Google Sues Alleged Crypto App Crooks

Every week, ISMG rounds up cybersecurity incidents in digital assets. This week, Google filed a lawsuit against two alleged crypto app fraudsters, Mango Markets exploiter’s trial began, a jury found Do Kwon and Terraform Labs liable in a civil case, Taiwanese prosecutors indicted ACE Exchange co-founder, Wormhole almost accidently gave away nearly $40,000 to hackers, pro-crypto firms supported Tornado Cash co-founder and a Binance executive pleaded not guilty in a Nigerian court.

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Google filed a lawsuit against two software developers for allegedly uploading 87 fraudulent cryptocurrency apps on Google Play over four years. The scam affected at less 100,000 users, including 8,700 in the United States. Google says Yunfeng Sun and Hongnam Cheung – believed to be residing, respectively, in Shenzhen, China and Hong Kong – lured victims into downloading their apps by promising cryptocurrency investments. Anytime a victim attempted to withdraw the funds, Google says the developers demanded additional money, sometimes up to 30% of the withdrawal, purportedly to cover commissions and taxes. Victims said even then, they didn’t receive their money.

When Google removed one app from the Play Store, the developers would conceal their identities and infrastructure to upload new ones. Google says they duped victims into downloading the apps through pig butchering techniques – in which fraudsters use phony online personalities to establish an intimate connection.

The trial against Mango Markets hacker Avraham Eisenberg began Tuesday with opening statements in the U.S. District Court for the District of Southern New York. Eisenberg’s defense reportedly asserted that his actions in the $116 million exploit of the Solana-based crypto firm constituted a lawful trading strategy. The prosecution maintained that Eisenberg’s alleged market manipulation and fund theft were fraudulent (see: Mango Markets Hacker in US Regulator’s Crosshairs).

Assistant U.S. Attorney Tian Huang accused Eisenberg of artificially inflating the Mango token price, stealing funds, assuming a false identity, fleeing the country and deceiving Mango Markets. Huang characterized Eisenberg’s actions as “plain fraud.” Eisenberg’s defense argued that the trades were legitimate in the decentralized finance system. Defense lawyer Sanford Talkin said that winning trades are not illegal and said Eisenberg committed no crime. The trial is likely to last two weeks.

A U.S. federal jury found Terraform Labs and principal owner and cofounder Do Kwon liable for civil fraud on Friday. “The lack of registration and compliance have very real consequences for real people,” said Gurbir Grewal, director of the division of enforcement at the Securities and Exchange Commission, which brought the lawsuit against platform and Do Kwon. “It is high time for the crypto markets to come into compliance.”

A judge will assess penalties at a later date. The SEC wants Kwon and Terraform barred from the U.S. securities market and civil penalties.

The agency in February 2023 sued Terraform and Kwon over the collapse of the algorithmic stablecoin Terra USD. Terraform and Kwon raised billions from investors through unregistered transactions, offering a suite of interconnected crypto asset securities, it alleged. Terra USD, linked to the governance token luna, crashed in May 2022, resulting in losses exceeding $50 billion. Kwon owns 92 percent of Terraform.

Kwon was not present in the New York courthouse for the trial. He is in Montenegro, where courts and the government deliberate extradition requests from Kwon’s native country South Korea and the United States.

Taiwanese prosecutors indicted ACE Exchange founder David Pan and six other suspects on charges of money laundering and fraud involving assets valued at least $10.7 million. Prosecutors allege that ACE established an offshore entity to provide Alfred Wallet services, enticing investors to deposit stablecoins. The suspects purportedly transferred and laundered the assets. Victims became aware of the scam when they were unable to withdraw assets. Prosecutors claim that at least 162 individuals were defrauded.

ACE Exchange separately said Pan is a former executive and that the wallet service implicated in the case was not affiliated with ACE, but instead developed by Pan and a third-party team he hired. ACE said its trading and operational status remained functional.

Cross-chain protocol Wormhole allocated crypto tokens in its latest airdrop to wallets linked to hackers who stole more than $320 million from the company two years ago. A pseudonymous crypto user named Pland on X, formerly Twitter, said that Wormhole did not exclude the exploiter from the airdrop, with four addresses associated with the hack receiving crypto tokens valued at $38,000. A source reportedly told The Block that Wormhole has since withdrawn the token allocation to the hacker addresses.

Three pro-crypto organizations filed amicus briefs supporting Tornado Cash developer Roman Storm’s motion in U.S. federal court to have criminal charges against him dropped.

The co-founder of Ethereum privacy protocol faces Storm faces one count each of conspiracy to commit money laundering, conspiracy to violate the International Economic Emergency Powers Act and conspiracy to operate an unlicensed money-transmitting business, carrying a total maximum sentence of 45 years in prison. Coin Center, the Blockchain Association and the DeFi Education Fund in separate submissions challenged the government’s indictment with similar arguments, arguing against the government’s flawed portrayal of Tornado Cash’s service and blockchain technology.

Storm’s colleagues Roman Semenov, also a co-founder facing similar charges, remains at large. Alexey Pertsev, another co-founder, is awaiting a verdict of a criminal trial in the Netherlands.

Binance executive Tigran Gambaryan, detained in Nigeria since late February, pleaded not guilty to four money laundering charges, according to local media reports.

Gambaryan asserted his innocence in a courtroom on Monday, saying he did not have decision-making authority in Binance’s Nigerian operations. Nadeem Anjarwalla, Binance’s Africa regional manager, fled Nigeria in March while Gambaryan remains in custody.

Judge Emeka Nwite ruled that Gambaryan had represented Binance in past Nigerian trips, making him subject to local laws, the report said. The case is adjourned until April 19, with a bail consideration hearing rescheduled for April 18. The substantive charge hearings are set to commence on May 2. Judge Nwite ordered Gambaryan’s remand at Kuje prison in Abuja until the case concludes.