Cryptocurrencies, tokens, NFTs, virtual "assets" frauds

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Crypto exchange set up by Three Arrows co-founders to shut down​

OPNX will shut down after a little over a year in operation. PHOTO: REUTERS

Claire Huang
Senior Business Correspondent

FEB 2, 2024

SINGAPORE - A cryptocurrency exchange set up by the co-founders of failed crypto hedge fund Three Arrows Capital will say goodbye to its users on Valentine’s Day.
OPNX, created by Three Arrows’ Mr Zhu Su and Kyle Davies for the trading of bankruptcy claims, will shut down after a little over a year in operation.
Users of the exchange were notified in an e-mail that they have to settle their accounts and make the necessary withdrawals before Feb 14.
The two men had set up OPNX with co-founders Mark Lamb and his wife Leslie, as they tried to stage a comeback six months after Three Arrows collapsed and two months after the infamous fall of Sam Bankman-Fried’s crypto exchange FTX.
The Lambs are behind CoinFlex, a digital asset exchange that filed for restructuring in the Seychelles in August 2022.
OPNX was started to let creditors of insolvent exchanges such as FTX tokenise their claims and allow claims as collateral.
Mr Zhu and Davies, who went to the same school and university and worked as traders at Credit Suisse, founded Three Arrows in 2012.

It was the first big crypto firm to go bankrupt in 2022, wiping out billions of investors’ funds, amid the fallout from the collapse of cryptocurrencies Luna and TerraUSD in May that year.
Mr Zhu was arrested at Changi Airport in September 2023 while trying to leave the country.
He and Davies, whose whereabouts is unknown, were both sentenced to four months’ imprisonment for failing to cooperate with investigations into Three Arrows’ failure.
The duo were also handed a nine-year ban by the Monetary Authority of Singapore, barring them from taking part in the management, acting as a director or becoming a substantial shareholder of any regulated capital market services company here.
Mr Zhu, who was released from prison in December 2023 after serving his sentence, in a recent podcast described his time in Singapore prison as “really enjoyable”.

 

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Woman who stole $5.6m in crypto and bought penthouse ordered to return sums​

The High Court ordered Ms Ho Kai Xin to pay back the stolen sums, after crypto exchange ByBit Fintech successfully sued her. PHOTO: ST FILE

Selina Lum
Senior Law Correspondent

JUL 27, 2023

SINGAPORE – A woman who handled the payroll for a cryptocurrency exchange stole US$4.2 million (S$5.6 million) worth of crypto, then went on a spending spree, including buying a $3.7 million freehold penthouse after cancelling her Build-To-Order flat.
The High Court ordered Ms Ho Kai Xin to pay back the stolen sums, after crypto exchange ByBit Fintech successfully sued her to recover the stolen assets.
In his judgment issued on Tuesday, Justice Philip Jeyaretnam ruled that the holder of a crypto asset has a property right recognised in common law as a thing in action.
A thing in action is a right over intangible property that can only be enforced by legal action, not by physical possession. An example of a thing in action is a debt.
It is the first time that this has been decided in any common law court.
Justice Jeyaretnam said his reasoning was not strikingly different from how the law approaches other social constructs, such as money.
“It is only because people generally accept the exchange value of shells or beads or differently printed paper notes that they become currency. Money is accepted by virtue of a collective act of mutual faith,” he added.

The judge examined this issue because he had to decide whether crypto assets are indeed property capable of being held on trust.
The case concerned a cryptocurrency called Tether, a “stablecoin” which is pegged to the United States dollar and commonly referred to as USDT.
He concluded that the USDT is a thing in action. Like any other thing in action, USDT is capable of being held on trust, he said.

“While some people are sceptical of the value of crypto assets, it is worth keeping in mind that value is not inherent in an object,” he added.
“A wooden chair that can float is more valuable on a ship that is sinking than a golden throne would be.”
Ms Ho was employed by WeChain Fintech, which provided payroll services for ByBit.

