2024’s crypto crime hall of shame

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2024 could go down in history as the last year in which prominent members of the Crypto Crime Cartel were made to face actual justice, as United States regulatory scrutiny loosens and enforcement agencies brace for ‘stand down’ orders. 

Among the year’s most memorable legal events was the culmination of the criminal prosecutions stemming from the FTX exchange’s dramatic November 2022 implosion. Sam Bankman-Fried’s transition from ‘crypto’ poster boy to the blockchain sector’s Bernie Madoff was as abrupt as it was shocking, and FTX’s former customers are still awaiting full and final compensation for the damage they suffered from SBF’s fraud.  

In March, SBF was sentenced to 25 years in prison after a truly WTF legal defense that basically amounted to ‘I’m a good boy who got in over his head, now let me go cuz I’m cooking up another Ponzi and I need to finish the white paper before my parents get home.’

A couple of months later, Ryan Salame, former co-CEO of FTX Digital Markets, received a 90-month sentence for his role in funneling FTX customer cash to political candidates’ campaign funds. Like SBF, Salame was dismissive of his legal peril and discovered too late that social media snark is rarely a winning court strategy.

Faring far better was Caroline Ellison, the last CEO of the FTX-affiliated market maker Alameda Research, who got two years in prison in September after striking a deal with prosecutors. Two other cooperators—FTX’s former director of engineering Nishad Singh and co-founder/former CTO Zixiao ‘Gary’ Wang—each got away with time-served and a few years of supervised probation, which suggests that honesty, even the truly belated kind, is indeed the best policy. 

Binance’s post-CZ era looks kinda familiar

The event that kicked off FTX’s downfall was the leaking of an Alameda balance sheet that showed an unhealthy reliance on in-house sh*tcoins of dubious value. It’s never been proven, but suspicions are that the leak had something to do with Changpeng ‘CZ’ Zhao, founder of the Binance exchange, who reportedly didn’t like how SBF was badmouthing him behind the scenes to regulators and investors. 

CZ served four months in prison in 2024, a criminally short stay given the extent of the criminality described in the $4.3 billion settlement he and Binance reached with U.S. federal authorities in November 2023. CZ was also required to relinquish any managerial role in Binance, although he remains its biggest shareholder. 

New CEO Richard Teng is doing his best to present Binance as a changed entity, but that narrative took a hit early in 2024, when Nigerian authorities jailed two Binance execs over suspicions of facilitating money laundering and manipulation of the local Naira currency. One of those execs quickly jumped bail and fled the country, but compliance chief Tigran Gambaryan spent eight months in custody before being allowed to leave Nigeria due to his deteriorating medical condition. 

Binance is still locked in civil litigation with the U.S. Securities and Exchange Commission (SEC) but Donald Trump’s second term as U.S. president means new leadership at the SEC and the strong possibility of all ongoing crypto litigation being mothballed. 

That could portend a revival of Binance.US, the shell exchange that Binance set up to transfer American customers’ funds out of the country to the Binance.com mothership. Cut off from U.S. banks while the SEC litigation proceeds, Binance.US has been limping along with a fraction of its former trading volume, existing on pure momentum and hope that someday its owners’ sins will be truly forgiven. 

Those hopes appear to be more rooted in reality following a December 18 blog post by Binance.US interim CEO Norman Reed, who said “we are closer than ever to restoring USD services and our plan is to achieve this important milestone in early 2025.” While Binance CEO Teng told Bloomberg earlier this month that any discussion of Binance returning to U.S. shores was “premature,” Reed predicted “a breakout year for Binance.US, and our teams are hard at work building a comeback story for the ages.”

In India, Binance’s sins are only just beginning. In August, the exchange was hit with an $86 million bill for unpaid taxes on its Indian operations. In December, Indian authorities labeled Binance the country’s biggest crypto tax scofflaw, accounting for around 87% of all unpaid crypto taxes. Binance also continues to deny ownership of Indian exchange WazirX, which suffered an apparent exploit by North Korean hackers in July that could spell WazirX’s permanent demise. 

Mixing it up

Blockchain researchers Chainalysis issued a report on December 19 that showed the total value of funds stolen via crypto hacks hitting $2.2 billion in 2024. That’s up more than one-fifth from 2023, while the number of individual hacking incidents rose 7.5% to 303.

The bulk of those funds were stolen in the first half of the year, the figures boosted by a couple of major hacks of centralized exchanges (DMM Bitcoin in May, WazirX in July) in which the attackers got away with nearly $540 million worth of tokens.

A good portion of these ill-gotten gains end up being laundered through coin mixing services that obfuscate tokens’ digital evidence trail. Mixers have come under increased scrutiny in recent years but December brought a U.S. federal court ruling that crypto bros hailed as a victory of code over government. 

The appeals court ruled that the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) had overstepped its mandate by imposing economic sanctions on the smart contracts underpinning Tornado Cash, the Ethereum-based mixer that’s wildly popular with North Korean hackers. (NK hackers accounted for 61% of all funds stolen in 2024, the dollar value of which was more than twice NK’s 2023 total.)

