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As the US Securities and Exchange Commission (SEC) files its latest crypto fraud case, another blockchain “bridge” is hit by a nine-figure hack. Bullish to the end, bitcoin “MVP” Michael Saylor resigns as MicroStrategy CEO. Just another week in crypto.
This week, the SEC charged 11 individuals for their alleged roles in creating and promoting Forsage, a fraudulent crypto pyramid and Ponzi scheme that raised more than $300m from millions of retail investors worldwide.
Those charged include the four founders of Forsage, who were last known to be living in Russia, Georgia and Indonesia, and three US-based persons who promoted Forsage on its website and social media.
Several members of the so-called Crypto Crusaders, the largest promotional group involved in the scheme, were also charged for their role in promoting Forsage from at least five different US states.
According to the SEC’s complaint, in January 2020 the defendants launched Forsage.io, a website that allowed millions of retail investors to enter into transactions via smart contracts that operated on the Ethereum, Tron and Binance blockchains.
Forsage allegedly operated as a pyramid scheme for more than two years, in which investors earned profits by recruiting others into the scheme and using assets from new investors to pay earlier ones.
In September 2020, Forsage was served with cease-and-desist actions by the SEC of the Philippines, and was served similar orders in March 2021 by the Montana Commissioner of Securities and Insurance.
Nonetheless, the defendants allegedly continued to promote the scheme while denying the claims in several YouTube videos and by other means.
Without admitting or denying the allegations, two of the defendants have already agreed to settle the charges and to be permanently enjoined from future violations.
For the remaining defendants, the SEC is seeking injunctive relief, disgorgement and civil penalties.
Bridge to nowhere
As crypto hacks go, this week’s $200m exploit of Nomad is the fourth-largest attack on a decentralised finance (defi) platform to date.
Nomad is a cross-chain bridge that allows users to swap tokens from one blockchain to another.
Describing itself as a “security-first” cross-chain messaging protocol, Nomad claims to offer computational efficiency, low costs and seamless interoperability compared with rival bridges.
However, following a botched routine upgrade, Nomad opened up a vulnerability in its own system that allowed spoofed messages to be processed as valid.
“Attackers then piled in by copying and pasting transactions, and quickly drained the bridge in a frenzied free-for-all,” as described by one blockchain analyst.
Nomad has called on “ethical hackers” to locate and return the stolen funds, and is working with law enforcement to identify the attackers.
The hack puts Nomad in league with similar bridge exploits that took place this year, including the $552m Ronin hack — suspected to have been the work of the North Korean state — and the $332m Wormhole hack.
Michael Saylor quits
Michael Saylor, CEO of MicroStrategy and well-known bitcoin cheerleader, announced this week that he will step down from the company to “focus more on bitcoin”.
He will continue to serve as an executive officer and chairman of the board, but will hand over the CEO spot to former president Phong Le.
Saylor has been a cause célèbre of the crypto world since 2020 when he began to use MicroStrategy, the company he founded in 1989, to buy as much bitcoin as the balance sheet would allow.
In 2021, in particular, after adopting bitcoin as a “primary treasury reserve asset”, MicroStrategy began to issue billions of dollars of corporate debt purely to buy more bitcoin.
By the end of June this year, MicroStrategy had spent about $4bn on bitcoin in total, making it the largest single corporate holder of bitcoin on earth.
The only problem, of course, is that the price of bitcoin has crashed precipitously since its peak in November last year, and at one point was down more than 70 percent from this high.
MicroStrategy’s cost basis per bitcoin is about $30,000, so with the price of bitcoin currently hovering around $22,000, the company is now sitting on close to $1bn in unrealised bitcoin losses.
Upon leaving the company, however, Saylor remained defiant that his bitcoin bet had paid off, boasting to Fox Business and CNBC that MicroStrategy stock has in fact outperformed most bigtechs, the S&P500 and bitcoin itself from August 2020 to August 2022.
Unlike other MircoStrategy investors, Saylor himself did not sell a single share in the company while bitcoin’s price was appreciating, indicating — as is widely believed in the crypto world — that he is indeed a true believer in the asset.
Robinhood fined in New York
US trading platform Robinhood has been fined $30m this week for “significant” breaches of anti-money laundering (AML), cybersecurity and consumer protection violations by the New York Department of Financial Services (DFS) following an investigation into Robinhood Crypto during 2020.
In addition to the $30m penalty, Robinhood Crypto will be required to retain an independent consultant that will perform a comprehensive evaluation of its compliance with DFS regulations.
In a statement, DFS wrote that Robinhood’s BSA/AML programme was inadequately staffed, and that the company had failed to transition from a manual transaction monitoring system as its customer base and transaction volume grew larger.
The penalty brings more bad news to Robinhood, which one day later announced plans to cut almost one in four staff due to falling revenues.
Portuguese exchanges in retreat
Meanwhile in Portugal, one of Europe’s most crypto-friendly jurisdictions, crypto exchanges have also been under pressure.
This week, some of Portugal’s largest banks said they have closed the accounts of major crypto exchanges, as reported by Bloomberg.
Banco Comercial Portugues and Banco Santander have shut down all of Lisbon-based CriptoLoja’s accounts, following in the footsteps of two smaller banks.
At least two other crypto exchanges in Portugal have also been hit by bank account closures this year and others have not been able to open new accounts.
The banks did not say exactly why they closed CriptoLoja’s accounts, but both told Bloomberg in emails that they must prioritise identifying “suspicious transactions” and act in “accordance with perception of risk”.
No crypto payday for women’s soccer
Finally, Australia’s National Women’s Soccer League (NWSL) may be left out of pocket following the bankruptcy of crypto lending company Voyager Digital.
In December last year, Voyager signed a multi-year sponsorship deal as the official cryptocurrency brokerage partner of the NWSL.
At the time, Voyager said the deal was designed to provide “financial education on crypto, including key lessons and tools, to help develop long-term financial growth opportunities for players”.
According to sport business news site Sportico, half of the sponsorship fee was to be paid directly to NWSL players in cryptocurrency each year.
However, with the funds now locked up in Voyager’s bankruptcy case since last month, it is unclear whether the players will ever enjoy their crypto payday at all.
