither strongly weighed in Jump Trading’s favor, according to the opinion. As a result, the motion was denied and the case will continue in Illinois.

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

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Lawmakers Accuse Nigeria of Unlawfully Detaining Binance Executive Tigran Gambaryan

On Tuesday, June 4, 2024, sixteen Republican congressmen, led by Michael McCaul, called for President Joe Biden to intervene in the case of an American citizen detained in Nigeria. Tigran Gambaryan, the head of financial crime compliance at cryptocurrency exchange Binance, was arrested in April during a trip to Nigeria to discuss Binance’s compliance issues with local authorities.

In a letter to President Biden, the lawmakers accused Nigeria of unlawfully holding Gambaryan, a U.S. citizen, and urged the president to address his detention. They claimed the charges against Gambaryan are baseless and that Nigerian officials are coercing Binance by detaining its executive. Gambaryan faces allegations of tax evasion and aiding Binance customers in Nigeria to evade paying taxes.

However, Nigeria’s Information Minister Mohammed Idris rejected the accusations, maintaining that Gambaryan’s arrest and detention are lawful under Nigerian law. Idris said the charges stem from Gambaryan’s alleged role in Binance’s failure to pay value-added tax and corporate income tax in Nigeria. Binance is also accused of operating in Nigeria without proper licensing and facilitating over $35 million in alleged money laundering.

The confrontation began in February when Gambaryan and a colleague traveled to Nigeria for meetings with officials to discuss Binance’s compliance. However, the talks deteriorated and Gambaryan was detained while his colleague managed to leave the country. Gambaryan has been held at a maximum-security prison in Abuja since his formal arrest and charging in April. His health has reportedly declined, forcing a court hearing to be postponed recently.

The incident adds to mounting legal and regulatory troubles facing Binance globally. In the U.S., Binance founder Changpeng Zhao was sentenced to four months in prison for compliance failures at the exchange. Binance also agreed to a $4.3 billion settlement with U.S. authorities in November over allegations it enabled cybercrime and terrorism through lax controls.

Last month, a Nigerian court ruled Gambaryan must stand trial representing Binance over the tax evasion accusations. If convicted, he faces potential jail time in Nigeria.

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

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.

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Lawsuit Accuses Blockchain-Based Lender Figure Lending of Predatory Practices in HELOC Marketing

On Wednesday, June 5, 2024, Lee Ward filed a class action lawsuit against Figure Lending, LLC in the United States District Court for the Western District of North Carolina alleging fraudulent lending practices.

The suit claims that Figure Lending misrepresents its home equity lines of credit (HELOCs) and uses deceptive tactics like bait-and-switch schemes to lure borrowers in with attractive advertised rates. According to the complaint, Figure requires applicants to withdraw their full line of credit all at once, functioning more like a home equity loan rather than a flexible line of credit.

Multiple consumers have complained to the Better Business Bureau that after starting the online application process, they were denied or given a worse deal than originally quoted due to alleged technical glitches. The suit argues this amounts to predatory lending practices that purposefully deny borrowers their locked interest rates when market rates rise.

Figure Lending, a non-bank lender based in San Francisco, markets itself as utilizing blockchain and cryptocurrency technology to improve lending. However, the class action alleges the company fails to actually provide true HELOCs and misleads applicants about rates and loan amounts. Figure claims to offer loans of up to 80% of a home’s value but regularly provides far less, according to complaints.

The lawsuit has been ongoing since late 2022, when Ward initially filed in a Georgia state court. Figure Lending promptly removed the case to federal court and moved to dismiss before successfully transferring it to the District of Arizona, where Ward amended his complaint twice but still faced dismissal both times for lack of subject matter jurisdiction over a class of plaintiffs.

Under Arizona law, Ward was permitted to refile the suit after dismissal without prejudice, which he has now done in federal court in North Carolina, where Figure Lending is registered to do business. The complaint alleges Figure conducts substantial lending activity in North Carolina and has sufficient contacts to establish jurisdiction.

Consumer reviews posted on sites like the Better Business Bureau and Trustpilot accuse Figure of shady and deceptive practices like charging unexpected fees, failing to apply payments properly, and selling loans to new servicers without authorization. Complaints point to predatory equity loans disguised as HELOCs that inflate interest costs through mandatory lump sum withdrawals.

