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Convicted Thief Of $30 Million Crypto Scheme Allegedly Stole From Hundreds of US Investors

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Convicted Thief Of $30 Million Crypto Scheme Allegedly Stole From Hundreds of US Investors
Convicted Thief Of $30 Million Crypto Scheme Allegedly Stole From Hundreds of US Investors

Boaz “Bo” Manor, a convicted hedge fund scammer, has been charged with raising over $30 million from investors in an allegedly fraudulent initial coin offering. Prosecutors say he ditched his real identity, donned red hair, grew a beard and masqueraded as “Shaun MacDonald,” a blockchain entrepreneur. Prior to surfacing in New York, the notorious scammer spent four years in a Canadian prison after his bogus $730-million hedge fund evaporated in 2005. 

The latest indictment names Manor’s accomplice, Edith Pardo, and two firms, CG Blockchain Inc. and BCT Inc. SEZC, as defendants. The cohorts allegedly sold crypto asset securities between August of 2017 and September of 2018. According to the complaint, they also falsely claimed to have 20 hedge funds piloting technology to register transactions on a blockchain.

The SEC clarified,

“In reality, the defendants had only sent a prototype to a dozen funds, and none of the funds used it or paid for it.”

Joseph G. Sansone, chief of the SEC’s market abuse division, remarked,

“Manor’s brazen scheme to conceal his identity and criminal history deprived investors of essential information and allowed the defendants to take over $30 million from investors’ pockets.”

Pardo has been arrested, but authorities say Manor remains on the run.

Regulation News

Govt. Pauses SEC Suit Against $30 Mln ICO As Concerns Rise In Another Suit

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Govt. Pauses SEC Suit Against $30 Mln ICO As Concerns Rise In Another Suit
Govt. Pauses SEC Suit Against $30 Mln ICO As Concerns Rise In Another Suit

Prosecutors have paused a United States Securities and Exchange Commission (SEC) lawsuit against the alleged operators of a $30 million fraudulent ICO amid concerns that proceedings may impact the integrity of a parallel investigation into the defendants. The United States attorney’s office for New Jersey intervened in the case on April 2.

The SEC action against defendants Boaz Manor, Edith Pardo, and the associated companies CG Blockchain Inc and BCT Inc has been halted to maintain the integrity of parallel criminal investigations into the pair’s scheme. The prosecutors argued that the stay is needed to prevent the accused from obtaining information under the broad rules of civil discovery that would otherwise be unattainable under the narrow scope of criminal discovery. 

“A civil litigant should not be permitted to proceed simultaneously with an overlapping criminal matter, because ‘the similarity of the issues [leaves] open the possibility that [the defendant] might improperly exploit civil discovery for the advancement of his criminal case,’” the government stated. The SEC charged Boaz Manor, his business associate, and two companies, CG Blockchain Inc. and BCT Inc. SEZC, with violating federal anti fraud and securities registration provisions of the federal securities laws during January. While Pardo was arrested and later released, Manor remains at large. However, both individuals’ respective legal representation have consented to the staying of the complaint. The complaint was filed on Jan. 12.

From 2014 until 2018, the pair allegedly made a series of misrepresentations regarding CG Blockchain’s operations — including fraudulently claiming 20 hedge funds were paying leasing fees to the firm for a non-existent product called ComplianceGuard. The pair are also believed to have lied about Manor’s criminal background — with Manor having served a four-year prison sentence for siphoning $106 million from a now-defunct Canadian hedge fund that he had co-founded. In August 2017, CG Blockchain launched an initial coin offering (ICO) to purportedly fund a product that the same 20 hedge funds had supposedly agreed to use. The ICO ended eight months later after absorbing roughly $30 million in crypto and fiat.

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Bitcoin News

Former Google Engineer Says He Has Hacked A Zip File Containing $300,000 in BTC

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Former Google Engineer Says He Has Hacked A Zip File Containing $300,000 in BTC
Former Google Engineer Says He Has Hacked A Zip File Containing $300,000 in BTC

Michael Stay, a former software engineer with Google and the current CTO of smart contract and decentralized application (Dapp) firm, Pyrofex, claims to have successfully hacked a zip file containing the private keys to over $300,000 in Bitcoin (BTC). In a blog post, Stay says that his journey began when he received a message from “a Russian guy” on LinkedIn about six months ago.

The Russian had read a paper authored by Stay in 2000 describing a technique that he had used to successfully attack zip files. “He had read that paper I’d written 19 years ago and wanted to know if the attack could work on a file with only two files, Stay writes, adding: “A quick analysis said not without an enormous amount of processing power and a lot of money.” “Because I only had two files to work with, a lot more false positives would advance at each stage. There would end up being 273 possible keys to test, nearly 10 sextillion. I estimated it would take a large GPU farm a year to break, with a cost on the order of $100K. He astounded me by saying he could spend that much to recover the key.”