While the ruling doesn’t throw out the criminal case filed against two Tornado Cash founders, there are real questions surrounding the incoming administration’s willingness to pursue cases against crypto operators left over from the previous department chiefs. This could also impact the criminal charges filed this spring against the co-founders of the Samourai Wallet mixer.

None of this will help Alexey Pertsev, the Tornado Cash developer who received a 64-month sentence in a Dutch court this spring. European authorities appear steadfast in their commitment to rein in crypto holders’ ability to muddy their digital tracks, as evidenced by this summer’s Europol report that labeled the Lightning Network—a ‘Layer 2’ solution to the BTC blockchain’s transaction bottlenecks—“an obstacle for criminal investigations, especially in relation to evidence admissibility.”

It wouldn’t be a crime story without a Tether reference

The year started on a sour note for the world’s largest stablecoin by market cap, as the United Nations Office on Drugs and Crime detailed the importance of Tether’s USDT to Southeast Asia’s transnational organized crime networks. This was swiftly followed by an academic paper detailing USDT’s pivotal role in Asian gangs laundering the proceeds of pig-butchering scams and in the summer by a report detailing USDT’s popularity on pig butchering marketplaces.

Things got worse when a representative from Tether’s closest stablecoin rival Circle (issuer of USDC) suggested to Congress that federal law enforcement looking to interdict some of this USDT-fueled criminality should target the alleged custodian of Tether’s billions of Treasury bills, the Wall Street financial services firm Cantor Fitzgerald (NASDAQ: ZCFITX).

That seems unlikely now that Cantor founder Howard Lutnick has been named Trump’s new Secretary of Commerce. In December, the Wall Street Journal reported that Tether owner Giancarlo Devasini was confident that Lutnick would “use his political clout to try to defuse threats facing Tether.”

Regardless, stablecoin legislation that favors Circle over Tether appears likely to pass soon after the new Congress takes its seats in January. What’s shaping up is a battle for political influence that pits Lutnick against Circle’s USDC partner Coinbase (NASDAQ: COIN), which has shown a real ruthlessness in funneling campaign contributions to members of Congress it likes and being equally generous in funding challenges of incumbents who won’t play ball.

While USDT might face deportation from U.S. shores, it’s already facing banishment from the European Union due to Tether’s refusal to comply with the stablecoin banking requirements of the EU’s Markets in Crypto-Assets (MiCA) regulation. Coinbase has already delisted USDT—pushing users toward the MiCA-compliant USDC—and Binance has suggested that it will likely follow suit by the December 30 deadline for full MiCA implementation. 

Memecoins breeding like bunnies

The January launch of Pump.fun ushered in a new golden and/or sh*tstain brown age of crypto crime by enabling anyone to launch a new utility-free token in a matter of minutes. Originally based on Solana, Pump.fun expanded to Coinbase’s ‘layer 2’ network Base in April. In one year, Pump.fun helped launch close to four million new tokens, many of which soared in fiat value only to plummet just as quickly as their issuers pulled the rugs out from under retail speculators. 

Blockchain security firm Blockaid recently estimated that nearly 60% of tokens launched in 2024 were “malicious in nature” with over one-quarter of these malicious tokens resulting in deliberate rug-pulls. That last category may or may not include Haliey ‘Hawk Tuah’ Welch’s memecoin HAWK, which lost over 90% of its value on the day of its launch after insiders apparently began dumping tokens. 

Analysis by crypto media outlet Coinwirez tracked 1,567 memecoins promoted by 377 X/Twitter influencers and found that two-thirds of these promoted tokens are now dead as a dodo. Worse, 80% of these memecoins lost 70% of their value in the first week of existence, and 86% lost 90% of their value in three months.

Pump.fun’s new daily token creation volume hit an all-time high of over 69,000 on November 20, while its daily active addresses hit 262,000. These numbers have since fallen off somewhat, likely due to Pump.fun disabling its livestream channel after several influencers engaged in ever more outrageous stunts—including fake suicide attempts, threats of mass shooting incidents and child abuse—to promote specific tokens.

How invasive were memecoins in 2024? Even Taliban members are now speculating on memecoins. And if current trends continue, ArkStream Capital estimated that memecoins could account for nearly 8% of overall crypto market capitalization by 2030, presumably with similar volumes of scams. And people wonder why ‘crypto’ struggles to gain mainstream acceptance.

Are we the baddies?

Another 2022 casualty, the defunct digital asset lending outfit Celsius Network, returned to the headlines in December when disgraced ex-CEO Alex Mashinsky reached a plea deal with U.S. prosecutors. A fraud from its inception, Celsius left a lot of customers missing a lot of money, and they will be counting on a lengthy sentence when Mashinsky is sentenced in April.