The class action lawsuit seeks to represent all Figure Lending customers nationwide who fell victim to similar misleading tactics and/or suffered financial damages. If certified as a class, the suit could pose a major liability for the international fintech company, which claims over 500 employees and has facilitated over $9 billion in loans to 100,000 borrowers across America since its founding.

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

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U.S. Seeks Forfeiture of Over $5M Linked to Email Scam, Alleging Funds Were Laundered Through Bank Accounts and Attempted Crypto Transfers

On Wednesday, June 5, 2024, the United States government filed a civil forfeiture complaint in the United States District Court for the District of Massachusetts seeking to seize over $5.3 million from seven bank accounts.

According to the complaint, the funds originated from a business email compromise (BEC) scam targeting a Dorchester, Massachusetts-based workers union in January 2023. Using a spoofed email address very similar to the union’s investment manager’s email, cybercriminals tricked the union into wiring $6.4 million intended for investment to a bank account controlled by criminal actors.

The complaint alleges that after receiving the fraudulent wire, the account holders began rapidly transferring funds between accounts in an apparent effort to launder the illegal proceeds and conceal their source. Over the next week, the funds were broken up and deposited into six additional bank accounts held at JPMorgan Chase and one at Texas Bank and Trust.

According to the filing, funds from the first account were then used to open the other six accounts and make deposits totaling over $5.3 million. The criminal actors allegedly directed the multiple account holders to quickly move money between the accounts through checks and wire transfers. Some transfers sent funds overseas, including to banks in China, Singapore, Nigeria, and Hong Kong.

Two attempted wire transfers totaling over $4 million were reversed by JPMorgan Chase before leaving one of the accounts. One of the reversed transfers was allegedly intended to send funds to a cryptocurrency exchange in New York, indicating the criminals may have been looking to further conceal the funds’ trail through digital currency transactions.

The filing names seven bank accounts as defendants that are subject to forfeiture based on alleged violations of federal money laundering and fraud statutes. The accounts and amounts seized included:

  • Approximately $143,586 from a JPMorgan Chase account.
  • Approximately $4,896 from another JPMorgan Chase account.
  • Approximately $5,240 from a third Chase account.
  • Approximately $4,335,334 from a fourth Chase account.
  • Approximately $581,530 from a fifth Chase account.
  • Approximately $183,546 from a sixth Chase account.
  • Approximately $61,613 from a Texas Bank and Trust account.

The complaint brought by the U.S. Attorney’s Office and Department of Justice seeks forfeiture of the funds on the grounds that they were either direct proceeds of wire fraud or involved in money laundering transactions intended to conceal the nature and source of illegally obtained funds.

According to the verified complaint, the more than $5.3 million in assets represent the proceeds of wire fraud and property involved in monetary transactions over $10,000 derived from specified unlawful activity, satisfying two bases for forfeiture under federal anti-money laundering statutes.

The government is asking the court to seize the funds and award forfeiture to the United States. No criminal charges have been filed at this time, and the account holders in the filing have not been publicly identified.

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

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William Ichioka Sentenced to 4 Years for Crypto Investment Fraud Scheme

On Tuesday, June 11, 2024, the U.S. Attorney’s Office, Northern District of California announced that William Koo Ichioka had been sentenced in federal court in San Francisco for his role in a fraudulent investment scheme. Ichioka received a four-year prison term and was ordered to pay a $5 million fine by U.S. District Judge Vince Chhabria.

Ichioka, 30, had pled guilty last July to five felony charges related to the scheme, including wire fraud, tax fraud, securities fraud, and commodities fraud. Court documents state that from 2018-2019, Ichioka solicited investments through his company “Ichioka Ventures” by promising returns of 10% every 30 days from trading in cryptocurrencies, securities, and other assets. He obtained over $21 million from more than 100 victims during this period.

However, Ichioka actually lost money from the portions he did invest and instead spent victim funds on personal luxuries. He admitted to commingling investor money with his own and using the amounts to purchase high-end vehicles, watches, and jewelry, and cover living expenses rather than making legitimate trades. By late 2019, Ichioka privately acknowledged that the “[c]ompany hasn’t made any money since we started.”

