Bithumb Wins Lawsuit Against Investor Claiming to Have Lost $355,000 Due to Hacked Account

  • Korean exchange Bithumb wins lawsuit against investor claiming to have lost funds from his account due to Bithumb's negligence. 
  • Claimant had alleged that $355,000 worth of ether was stolen from his Bithumb account due to poor security measures. 

Cryptoasset exchange Bithumb recently won a lawsuit settlement against a digital currency investor who had sued the South Korean company for his losses of about $355,000 due to an alleged hack of his Bithumb account.

$355,000 In Cryptocurrency Allegedly Stolen From Hacked Account

According to the Korea Economic Daily, the 30-year-old investor who had filed a lawsuit against Bithumb is a civil servant named Ahn Park. The outcom of the case, which was announced on December 24th, was that the alleged loss of 400 million Korean won (appr. $355,000) from Park’s account on November 30th, 2017 was not due to any reasons for which Bithumb may be held responsible.

In court documents, Park had claimed that within a few hours of him making a large deposit on the South Korean exchange, a hacker had managed to gain access to his Bithumb account. After obtaining access to the account, the unidentified hacker had allegedly exchanged the fiat currency held in Park’s account for ether (ETH).

As described by Park in court papers, the unnamed hacker conducted four separate outgoing transactions from the victim’s Bithumb wallet to other crypto address(es). After the transactions, Park’s account balance was reportedly reduced to only 121 won (11 cents) in ether. As mentioned, Park had argued that Bithumb’s management team failed to provide adequate security measures to protect his account from malicious hackers. Park further alleged that Bithumb’s support team did not fulfill its obligations as a “financial services” firm.

10 SMS Messages Reportedly Sent To Park Regarding Outgoing Transfers

Moreover, the claimant alleged that cybercriminals might have obtained his private passwords and other personal information during a hack that occurred in October 2017. The damaging security breach had reportedly resulted in hackers gaining access to financial data that belonged to over 30,000 Bithumb customers.

According to Yonhap News, there were at least 10 SMS alerts that were sent to Park’s cellphone, in order to inform him of the outgoing transactions from his Bithumb account.

However, the claimant stated that he never received any of the SMS messages and that “it was difficult to rule out the possibility of being hacked.” Park also claimed that Bithumb’s operations as a cryptocurrency trading platform are similar to the types of services provided by firms in the traditional financial services industry. Therefore, Bithumb must follow the same security guidelines that apply to e-commerce businesses.

Judge Rules Against Park's Arguments

Notably, the judge ruled against Park’s arguments, noting that: 

In general, [digital] currencies cannot be used to buy goods and it is difficult to guarantee their exchange for cash because their value is very volatile. [Digital currencies] are mainly used for speculative means, [so it] is not reasonable to apply [South Korea’s] Electronic Financial Transactions Act to a defendant who brokers [digital] currency transactions without the permission of [Korea’s financial regulator,] the Financial Services Commission (FSA).

As CryptoGlobe reported, Bithumb was hacked in June 2018, and approximately $30 million in cryptocurrencies was reportedly stolen due to the security breach. However, Bithumb was able to resume operations again as several crypto industry participants helped the exchange recover around $17 million worth of stolen funds.

In October, Hong Kong-operated digital asset exchange Changelly announced that it managed to help Bithumb recover over 1 billion XRP that had been stolen due to the hack.

Bitfinex and Tether Fraud Allegations: Analysis, Market Response, Community’s Reaction

On Thursday (April 25), New York Attorney General ("NYAG") Letitia James announced that she had obtained a court order against iFinex (the operator of crypto exchange Bitfinex) and Tether (the issuer of the stablecoin of the same name) to stop these two companies from any "further violations of New York law." This article summarizes the main highlights of the facts as presented by the NYAG, how the crypto markets have reacted, and early responses from some prominent members of the crypto community on Twitter. 

The “Facts” As Presented by Assistant Attorney General Whitehurst’s Affirmation

According to the affirmation filed (at the New York Supreme Court) on Thursday by Brian M. Whitehurst, who is an Assistant Attorney General ("AAG") in the office of NYAG James, here are the main "facts" of the case against Bitfinex and Tether, as beautifully summarized by highly-respected New York-based crypto trader/analyst Alex Krüger (@krugermacro on Twitter):

  • "Bitfinex has a $850M 'hole" since late 2018"
  • "The $850M are 'stuck' with Crypto Capital, a third party payments processor used by Bitfinex"
  • "Crypto Capital argues the $850M have been seized by govt authorities of various countries"
  • "Bitfinex mgmt believes Crypto Capital's principals may be engaged in fraud"
  • "USDT were seemingly fully backed by USD until Nov/2018"
  • "Between Nov/2018 and Mar/2019, Tether transferred $625M to Bitfinex => Tether ceased to be fully backed by USD"
  • "In Mar/2019 Bitfinex 'returned' the $625M to Bitfinex"
  • "Since Mar/2019 Bitfinex is covering the hole with a $900M line of credit from Tether"
  • "The line of credit (which pays 6.5% p.a.) is secured by iFinex shares"
  • "Bitfinex has accessed $700M from the line of credit"
  • "Per the NY AG, Bitfinex and Tether are engaged in fraud"

And here are some other interesting observations from Alex:

Bitfinex's Response 

A few hours after the NYAG's press release came out, Bitfinex issued its response in the form of an announcement posted to its website:

"Earlier today, the New York Attorney General’s office released an order it obtained – without notice or a hearing – in an attempt to compel Bitfinex and Tether to provide certain documents and seeking certain injunctive relief.

The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded. We are and have been actively working to exercise our rights and remedies and get those funds released. Sadly, the New York Attorney General’s office seems to be intent on undermining those efforts to the detriment of our customers.

Bitfinex and Tether have been fully cooperative with the New York Attorney General’s office, as both companies are with all regulators. The New York Attorney General’s office should focus its efforts on trying to aid and support our recovery efforts.

Both Bitfinex and Tether are financially strong – full stop. And both Bitfinex and Tether are committed to fighting this gross overreach by the New York Attorney General’s office against companies that are good corporate citizens and strong supporters of law enforcement. Bitfinex and Tether will vigorously challenge this, and any and all other actions, by the New York Attorney General’s office."

Crypto Markets' Response

Naturally, this news has hurt the price of pretty much all cryptoassets with the main exception being stablecoins that are Tether's main competition, such as USD Coin (USDC) and TrueUSD (TUSD), which have gone up between 1 and 2 percent against USD. 

BTC - 24 Hour CC Chart - 26 Apr 2019.png

ETH - 24 Hour CC Chart - 26 Apr 2019.png

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USDC - 24 Hour CC Chart - 26 Apr 2019.png

What is most interesting about the crypto markets' reaction is that Tether's price has barely been affected this time, unlike in October, when the USDT price reached a low of $0.86. The fair value of Tether is $0.75 at a minimum since Tether seems to be backed 75% by "currency and cash equivalents" and 25% by a loan collateralized by iFinex shares, which used to be worth around $10, but worth around $2 a few hours ago:

This means that the collateral of 60,000,000 iFinex shares might only be worth around $120 million at the moment, whereas the line of credit is for $900 million.

This tweet sums up nicely what one can say about Tether's current fair value:

Crypto Community's Reaction

Here are some of the more interesting early reactions from the crypto community on Twitter:

 

Featured Image Credit: Photo via Pixabay.com