On Sept 7, 2022, ByBit discovered that eight unusual cryptocurrency payments had been made between May 31, 2022, and Aug 31, 2022. A total of 4.2 million USDT was transferred to four “addresses”, which are encrypted digital folders that can receive and store cryptocurrency.
ByBit also discovered that $117,238.46 was transferred to Ms Ho’s personal bank account in May 2022.
On Oct 4, 2022, after she was confronted with the investigation findings, Ms Ho told ByBit that the addresses belonged to her cousin, and that he had asked her to help make the transfers.
After this meeting, she ceased contact with ByBit and WeChain.
ByBit filed a lawsuit against her on Oct 12, 2022, and obtained injunctions to freeze the various assets.
Ms Ho was the only person who updated the spreadsheets that listed the addresses designated by ByBit’s employees to receive their pay in cryptocurrency.
ByBit contended that she manipulated the spreadsheet files and wrongfully caused it to pay the crypto into the four addresses she controlled.
In her defence filed on Nov 11, 2022, Ms Ho blamed her supposed cousin, Mr Jason Teo, for stealing the crypto from ByBit without her knowledge.
ByBit then discovered that she had made several big-ticket purchases from July 2022 onwards, including the penthouse apartment bought with her husband. She also spent $362,000 on a new car and $30,000 on Louis Vuitton goods.
She claimed that the penthouse was bought with money she earned from cryptocurrency trading, but did not provide details of the transactions.
On March 30, 2023, ByBit applied for summary judgment, which meant it was asking the court to decide in its favour without going through a trial. Ms Ho did not attend any court hearing or file submissions.
ByBit’s case was that she had abused her position to transfer the assets to herself. It sought a declaration that Ms Ho holds both the USDT and the money on trust for ByBit, as well as an order for her to return the assets.

Justice Jeyaretnam found that ByBit has established that she held the assets as a trustee by operation of law and had wrongfully transferred the assets.
“The evidence is indeed compelling that Ms Ho fraudulently transferred the crypto asset and the fiat asset to herself,” he said.
The judge noted that there was direct evidence that she owns the digital wallet associated with one of the addresses, as well as the circumstantial evidence of her unexplained spending spree.
ByBit declined to comment when asked through their lawyer, Mr Gerard Quek, if it has made a police report.

 

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‘Pig-butchering’ scams net over $101 billion globally: Study​

"Pig butchering" scams often start with what appears to be a wrong-number text message. People who respond are then lured into fake crypto investments. PHOTO: ST FILE

MAR 01, 2024

NEW YORK - “Pig-butchering” scammers have likely stolen more than US$75 billion (S$101 billion) from victims around the world, far more than previously estimated, according to a new study.
Dr John Griffin, a finance professor at the University of Texas at Austin, and graduate student Kevin Mei gathered crypto addresses from more than 4,000 victims of the fraud, which has exploded in popularity since the pandemic. They tracked the flow of funds from victims to scammers largely based in South-east Asia.
Over four years, from January 2020 to February 2024, the criminal networks moved more than US$75 billion to crypto exchanges, said Dr Griffin, who has written about fraud in financial markets. Some of the total could represent proceeds from other criminal activities, he said. “These are large criminal organised networks and they’re operating largely unscathed.”
Pig butchering – a scam named after the practice of farmers fattening hogs before slaughter – often starts with what appears to be a wrong-number text message. People who respond are lured into crypto investments.
But the investments are fake and once victims send enough funds, the scammers disappear. As far-fetched as it sounds, victims routinely lose hundreds of thousands or even millions of dollars. One Kansas banker was charged in February with embezzling US$47.1 million from his bank as part of a pig-butchering scam.
The people sending the messages are often themselves victims of human trafficking from across South-east Asia. They are lured to compounds in countries, including Cambodia and Myanmar, with offers of high-paying jobs, then trapped, forced to scam, and sometimes beaten and tortured. The United Nations has estimated that more than 200,000 people are being held in scam compounds.
The study – titled How Do Crypto Flows Finance Slavery? The Economics Of Pig Butchering – was released on Feb 29. Dr Griffin and Mr Mei found that US$15 billion had come from five exchanges, including Coinbase, typically used by victims in Western countries. The study said that once the scammers collected the funds, they most often converted them into Tether, a popular stablecoin. Of the addresses touched by the criminals, 84 per cent of the transaction volume was in Tether.