To continue the fraud, Ichioka also repaid earlier investors using new investment amounts in a Ponzi-like structure. As part of his guilty plea, Ichioka stated he owes at least $21 million to non-family investors and over $40 million to victimized family members who contributed funds.

During the scheme, Ichioka concealed the fraud by providing falsified financial records and account balances to investors through the Ichioka Ventures website. He also failed to supply proper tax documentation and did not report any income to the IRS. Judge Chhabria’s sentence recognized the serious and widespread harm caused by Ichioka’s deception.

Following his prison term, Ichioka must complete five years of supervised release and attend a future restitution hearing. Assistant U.S. Attorneys Eric Cheng and Benjamin Kingsley prosecuted the case, which resulted from coordinated investigations by the FBI and IRS Criminal Investigation arm. Parallel probes were also performed by the Securities and Exchange Commission and Commodity Futures Trading Commission.

In a statement, First Assistant U.S. Attorney Patrick Robbins warned that federal prosecutors will aggressively pursue those perpetrating cryptocurrency or investment fraud. FBI Special Agent in Charge Robert Tripp stated Ichioka’s scheme hurt over 100 victims and vowed continued pursuit of financial criminals. IRS Criminal Investigation’s Michael Mosley said justice was served through interagency teamwork on the case.

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Terrorism Victims Sue Government Over Delayed Funds, Including $4.3B in Binance Fines

On Thursday, June 6, 2024, a complaint was filed in the United States District Court for the District of Columbia challenging the delay in processing claims from victims of state-sponsored terrorism. The complaint names the United States, several government agencies and officials, and the United States Victims of State Sponsored Terrorism Fund as defendants.

Five plaintiffs brought the suit, all of whom have won judgments against Iran for damages from acts of terrorism. The plaintiffs include Diana Campuzano, who obtained a $18.9 million judgment for injuries from a 1997 suicide bombing in Jerusalem. Also suing is the estate of Taylor Force, a U.S. Army veteran killed in a 2016 stabbing attack in Israel, which was awarded $6.25 million.

The complaint alleges that the defendants have failed to follow statutory deadlines and requirements set in the United States Victims of State Sponsored Terrorism Act. This law established the U.S. Victims of State Sponsored Terrorism Fund to distribute money seized from sanction violations and civil/criminal cases to victims holding judgments against state sponsors of terrorism, like Iran.

One issue raised is the failure of the Government Accountability Office, led by Comptroller General Gene Dodaro, to submit a required report. The Act mandates the GAO conduct an audit and report on “lump sum catch-up payments” that would equalize payout percentages for victims of the 1983 Beirut barracks bombing and 1996 Khobar Towers bombing with other claimants.

Though the deadline was February 28, 2024, no report has been submitted. The plaintiffs argue this simple calculation has been needlessly delayed and expanded into a multi-step process, preventing over $3 billion allocated by Congress from reaching eligible victims. They seek a court order declaring the GAO violated the law and compelling the immediate release of the report.

Another claim focuses on funds that have yet to be deposited in the victim compensation fund, despite legally requiring transfer. This includes an estimated $4.3 billion in criminal fines and forfeitures imposed on the cryptocurrency exchange Binance for sanctions violations, as well as $630 million from British-American Tobacco.

The suit asks the court to require the appropriate government agencies to place these sums into the victim fund without further delay.

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

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Future FinTech Hit With Shareholder Suit Alleging Stock Manipulation

On Tuesday, June 4, 2024, Eric Duquette filed a shareholder derivative complaint in the United States District Court for the District of New Jersey against Future FinTech Group Inc. and several of its directors and officers.

The complaint alleges that former CEO Shanchun Huang and other individuals manipulated the price of the company’s stock and misled investors about certain matters. Future FinTech provides supply chain financial services and operates an online platform that allows users to buy and sell gift cards and pre-paid cards. It also provides cryptocurrency mining and cross-border services through blockchain technology.

The plaintiff claims that between March 2020 and January 2024, Huang engaged in unlawful stock price manipulation by purchasing thousands of shares before and after becoming CEO. The SEC also charged Huang for these actions. In the SEC complaint, it was alleged that Huang artificially inflated the stock price of Future FinTech shortly before and after taking over as CEO.

