Cryptohack Update: Trump Token Soars in Popularity

Information Security Media Group compiles weekly updates on cybersecurity incidents in the realm of digital assets. Recent highlights include the Trump token generating significant revenue, Hester Peirce’s new crypto task force, CLS Global pleading guilty to wash trading practices, Upbit facing charges for KYC violations, a $38 million settlement involving DCG with the SEC, a guilty plea in a $100 million theft case, and accusations against Nova Labs from the SEC related to securities violations.

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Donald Trump’s newly launched cryptocurrency token, $TRUMP, has accrued a market capitalization of approximately $8.32 billion, though the U.S. President has downplayed his financial gain from the token. First Lady Melania Trump followed suit by introducing her own token, $MELANIA, currently valued at around $777 million. Trump’s dismissal of his substantial earnings, referring to them as “peanuts” in comparison to the wealth of prominent tech billionaires, has raised eyebrows.

The issuance of the $TRUMP token has generated ethical concerns, particularly regarding potential conflicts of interest and Trump’s influence over cryptocurrency regulations. Critics, including Adav Noti from the Campaign Legal Center, have characterized the launch as “beyond unprecedented,” suggesting it undermines the separation of governance and business.

As Trump campaigns for a return to office in 2024, he has branded himself as the “crypto president,” drawing nearly half of his $274 million in corporate donations from cryptocurrency industry stakeholders. Despite claims to the contrary, questions remain regarding the political neutrality of the $TRUMP token.

Hester Peirce, a commissioner at the U.S. Securities and Exchange Commission (SEC), will spearhead a newly established task force aimed at creating a comprehensive regulatory framework for digital assets. This initiative, announced by Acting SEC Chair Mark Uyeda, comes as a response to criticisms that the previous administration’s regulatory stance inhibited innovation within the cryptocurrency sector. The shift in regulatory approach aims to provide clearer guidance after the tenure of Gary Gensler, who held firm on the notion that most cryptocurrencies should be classified as securities.

Uyeda has criticized Gensler’s “regulation by enforcement” methodology, labeling it as a significant barrier to progress in the crypto industry. The task force’s direction marks a noteworthy change in the SEC’s strategy for engaging with digital asset firms, as Peirce and her team work to balance regulatory oversight with the need for growth and innovation.

CLS Global, a cryptocurrency market maker based in Dubai, has pleaded guilty to allegations of engaging in wash trading on the Uniswap trading platform. The U.S. Attorney’s Office for the District of Massachusetts reported that the firm will pay $428,059 in fines and penalties as part of a settlement still pending judicial approval. The company is also set to be barred from participating in any crypto transactions accessible to U.S. investors.

Federal prosecutors initially charged CLS Global with conspiracy to manipulate the market and wire fraud, stemming from an FBI undercover operation targeting wash trading practices—actions intended to artificially inflate trading volumes to entice investors. Evidence gathered in the investigation revealed the firm’s use of algorithms to conduct self-trades across various wallets to simulate legitimate trading activities.

South Korea’s largest cryptocurrency exchange, Upbit, has come under fire from the Financial Intelligence Unit (FIU) for alleged violations of know-your-customer (KYC) protocols. The FIU has proposed to suspend new user registrations for a period of six months as they investigate the exchange’s compliance practices. Upbit reportedly has identified up to 600,000 potential KYC violations traced back to weaknesses in its client identification procedures.

The Special Financial Transactions Act in South Korea carries severe penalties for KYC infractions, allowing for substantial fines that could total $34.3 billion for Upbit if the alleged violations are confirmed. Authorities have also flagged Upbit for transgressions concerning transactions with unregistered service providers, compounding the regulatory challenges facing the exchange.

Digital Currency Group has settled with the SEC for $38 million regarding allegations that the firm misled investors about the financial status of its subsidiary, Genesis Global Capital. According to SEC filings, the turmoil began in June 2022 when Genesis faced significant losses due to a major borrower defaulting. The SEC contends that DCG downplayed the severity of these issues while misrepresenting its support efforts during the crisis.

Former Genesis CEO Soichiro “Michael” Moro also faces related charges and has agreed to pay a $500,000 fine. The SEC’s investigation indicated that DCG was aware of Genesis’s precarious position during public communications that suggested otherwise.

Adam Iza, known as the “Crypto Godfather,” alongside former LA sheriff’s deputy Eric Chase Saavedra, has pleaded guilty to charges linked to a conspiracy involving home invasion and extortion. The pair targeted multiple victims in Los Angeles, allegedly violating civil rights through coercive tactics and improper warrants. Iza faces a potential sentence of 35 years for multiple charges, including conspiracy and wire fraud, while Saavedra faces up to 13 years for conspiracy and tax-related offenses.

The SEC has filed a lawsuit against Nova Labs, the developer of the Helium network, claiming that the company sold unregistered securities and made misleading representations about partnerships with various corporations. The suit specifically targets three Helium-related tokens, asserting that Nova Labs did not comply with securities laws in their issuance.

The agency alleges that Nova Labs falsely touted affiliations with firms such as Nestlé and Salesforce, which were neither users nor benefactors of the Helium network. Following the buzz generated by these accusations, Nestlé and Lime reportedly issued cease-and-desist letters upon discovering their names associated with the Helium platform, a clear indication of the seriousness of the allegations against Nova Labs.