A week before Christmas, HEX founder Richard Heart (aka Richard James Schueler) found himself added to Europol’s list of Europe’s Most Wanted Fugitives, while Interpol has issued a ‘red notice,’ requiring law enforcement around the globe to arrest Heart on sight. Already facing civil fraud charges in America, Finland is now looking to arrest Heart for failing to file tax returns to avoid payments totaling “hundreds of millions of euros.” Heart is also accused of attacking a 16-year-old “by grabbing their hair, dragging them into the stairwell and knocking them to the ground. While the victim was lying on their back on the floor, Schueler punched them 4 – 5 times in the face, nose, eyes and head area.”

Around the same time, the SEC announced it had reached a $123 million settlement with Tai Mo Shan Ltd, a subsidiary of Chicago-based Jump Trading Group. Tai Mo Shan admitted misleading investors regarding the efficacy of the algorithm allegedly pegging the value of Terraform Labs’ UST stablecoin to Terra’s LUNA token. When UST lost its peg in May 2021, Tai Mo Shan secretly bought more than $20 million worth of UST to restore the peg, leaving investors in the dark about Terraform’s ‘all is well’ public statements being lies. The $123 million represents the $86 million in profit (and interest on that profit) Tai Mo Shan earned from this deception, plus a $36.7 million penalty.

Other notable brushes with the law this year include Roger Ver being arrested and charged with mail fraud and tax evasion, Jack Dorsey’s Block being probed by U.S. authorities for facilitating transactions by sanctioned individual/entities and Telegram founder Pavel Durov’s arrest by French authorities for failing to assist a probe into drug trafficking and child sex abuse material on the platform.

In December, a Texas man was sentenced to two years in prison for failing to declare the full proceeds of BTC sales on his tax returns, the first (but almost certainly not the last) such conviction in U.S. history. In June, Michael Saylor, founder of MicroStrategy (NASDAQ: MSTR) and the man singlehandedly responsible for BTC’s elevated token price, was forced to pay $40 million in the District of Columbia’s largest ever income tax fraud recovery.

Tron founder Justin Sun managed to stay relatively scandal-free for most of 2024, although he lost some mojo when Circle pulled its USDC stablecoin from Tron due to doubts over the “suitability” of the Tron network. Sun’s legal fight with the SEC remains ongoing but it’s anyone’s guess for how much longer, given Sun’s pricey efforts to ingratiate himself with the Trump family.

As the year drew to a close, the Sun-linked BiT Global lost its bid to prevent Coinbase from delisting wBTC, the ‘wrapped’ version of the BTC token that allows it to be used in smart contracts on networks that don’t suffer from BTC’s technical limitations. Coinbase minced no words in its response, saying that the delisting was due to Sun having “repeatedly been accused of, investigated for, and sued for financial misconduct, and reports of his alleged misdeeds abound in the press and crypto community more broadly.”

On December 18, the U.S. District Court rejected BiT Global’s request for a temporary restraining order on Coinbase. In response, Coinbase’s chief legal officer Paul Grewal tweeted that the court had refused BiT Global’s bid to stop Coinbase from “delisting wBTC to protect our customers.”

It’s too bad that Coinbase isn’t always so diligent in protecting its customers. After Trump’s re-election, Coinbase began aggressively listing utility-free memecoins like PEPE and DOGWIFHAT, apparently secure in the belief that these actions wouldn’t result in fresh ‘unregistered securities’ actions by the SEC.

Predictably, the value of the listed memecoins has since plummeted, leaving retail buyers in the red but Coinbase in the black, as it earns commissions on all transactions. Coinbase has announced still more memecoins in its token listing roadmap, guaranteeing more disappointment for customers seeking the financial windfalls that so many influencers have promised and Coinbase provides access.

This time really is different

If it’s not too cold where you are this holiday season, pour out a 40 for Gary Gensler, outgoing chair of the SEC, who initiated more crypto-related enforcement actions than any previous chair. But Gensler will be remembered as a general who won many victories but ultimately lost the war.

As mentioned above, the likelihood of ongoing SEC litigation being pursued to its conclusion appears remote. We got further evidence of that following reports of a visit to Trump’s Mar-a-Lago resort by Kris Marszalek, CEO of the Crypto.com exchange, on December 16. The same day, Crypto.com voluntarily dismissed the pre-emptive lawsuit it filed against the SEC in October. The suit was dismissed with prejudice, meaning it can’t be refiled, which suggests Marszalek no longer sees any need for it.

The next four years will start with overtly pro-crypto individuals in charge of the U.S. federal agencies tasked with overseeing digital assets. Trump’s team has made it clear that regulations will be loosened, crypto will gain greater access to traditional banking, and many new forms of exotic crypto-based financial ‘instruments’ will be unleashed upon an unsuspecting American public.

Initially, this lack of oversight and looser guardrails will make it appear that ‘crypto crime’ is on the wane, with fewer announcements of criminal or civil charges to remind the public of the risks of investing in the sector. Sadly, the only indication that something is awry will come once the fate of a platform or protocol is sealed and there’s nothing to be done except count one’s losses and vow ‘never again.’

Happy new year…

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