In a shocking revelation, Caroline Ellison, co-founder of FTX-linked hedge fund Alameda Research, testified on October 11 that her colleague and disgraced FTX founder Sam Bankman-Fried had allegedly paid $150 million in bribes to Chinese government officials in 2021. This amount was higher than the initially disclosed $40 million. Ellison further explained that two years prior, $1 billion worth of Alameda Research’s digital assets on crypto exchanges OKX and Huobi were frozen by Chinese law enforcement in connection with a money-laundering investigation. The involvement of senior FTX executives, including chief operations officer Constance Wang and Alameda trader David Wa, added more complexity to the incident. To unfreeze the funds, they even resorted to creating accounts on OKX and Huobi using the identification of a Thai prostitute. When all else failed, Bankman-Fried allegedly resorted to paying a bribe of $150 million, which was recorded as “the thing” in future Alameda balance sheets. However, it is important to note that Bankman-Fried’s alleged bribery charges are not within the scope of the ongoing FTX trial. A separate trial relating to these charges has been scheduled for March 11, 2024. Meanwhile, the FTX trial will continue throughout the month of October.
Amidst growing concerns, Yi He, a co-founder of Binance, addressed the issue of account freezing on the Chinese social media app WeChat. She clarified that only accounts of users suspected of violating international sanctions will be frozen on the exchange. This statement came in response to local news reports that Binance had frozen accounts of suspected Hamas militants at the request of Israeli law enforcement. Yi He explained that since Hamas is designated as a terrorist organization by the United Nations, any organization or platform must cooperate with freeze requests. She emphasized that the freezing of accounts targeted Hamas, not Palestine as a whole. In a subsequent post, Yi He reiterated that Binance would not confiscate or freeze assets of ordinary users. While acknowledging the influence of international regulations, Yi He emphasized that Binance would comply with law enforcement requests without any political biases. She pointed out that despite the ongoing conflict between Russia and Ukraine, the exchange had not frozen the accounts of ordinary Russians.
In another legal setback, a second Chinese court ruled that crypto lending contracts are not protected by law. The Nanchang People’s Court narrated a case where Mr. Gang defaulted on an 80,000 USDT loan from Mr. Ming for stablecoin trading. The presiding judge stated that participating in virtual currency investment and trading activities carries legal risks. Any investments in virtual currencies that violate public order and customs will render relevant civil legal actions invalid. The ruling emphasized that virtual currencies like Bitcoin, Ethereum, and Tether are not legal tender and cannot be used as currency in the market. Furthermore, virtual currency-related business activities are considered illegal financial activities that harm national financial order and social public interests, and they are strictly prohibited. It is important to note that the ruling does not extend to the digital yuan central bank digital currency, which is considered a legal currency and operates under the People’s Bank of China.
A security incident involving cryptocurrency exchange HTX (formerly known as Huobi) took an unexpected turn when a hacker returned all of the 5,000 Ether ($8 million) stolen during the attack. Justin Sun, the de-facto owner of HTX, confirmed that the hacker fulfilled their promise and also received a white hat bonus of 250 ETH. The incident was initially detected by blockchain analytics firm Cyvers Alerts on September 25. Sun had offered a bounty and threatened legal action, which ultimately led to the return of the stolen funds. However, it is worth mentioning that during the incident, Sun claimed that the exchange held around $3 billion in users’ assets, raising concerns among the community. The recent rebranding of Huobi as HTX also caused speculation due to its similarity to the name of the now-defunct crypto exchange FTX.
The crypto industry in East Asia is no stranger to scandals and legal challenges. The alleged bribery scandal involving FTX-linked hedge fund Alameda Research has exposed the dark side of the industry, with accusations of illegal activities and corruption. Binance’s clarification on account freezing policies aims to address concerns about compliance with international sanctions and law enforcement requests. The lack of legal protection for crypto lending contracts in China adds more uncertainty to the industry, highlighting the need for clearer regulations. Lastly, the hacking incident and subsequent return of stolen funds shed light on the importance of security measures and the role of exchanges in combating cybercrime.
As the cryptocurrency industry continues to grow and evolve, it is crucial for participants to navigate the legal and ethical challenges that arise. Transparency, compliance, and investor protection should be prioritized to build trust and ensure the long-term viability of the industry. While scandals and legal setbacks may tarnish the industry’s image temporarily, addressing these issues head-on can foster a more robust and resilient crypto ecosystem.
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