The files contained the private keys to what had been roughly $12,500 in BTC when the Russian purchased the coins during 2016. “Now they were worth upwards of $300K and he couldn’t remember the password,” says Stay. “Luckily, he still had the original laptop and knew exactly when the encryption took place. Because InfoZip seeds its entropy using the timestamp, that promised to reduce the work enormously—”only” 10 quintillion—and made it quite feasible, a matter of a couple of months on a medium GPU farm.” We made a contract and I got to work,” he adds. After several months of testing, including the discovery of a bug in his GPU farm, Stay claims to have cracked the file and returned the private key to the Russian.

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Bitcoin News

Canaan Sued Over Alleged ‘Fake’ Deal, Stock Sees Historic Low

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Canaan Sued Over Alleged ‘Fake’ Deal, Stock Sees Historic Low
Canaan Sued Over Alleged ‘Fake’ Deal, Stock Sees Historic Low

While the current climate seems uneasy for all cryptocurrency businesses, some of them have to deal with extra difficulties. Earlier this month, investors filed a class-action lawsuit against Canaan, a Nasdaq-listed cryptocurrency mining hardware producer. The case is largely based on a February report submitted by an analysis organization called Marcus Aurelius Value, which argued that the mining firm has made misleading statements regarding its financial health.

Canaan is considered to be the second-largest Bitcoin (BTC) mining machine manufacturer in the world. The firm was established in 2013 by Nangeng Zhang, also known as “Pumpkin Zhang.” Earlier that year, his team allegedly engineered and produced one of the first cryptocurrency mining devices based on ASIC technology. Being considerably louder and more power-consuming than amateur mining setups based on graphics processing units, ASIC rigs are purpose-built to mine Bitcoin on an industrial scale. In turn, ASIC machines have turned Bitcoin mining into a capital-intensive business run by a limited pool of players. Canaan was also the first crypto mining company to pierce the mainstream financial market by getting listed on a major stock exchange. 

After failing to secure an initial public offering in Hong Kong last year — apparently due to the Hong Kong stock exchange’s distrust in cryptocurrency enterprises — Canaan looked toward the United States, with a funding figure of $400 million circulating prior to the listing. However, the IPO itself, which took place in November 2019 on the Nasdaq, didn’t go exactly as planned. Just one week before the sale, Canaan’s biggest banking partner, Credit Suisse, dropped out. The bank “was concerned whether the offering could secure sufficient orders,” Bloomberg’s sources argued at the time. As a result, the IPO’s size was dramatically reduced: Documents submitted at the time contained a projected $100 million goal, which is over 75% less than the figure expected originally. Furthermore, Canaan’s IPO launch was accompanied by a 40% price crash in the following weeks.

Image result for Canaan CRYPTO

Recent developments suggest that the Canaan IPO was not only unsuccessful but also allegedly misleading for investors. In late February, MAV issued a report on Canaan, in which the analysts largely focused on what they claim to be an undisclosed related party transaction pertaining to Canaan’s Nov. 27 offering on the Nasdaq. Specifically, one month before the IPO, Canaan announced a “strategic partnership” with Hong Kong exchange-listed company Grandshores, which would have the latter purchase up to $150 million worth of Canaan mining equipment. This transaction raised several questions, as Marcus Aurelius Value noted. First of all, that one order would represent almost the entirety of Canaan’s trailing revenue, which amounts to $177 million.

Furthermore, the analysts argued that Grandshores had no way of following through on the agreement, as it has a $50 million market cap and a $16-million cash balance. Moreover, they suspected that Grandshores and Canaan might be connected. Hong Kong stock exchange filings list Yao Yongjie as its chairman, while Canaan’s filings with the U.S. Securities and Exchange Commission disclose that he is a partner at a company that owns 9.7% of Canaan shares. Yongjie is also listed as an angel investor in Canaan on a Reuters profile. The analysts concluded their argument:

“We, therefore, wonder if the giant Grandshores letter of intent, which we view as largely bogus, was used by CAN as a device to hype its financial prospects to investors.”

From a legal perspective, if the analysts’ conclusion is true, the failure to include this as a related party transaction in Canaan’s IPO filings could have consequences. SEC regulations require the disclosure of any transactions between the registrant and any 5% shareholder that exceed $120,000. Canaan representatives have previously said that Yongjie is not the owner of the stakeholder company mentioned in the filings and that he owns less than 1% of Canaan shares. They also emphasized that the Grandshores contract is not a formal sales contract, which is why they chose to “avoid misleading and to protect our IPO investors” by not disclosing it. The representatives explained:

“It is a framework agreement between two parties, which Canaan granted Grandshores as a distributor and permit him to resale no more than $150 million of miners.”