“In the old days, it would be extremely difficult to move that much cash through the financial system,” Dr Griffin said. “You’d have to go through banks and follow ‘know-your-customer’ procedures. Or you’d have to put cash in bags.”
Tether chief executive officer Paolo Ardoino called the report false and misleading. “With Tether, every action is online, every action is traceable, every asset can be seized and every criminal can be caught,” he said in a statement. “We work with law enforcement to do exactly that.”
Tether has cooperated with the authorities in some cases to freeze accounts tied to fraud. But often, by the time the crime is reported, the scammers have cashed out.

Dr Griffin said the study shows Tether is “the currency of choice for criminal networks”.
Chainalysis, a blockchain analysis firm, said the study’s totals might be inflated. Just because a blockchain address receives some money from a pig-butchering scam does not mean all the money received by that address comes from fraud.
“Quantifying funds earned through pig-butchering scams is challenging, given limited reporting,” said Chainalysis spokeswoman Maddie Kennedy. Tether is one of the company’s customers.
Many of the fraud victims’ blockchain addresses were collected by Chainbrium, a Norwegian crypto investigations firm.
Chainbrium conducted its own analysis of the data and found that a large proportion of the funds flowed through a purportedly decentralised crypto exchange called Tokenlon. Scammers use the exchange to obscure the source of the funds, according to Chainbrium. Tokenlon did not respond to a request for comment.
“People in the United States... their money is going straight to South-east Asia into this underground economy,” said Chainbrium consultant Jan Santiago.
Eventually, the criminals would send the scam proceeds to centralised crypto exchanges to cash out for traditional money.
Dr Griffin said Binance is the most popular exchange, even after the company and its founder Zhao Changpeng pleaded guilty in November to criminal anti-money laundering and sanctions charges and agreed to pay US$4.3 billion to resolve a long-running investigation by prosecutors and regulators.
“Binance is the place where they can move large amounts of money out of the system,” Dr Griffin said.
Like Tether, Binance has worked with law enforcement in some cases to freeze accounts tied to fraud and return money to victims. A company spokesman said it recently worked with the authorities to seize US$112 million in a pig-butchering case. BLOOMBERG

 

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Complaints made in US, S’pore against local firm that promised quick returns on crypto investments​

Mr Lee Dalton (centre), identified on the firm’s now-defunct website as its founder and chief executive, with co-founder Richmond Ray Gonzales (right) and marketing manager Reid Fletcher. PHOTO: INVESABLEAI/INTERNET ARCHIVE

Aqil Hamzah

MAR 24

SINGAPORE - A Singapore-registered firm is under investigation after allegedly failing to pay investors who have pumped money into its cryptocurrency investment schemes.
Reports have been filed against InvesableAI with the Singapore police, and with the United States Federal Bureau of Investigation (FBI) and Securities and Exchange Commission (SEC).
Incorporated in the Republic on June 19, 2023, InvesableAI is believed to have promised investors quick returns on cryptocurrency investments that banked on the use of artificial intelligence technology.
Its founders claimed to have sought a licence from the Monetary Authority of Singapore (MAS) and, on the firm’s now-defunct website, said it was a trustworthy business because “we are a registered company”, with a separate webpage showing its address in Singapore.
It is a “live” company or a business that is still in operation, according to Accounting and Corporate Regulatory Authority (Acra) records.
Checks by The Straits Times on the details of InvesableAI’s Acra records revealed several discrepancies, including in the company’s registered address, the nationality and address of a foreign director, and the identity of a Singaporean director.
In response to queries, an Acra spokesperson said: “Acra is unable to comment due to ongoing investigations.”

Meanwhile, the FBI and SEC said they could neither confirm nor deny that they were investigating the matter.
Several of the reports lodged with the FBI and SEC, and seen by ST, show that more than 4,000 people have invested money in InvesableAI.
The total sum allegedly sunk into the business by all investors is unclear, but a smaller group of about 150 investors have counted losses of at least US$1.5 million (S$2 million).

