Crypto Hack Lawsuits Reach New High in 2022

Crypto Hack Lawsuits Rise as Theft Victims Try Untested Claims

Lawsuits against cryptocurrency exchanges, digital wallet providers, and mobile service companies following cyberattacks reached a new high in 2022, as hacking victims increasingly test unproven legal claims to recoup their crypto losses.

At least 50 individual lawsuits and proposed class actions have been brought since 2017 by victims—and occasionally companies—against entities they blame for failing to protect their crypto assets from hackers, a Bloomberg Law analysis of federal court dockets found. Fewer than 10 suits were being filed annually before the total jumped to 17 in 2021 and rose to 20 in 2022, the data show.

The cases against businesses like Apple Inc., Coinbase Inc., Gemini Trust Co. LLC, and AT&T Inc. claim losses ranging from as low as $4,600 to as high as $55 million—though roughly half allege crypto losses above $400,000.

Auditors Spurn Crypto After FTX, Misleading Reserve Estimates

In the rush to reassure customers and the markets, crypto exchanges like Kraken and Binance Holdings Ltd. in 2022 touted auditor-provided tests of their reserves testing to show customer deposits were safe.

But those reports—point-in time snapshots of reserves that don’t reflect fund volatility or outstanding obligations—failed to reassure jittery customers and regulators, including Securities and Exchange Commission Chair Gary Gensler. Instead of offering a lifeline to crypto firms, the practice of vetting collateral triggered renewed scrutiny from regulators and provided fresh ammunition for auditor critics.

Who is Caroline Ellison, the trader at the center of FTX’s collapse?

Alameda borrowed huge amounts of money from other crypto lenders to fund Bankman-Fried’s investments and donations, but as the price of crypto assets plummeted through 2022, those lenders demanded their money back. Ellison and her colleagues paid it back with customer money, she said, something the platform’s users weren’t aware was happening.

And when investors asked questions, she, Bankman-Fried and other colleagues agreed to lie, covering up the company’s true financial state and the special arrangements for Alameda to use customer assets freely, Ellison told the judge.

“I agreed with Mr. Bankman-Fried and others to provide materially misleading financial statements to Alameda’s lenders,” she said. “I am truly sorry for what I did. I knew that it was wrong.”

The judge asked if she knew it was illegal, too. “Yes,” she said.

Bernstein Says Crypto Exchange Binance Is Not Likely to FailBinance is solvent, liquid and stable and this is evident in the exchange’s more than $55 billion in verifiable cold wallet addresses, Bernstein said in a research report Monday.

The crypto exchange can also “pass the test of withdrawals” as it did when some $6 billion of customer funds were withdrawn on Dec. 13, the report said.

“Binance’s undisputed market leadership has not been an accident – it has a long history of doing right by the customer,” the report added, noting that the exchange has made customers whole through hacks and regulatory challenges. The exchange is now around 75% of the global crypto trading market.

Rule 10b5-1 Amendments: The Clock is Running!

The adopting release for the SEC’s recent Rule 10b5-1 amendments provides that the new rules will go into effect 60 days after the release’s publication in the Federal Register. Well, the clock is officially running, because the release was published in the Federal Register on Thursday, December 29, 2022. That means the changes to Rule 10b5-1 will become effective on February 27, 2023.

Bankman-Fried set to enter not guilty plea in FTX fraud case

Sam Bankman-Fried is expected on Tuesday to enter a plea of not guilty to criminal charges that he cheated investors and looted billions of dollars at his now-bankrupt FTX cryptocurrency exchange, according to a source familiar with the matter.

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He is scheduled to appear at 2 p.m. EST on Tuesday before U.S. District Judge Lewis Kaplan in Manhattan to enter a plea.