Interestingly, Grandshores has disclosed this transaction as a related party dealing in its filings at the Hong Kong stock exchange. The MAV report listed even more irregularities surrounding the Canaan IPO. For instance, shortly before its IPO, Canaan deleted eight of the 11 official distributors it had previously listed on its website. Andres Romero, the CEO of one of those distributors called Nova Bit Mining Solutions, is also a Canaan employee, according to his archived LinkedIn page. When the Financial Times asked Romero to comment on his relations with both companies, he said that he no longer worked for Nova Bit and that he hadn’t had time to update his LinkedIn profile. Romero has since modified his page, stating that he stopped working at Nova Bit back in September 2018. 

The MAV report also pointed out that, despite Canaan’s financial statement reporting over $36 million in cash, the firm was sued in 2019 by a vendor for allegedly failing to pay an invoice of approximately $1.7 million due to “sales problems and market circumstances” — which suggests that its financial health could have been far worse than presented in the SEC filings. Finally, the paper doubted the sustainability of Canaan’s client base, 87% of whom are allegedly Chinese customers, stating: “In addition to related parties, other major customers identified in the Chinese listing documents filed by [Canaan] include businesses that appear to be in entirely different industries.” One such customer is called Tianjin Garments Import & Export Co Ltd, which specializes in “clothing, fabrics, blankets, carpets and stone carvings.”

Based on the following allegations, on March 4, an investor named Phillippe Lemieux filed a class-action lawsuit against Canaan in an Oregon court. Largely citing the MAV report and arguing that securities laws have been violated, Lemieux’s legal team is demanding unspecified “compensable damages.” Such a lawsuit was only a matter of time, given the number of investors who lost money on cryptocurrency mining over the last few years, says Mark D’Aria, CEO of Bitpro cryptocurrency mining consultancy firm:

“It strikes me as similar to the class action lawsuit against Ripple, where they are arguing whether or not it was an unregistered security. No one who made money off of XRP cares whether it was an unregistered security or not, but anyone who lost money is looking for any reason to recoup it from Ripple, justified or not.”

“We were not surprised by the report’s findings,” Juan Villaverde, Weiss Ratings’s lead cryptocurrency specialist, said, elaborating that there is a behavioral pattern among such companies: “The fact of the matter is many Chinese crypto companies behave in a similar fashion and have been doing so for some time.” According to Villaverde, the fact that Canaan’s IPO application was turned down by the Hong Kong and Chinese stock exchanges, forcing the firm to make a “deal of last resort” in the U.S., was enough to cause suspicion that its filings were not entirely correct:

“What analysts have found regarding this chip manufacturer is ugly but not entirely different from what analysts have found in other Chinese firms that chose to list in the U.S. after being rejected in their home country.”

However, Matt D’Souza, co-founder and CEO of crypto mining hardware broker Blockware Solutions, believes that Canaan had to move its sale to the U.S. due to greater customer demand, not more lax regulatory principles:

“I don’t believe they were denied by the exchange but rather investors in that region were uninterested in investing in the IPO. Shanghai, Hang Seng indexes have been in downtrends and peaked in 2018, so China has been in a bear market for 2 years. Only the best stocks get their IPOs filled.”

In a bull market, on the other hand, “even the junk companies get funding,” D’Souza continued, and the Nasdaq was in a better position than the Chinese market at the time due to trading tariffs and the overall sentiment:

“It’s easier to IPO in the U.S. from the perspective of we have far more capital and robust markets. We have higher standards for accounting principles, the fees to list, the scrutiny, audit requirements, the requirement to follow U.S. Gaap accounting, which is more stringent than Chinese regulations.”

In D’Souza’s view, Canaan “may have gone bankrupt” if the company didn’t raise $90 million from the IPO sale, but ultimately, it was “another lemon delivered to investors,” which further stigmatized the crypto IPO sector. Both the Rosen Law Firm — which is handling Lemieux’s class-action lawsuit — and the Schall Law Firm — a shareholder rights litigation firm that has begun an investigation into purported violations of securities laws by Canaan — have ignored media requests for comment. The SEC ombudsman was not available to comment either. Most recently, another law firm, Robbins Geller Rudman & Dowd LLP, filed a securities class-action lawsuit against the Chinese mining giant. Meanwhile, Canaan strongly denies all allegations raised by the MAV, which it notably called a “short seller” in its statement. The mining giant’s representative said:

“We are aware of the short seller allegations and the securities class actions that have been filed in the U.S. The allegations are completely baseless. Given the ongoing legal proceedings, we cannot comment in detail at this time, but we strongly deny the allegations and we will vigorously defend ourselves in court.”

The company’s stock (NASDAQ:CAN) is trading at just $3.37 as of press time, which is the lowest price ever — while it could be related to the swirling allegations, the overall current market climate could also be a major factor.

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