One of the investors, a 46-year-old woman, said she trusted the firm because it promised transparency and accessibility for investments in alternative currencies.
The woman, an American, pumped more than US$15,000 into InvesableAI on July 13, 2023, but about two months later, the firm informed her and other investors that withdrawals would be paused “temporarily”.
In a Sept 17 e-mail to investors seen by ST, the firm said there was extreme volatility in the cryptocurrency market, and asked for 40 days to recover losses.
It also offered refunds within a week to those who wanted them.
The e-mail was signed by Mr Lee Dalton, who is identified on the firm’s website as its founder and chief executive.
Six months later, investors said they have yet to get their money back.
The American woman, who holds a Master of Business Administration degree and lives in California, said: “I wish I had known how to do trades on my own, instead of depending on others. It was a bad decision… but InvesableAI seemed to hit all the marks when it came to its legitimacy.
“It being based in Singapore was assuring because of the stringent guidelines that are required there.”
ST spoke to several others in a group totalling about 150 investors – including the American woman – who have banded together to tally their losses.
The group has also compiled a spreadsheet that details the outstanding sums due to more than 60 of them.
Transaction records of more than a dozen investors showed that some managed to make withdrawals ranging from US$25 to almost US$25,000 until September 2023.
However, it is unclear if any of the investors have gotten back their original investments, which ranged from US$500 to more than US$50,000, according to the spreadsheet and transaction records seen by ST.
An archived version of InvesableAI’s now-defunct website lists the minimum investment at US$500, with packages that promise returns of up to 160 per cent of the principal amount in 20 days for a US$10,000 investment.
Claiming to have more than 14,000 members, the firm also had a referral programme where investors could earn higher interest rates on certain deposits if they roped in others successfully.
When ST visited the Woodlands address listed in InvesableAI’s Acra records on March 12, a firm that deals in water treatment and engineering design was found to be occupying the space instead.
When contacted, a representative of the water treatment firm said he was unaware of the existence of InvesableAI, and that the space had not been leased out to other firms.
The water treatment firm’s Acra file showed it has been occupying the Woodlands space since February 2022, before InvesableAI was registered.

InvesableAI’s business records showed its office address to be at 12 Woodlands Square. However, when ST visited on March 12, the unit was occupied by another company. ST PHOTO: NG SOR LUAN
Checks showed that HeySara, a digital corporate service provider, handled InvesableAI’s incorporation.
Foreigners who want to incorporate a business in Singapore must engage a registered filing agent, which can be a corporate service provider.
Asked about InvesableAI’s use of the Woodlands address in Acra’s records, HeySara associate director Chew Shin Yee said the address in the application was provided by Mr Dalton, who is listed as a director in the Acra records.
She said: “We received the order online and conducted our due diligence based on our internal procedure, policy and control.”
But HeySara did not conduct any checks on Mr Dalton’s financial background, she added, as he wanted to incorporate the company with only a $1,000 paid-up capital. She did not elaborate on how the company vetted the information.
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Acra’s guidelines for registered filing agents on anti-money laundering and countering financing of terrorism – published in January 2023 – put non-resident customers in a higher-risk category.
In such situations, registered filing agents must get more information on the source of customers’ funds, for example.
Ms Chew also said there is no information about InvesableAI’s business model, as the staff who handled the account had already quit HeySara.
She did not respond to follow-up e-mails from ST seeking clarification, including on the discrepancy between HeySara’s vetting of InvesableAI and Acra guidelines.
Mr Dalton is listed as an American citizen in the Acra records, with a home address in Texas.
Checks against publicly available property records and data brokers found that an elderly couple with no relation to Mr Dalton have been living at the address since 2009.

Three packages that InvesableAI offered to investors. PHOTO: INVESABLEAI
Mr Dalton’s photo features on the firm’s website, with a marketing video for InvesableAI showing him speaking with an Australian accent against the backdrop of the Kuala Lumpur Tower at night.
In phone video footage filmed last July, Mr Dalton is seen announcing the extension of a promotion and asking individuals to select a particular package and “just start making money”.
In an article published on Yahoo Finance on June 24, 2023, it is stated that Mr Dalton was formerly from the Australian navy and came from Malaysia. ST has contacted Yahoo for comment.
Meanwhile, a Singaporean man is named in the Acra records as the firm’s other director, although he was not listed on InvesableAI’s website.
Instead, its other co-founder was listed online as Mr Richmond Ray Gonzales, whose now-deleted LinkedIn account said he is based in Singapore.
According to that account, an archived version of which was seen by ST, he is the channel sales leader for a multinational corporation dealing in business consulting services.
Queries have been sent to the company asking for more details about Mr Gonzales.