Future FinTech first received a letter from NASDAQ in February 2019 notifying them that the closing bid price for the company’s stock listed on NASDAQ fell below $1 for 30 consecutive trading days. If the stock remained below that threshold, the company risked being delisted from NASDAQ.

On January 11, 2024, the SEC issued a press release announcing fraud charges against Huang for misleading disclosures. The SEC complaint alleged unlawful market manipulation by the former executive. When this information became public, Future FinTech’s stock price dropped over 20% to close at $1.02 per share the next day.

The shareholder complaint alleges that throughout this period, known as the “Relevant Period,” Huang and other directors withheld important information about stock price manipulation and governmental legal proceedings from investors. The plaintiff seeks to hold these individuals liable for securities law violations through a class action lawsuit. It remains to be seen how Future FinTech will address the oversight issues brought to light by these legal actions.

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

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Customers Sue Coinbase, Claiming Exchange Sold Crypto Assets Illegally

On Tuesday, June 4, 2024, Mollijoy Carter, Antonett Foy, and Bradley Barnes filed a class action lawsuit against cryptocurrency exchange Coinbase and its CEO Brian Armstrong in the United States District Court for the Northern District of California.

In the lawsuit, Carter, Foy, and Barnes allege that Coinbase violated California and Florida state securities laws by selling unregistered securities on their exchange platform without registering as a broker-dealer. Specifically, the plaintiffs invested in various digital assets on Coinbase including Coinbase Earn, Algorand, Polygon, Solana, Uniswap, and Stellar Lumens between January 2017 and present.

They claim these tokens should be considered securities or investment contracts based on how they were marketed and sold by Coinbase. Coinbase touted the assets as investments on their website and promoted them through ads, blog posts, and newsletters to shed new light on how these wealthy individuals are more likely to invest in crypto. Furthermore, Coinbase’s user agreement refers to the assets as “financial assets” and its wallets as “securities accounts.”

The lawsuit argues that by selling these unregistered securities and operating as an unregistered broker-dealer, Coinbase is in violation of California and Florida state securities laws. Those laws require any entity brokering securities transactions or selling securities to register with financial regulators and ensure proper disclosures are made to investors.

The plaintiffs are seeking to have the court certify the case as a class action lawsuit representing any individual who purchased these digital assets from Coinbase during the alleged time period. If certified, the class could include tens or hundreds of thousands of Coinbase customers. The lawsuit seeks damages and claims that Coinbase should have been registered as a broker-dealer, just like traditional financial firms.

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

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Class Action Lawsuit Takes Aim at Marathon Digital’s Accounting of Crypto Assets

On Tuesday, June 4, 2024, an amended class action complaint was filed in the US District Court for the District of Nevada against Marathon Digital Holdings, Inc. and several of its current and former executives.

Marathon Digital Holdings is a technology company focused on bitcoin mining and other digital asset operations. The complaint centers around the company’s accounting practices related to its bitcoin holdings and mining operations during the class period. Marathon routinely mines bitcoin and other cryptocurrencies using specialized computer equipment and reports the value of its holdings each quarter.

However, the plaintiffs claim Marathon misreported key financial metrics like the value of its bitcoin assets and the cost of mining new coins. It’s alleged the company did not properly assess for impairment of bitcoin on its balance sheet as required by Generally Accepted Accounting Principles. The SEC reportedly sent comment letters to Marathon questioning its accounting but the company did not make this public.

In late February 2023, Marathon disclosed it received another letter from the SEC about prior financial statements. The company simultaneously canceled its upcoming earnings call and said several years of reported results could no longer be relied upon. The plaintiffs state this news caused the stock to fall over 8% on March 1st.

Two weeks later, Marathon restated its financials from 2021 and parts of 2022, finding material differences in things like asset valuation and costs. The complaint argues the executives knew or should have known proper accounting was not followed, especially since impairment testing is a clear rule. It’s also noted the departures of two CFOs during this period raise questions.

The amended class action seeks damages for investors under securities laws, alleging false statements and omissions injured shareholders.

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

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