Blockchain & Cryptocurrency , Cryptocurrency Fraud , Fraud Management & Cybercrime

Cryptohack Roundup: FTX Paid Off Whistleblowers

Also: Guilty Pleas - Lots of Them
Cryptohack Roundup: FTX Paid Off Whistleblowers
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Every week, Information Security Media Group rounds up cybersecurity incidents in digital assets. This week, FTX paid $25 million to whistleblowers, former FTX co-CEO Ryan Salame was sentenced, guilty pleas were entered in the cases of a $47 million embezzlement, a $37 million theft and a $9.5 million fraud, and a woman was sentenced in a $10.4 million money laundering case.

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FTX Pays $25M to Whistleblowers

Cryptocurrency exchange FTX paid more than $25 million to six unnamed whistleblowers before its collapse, according to a report from outside examiner Robert Cleary. One whistleblower, an executive at FTX.US, said that the FTX Group misled regulators and investors and lacked proper corporate structure. After expressing concerns to then-CEO Sam Bankman-Fried and other executives, this whistleblower was advised to retract their statements. They resigned in September 2022 and received a settlement of over $16 million.

U.S. Bankruptcy Court Judge John Dorsey appointed Cleary to the position after an appeals court ruled in January that FTX had to be investigated by an independent examiner.

Another whistleblower who accused FTX of market manipulation and insider trading settled for $1.8 million after spending less than two months at FTX.US receiving a $200,000 salary. A third whistleblower, who alleged market manipulation, received a $200,000 settlement. The examiner's report shows that the FTX Group lacked a complete list of employees at the time of bankruptcy and that many resignations occurred informally.

FTX collapsed in November 2022 and a year later, Sam Bankman-Fried was convicted of defrauding FTX's stakeholders and sentenced to 25 years in prison. He is currently located at FCI Lewisburg, a medium security federal prison in Pennsylvania.

FTX's Ryan Salame Is Sentenced

A federal judge sentenced former FTX executive Ryan Salame to more than seven years in prison for his role in the collapse of the cryptocurrency exchange. Salame, 30, who served as co-CEO of FTX Digital Markets, pleaded guilty last year to making illegal U.S. campaign contributions and operating an unlicensed money-transmitting business. Judge Lewis A. Kaplan imposed a sentence of seven and a half years, exceeding the five to seven years prosecutors recommended.

Salame did not testify against FTX founder Sam Bankman-Fried but cooperated by providing documents that aided prosecutors. He was a conduit for illegal campaign contributions made by Bankman-Fried targeted at both political parties to influence U.S. cryptocurrency policy. Kaplan criticized Salame for withdrawing $5 million in cryptocurrency from FTX as it was failing, saying that he prioritized his own interests over those of the customers.

Three other high-level FTX executives - Caroline Ellison, Gary Wang and Nishad Singh - await sentencing after cooperating with prosecutors and testifying against Bankman-Fried.

$47M Embezzlement

Kansas man Shan Hanes pleaded guilty in U.S. court to embezzling millions of dollars from Heartland Tri-State Bank, leading to its collapse and a complete loss for investors. As the bank's CEO, 52-year-old Hanes orchestrated 10 wire transfers totaling $47.1 million to cryptocurrency accounts from May to July 2023. He faces up to 30 years in prison, and his sentencing is set for Aug. 8.

$37M Theft

Indian national Chirag Tomar, 30, pleaded guilty in U.S. court to wire fraud conspiracy for stealing over $37 million through a fake Coinbase Pro website. Tomar was arrested at Hartsfield-Jackson Atlanta International Airport on Dec.20. He and his co-conspirators created the site in June 2021 to mimic Coinbase Pro and deceived users into providing login credentials and two-factor authentication codes. They used phishing tactics and remote access software to control victims' cryptocurrency wallets and transferring funds to wallets they controlled. Tomar converted the stolen cryptocurrency into cash to fund a lavish lifestyle. He faces up to 20 years in prison and a $250,000 fine. His sentencing date is pending.

$10.4M Money Laundering

The Southwark Crown Court in London sentenced 42-year-old Jian Wen to six years and eight months in prison for laundering $10.4 million worth of cryptocurrency linked to a billion-dollar investment fraud, Bloomberg reported. Wen holds both United Kingdom and Chinese citizenship. She laundered the bitcoin as part of a larger scheme in which authorities seized bitcoin worth $4.22 billion. Claiming she acted on behalf of a Chinese woman she identified as the "mastermind," Wen said she was unaware of the funds' true origins.

$9.5M Fraud

Former California attorney David Kagel pleaded guilty in U.S. court to charges related to a fraudulent crypto scheme. The 85-year-old Kagel, who was disbarred in 2023, used his legal reputation to lend credibility to a cryptocurrency Ponzi scheme that he orchestrated with a co-conspirator to defraud investors of more than $9.5 million.

Kagel and his partner misled victims with promises of immense profits and falsely claimed the co-conspirator held $11 million in bitcoin to cover any losses. Kagel admitted to using investors' funds for personal gain and pleaded guilty to conspiracy to commit commodity fraud. He faces up to five years in prison.

Kagel's disbarment in April 2023 was the result of multiple disciplinary actions over the course of his career, including for making false statements to the Securities and Exchange Commission and mismanaging client funds.


About the Author

Rashmi Ramesh

Rashmi Ramesh

Assistant Editor, Global News Desk, ISMG

Ramesh has seven years of experience writing and editing stories on finance, enterprise and consumer technology, and diversity and inclusion. She has previously worked at formerly News Corp-owned TechCircle, business daily The Economic Times and The New Indian Express.




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