Although he is not listed in the business record of InvesableAI, Mr Richmond Ray Gonzales was said to be the co-founder and chief executive on its website. PHOTO: INVESABLEAI/INTERNET ARCHIVE
Both Mr Dalton and Mr Gonzales were named in the FBI and SEC reports.
Attempts to contact Mr Gonzales through his last-known phone number were unsuccessful, while a social media account in Mr Dalton’s name turned out to be a fake with a Nigerian phone number.
In separate YouTube videos that have since been deleted, the two men said the firm was “in the process of getting” a licence from the MAS, describing it as one that is recognised globally.
In response to queries, an MAS spokesperson said anyone who provides a payment service in Singapore requires a licence.
Otherwise, he will need to be exempted from the Payment Services Act to operate.
The spokesperson said: “InvesableAI is not licensed nor exempted from licensing by MAS.
“Regardless of whether an entity is regulated by MAS, it is an offence to run a fraudulent or deceptive business in Singapore.”

 

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Crypto trader convicted in $150 million Mango Markets fraud​

Federal jurors in New York on April 18 found Avraham Eisenberg guilty of commodities fraud, commodities manipulation and wire fraud. PHOTO: REUTERS

APR 19, 2024

NEW YORK - A trader accused of exploiting Mango Markets rules to steal US$110 million (S$150 million) from the exchange was convicted of fraud in the first US trial involving criminal charges tied to cryptocurrency manipulation.
Federal jurors in New York on April 18 found Avraham Eisenberg, 28, guilty of commodities fraud, commodities manipulation and wire fraud for his actions on Oct 11, 2022, when his trading boosted the price of futures contracts by 1,300 per cent in 20 minutes.
Sentencing was set for July 29. He faces 20 years in prison on the wire fraud count and 10 years on each of the other charges.
Eisenberg, a self-described “applied game theorist”, traded under a false identity and drove up the price of Mango’s token, MNGO, as well as contracts based on its relative value compared with a stablecoin called USDC, prosecutors said. He then exploited a feature of the exchange that let him “borrow” against his holdings, withdrawing US$110 million in cryptocurrency that he had no intention of repaying, the US charged.
Prosecutors said Eisenberg “pumped” the price of MNGO tokens to pull off a fraud he planned for weeks against Mango Markets, a decentralised finance platform run by smart contracts.
“He manipulated that price so he could trick the system into giving him money,” Assistant US Attorney Thomas Burnett said in closing arguments on April 17. “He planned to take the money and run.”
Mango Markets, which lets people borrow, lend and trade cryptocurrencies, was overseen by a decentralised autonomous organisation, or DAO.

Days after his big haul, Eisenberg agreed to return US$67 million in crypto in exchange for the DAO not pursuing his prosecution or freezing his remaining assets. Eisenberg left Puerto Rico, where he was living, shortly after his Mango trades and flew to Israel. When he returned to Puerto Rico on Dec 26, 2022, US agents arrested him. He has been in jail ever since, after a judge ruled he posed a risk of fleeing before trial.
In his closing argument, Eisenberg’s attorney Brian Klein said his client executed a perfectly legal strategy permissible under the rules of the exchange. Eisenberg “engaged in a successful and legal trading strategy, one in which he put his own money at risk”, Mr Klein said. He said Eisenberg “wholly complied” with smart contracts that controlled the decentralised finance platform, which only warned users: “This is unaudited software, use it at your own risk.”
Mr Klein said Eisenberg does not dispute that he made a series of trades taking opposing long and short positions. “It’s not illegal to take big risks,” he argued.
But Mr Burnett said the rules of the Mango Markets platform do not protect Eisenberg from prosecution for fraud and manipulation.
“Just because something is possible doesn’t make it legal,” the prosecutor said. BLOOMBERG