A&D Forensics Brief, May 31, 2024

The United States SEC Warned Investors of Scams in Cryptocurrency Asset Securities.

The SEC has issued an investor alert warning about the rise in cryptocurrency-related scams targeting investors. These scams use deceptive tactics, including sophisticated technologies and social manipulation, to defraud people. The alert highlights the use of AI, deepfake, and pump and dump schemes by fraudsters. Investors are advised to conduct thorough research, verify investment opportunities, and be cautious of demands for extra payments.

Hong Kong SFC to compliance check crypto firms offices after license deadline.

The Hong Kong Securities and Futures Commission (SFC) will conduct on-site inspections of virtual asset trading platforms (VATPs) that are still completing their regulatory applications following a June 1 licensing deadline. The SFC reminded crypto companies to obtain licenses by this date, after which operating an unlicensed VATP will be a criminal offense. The SFC will focus on compliance with regulatory requirements, particularly in safeguarding client assets and KYC processes.

The Nigerian Senate Committee sought cryptocurrency regulation.

The Nigerian Senate Committee on Capital Markets has called for cryptocurrency regulation, citing the country's unclear stance on crypto assets as potentially detrimental. The committee emphasized the need to protect investors and defend the local currency by developing both capital and crypto markets. This call for regulation follows conflicting views between the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) regarding crypto assets.?

Former FTX Executive Ryan Salame Sentenced To 90 Months In Prison.

Ryan Salame, a former co-CEO of FTX's Bahamian subsidiary, has been sentenced to 7.5 years in prison for campaign finance violations and operating an unlicensed money-transmitting business following FTX's collapse in late 2022. This development is part of legal actions against FTX, including founder Sam Bankman-Fried's 25-year sentence for misappropriating funds. Concerns about eroding public confidence in the financial sector were raised by US Attorney Damian Williams. Other former FTX executives also pleaded guilty to related charges.

Normie meme coin incurred a loss of $882,000 due to a flash loan attack.

An attacker exploited a flash loan vulnerability on the Base layer-2 blockchain to drain millions of NORMIE tokens from the "Normie" memecoin. Despite a claimed market cap of $42 million, the attacker cashed out around $882,000. Some holders faced substantial losses, with one individual's investment dropping from $1.16 million to around $150. Negotiations are ongoing for the possible return of funds, as the project team considers relaunching the token.

The U.S. Department of the Treasury released its first-ever Non-Fungible Token (NFT) Illicit Finance Risk Assessment.

The US Treasury Department released a report highlighting the susceptibility of Non-Fungible Tokens (NFTs) to fraud and scams, emphasizing the need for increased regulation in the digital asset space. While NFTs are not commonly linked to terrorist financing, they can be used for laundering criminal proceeds. The report stressed cybersecurity vulnerabilities, copyright challenges, and inadequate controls in some NFT platforms.

NYDFS Issued New Crypto Firm Guidance for Consumer Complaints.

The New York State Department of Financial Services (NYDFS) now requires cryptocurrency service providers to implement complaint resolution mechanisms and collect data to ensure timely and fair resolution of customer service requests. The new guidance mandates that providers maintain policy records, including quarterly analyses of requests and complaints, and offer both phone and electronic text options for customers to submit complaints.

Binance France Swapped Ownership amid Regulatory Pressures.

Binance France restructured its ownership to comply with the French Financial Markets Authority (AMF) requirements, transferring 100% ownership to founding members Yulong Yan and Lihua He. This change followed an AMF warning regarding former CEO Changpeng Zhao’s legal issues in the U.S. Yan and He became equal shareholders, each holding a 50% stake. With the upcoming EU Markets in Crypto-Assets (MiCA) regulation, Binance France aimed to align with regulatory standards, including anti-money laundering protocols.?

SEC to reimburse US$1.8 million after failed cryptocurrency lawsuit against DEBT Box

A U.S. District Court Judge ordered the SEC to reimburse cryptocurrency firm DEBT Box nearly US$1.8 million in legal fees after dismissing the SEC's lawsuit against the company. The lawsuit, which accused DEBT Box of fraudulent activities involving US$50 million in sales, was dismissed without prejudice due to the SEC's missteps and misrepresentations. The SEC must pay approximately US$1 million in attorney fees and US$750,000 in receiver fees.?

A crypto investor lost $6.9 million in an Inferno Drainer phishing scam.

A cryptocurrency investor lost $6.9 million in a phishing scam involving a malicious Permit phishing signature, leading to the theft of Ether.fi-Liquid1 tokens. MistTrack identified connections to Pink and Inferno Drainers, notorious draining-as-a-service providers. The stolen funds remain in specific wallets, and recent developments include Pink Drainer's retirement and Inferno Drainer's resumption of operations.