Malta-based investment fund Trident Crypto Fund suffered a massive privacy breach at the end of last month which exposed the data of hundreds of thousands of users.
According to a report by Russian outlet Izvestia, Trident has suffered a major database hack that affected more than 266,000 users. Ashot Oganesyan, chief technology officer for cybersecurity firm DeviceLock, told Izvestia that personal data for Trident clients have appeared on multiple file-sharing websites.
The stolen database included user email addresses, cell phone numbers, encrypted passwords, and IP addresses, along with details pertaining to the security vulnerability that led to hack. As of Mar. 3, the unknown hackers had decrypted and published more than 120,000 passwords.
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.
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.
A Woman In The USA Has Been Funding ISIS With Bitcoin – She Gets 13-Year Jail Sentence
A United States federal court has sentenced a U.S. citizen to 13 years in jail for laundering money for ISIS using Bitcoin and other cryptocurrencies. Per a Department of Justice announcement on March 13, Zoobia Shahnaz of Long Island received a 13-year sentence for working to fund the Islamic State of Iraq and al-Sham through cryptocurrency payments amounting to over $150,000. She also worked to move to Syria to become a member of ISIS.
To raise the funds, Shahnaz allegedly defrauded major banks including American Express, Chase and Discover, according to the original indictment from December 2017. The United States alleged that Shahnaz secured loans and credit cards under false pretenses, which she used to buy cryptocurrencies that she funneled through Pakistan, China, and Turkey and eventually to ISIS. As it was reported, Shahnaz was on her way to Syria in July of 2017 when officials prevented her from boarding a flight at JFK Airport in New York City. She was subsequently arrested later in the year.
Shahnaz pleaded guilty to the charges back in November 2018. In requesting a below-guidelines sentence in a sentencing memorandum earlier in March, Shahnaz’s legal counsel leaned on her age — she was born in 1990 — as well as her work volunteering with Syrian refugees via the Syrian American Medical Society. The sentencing memorandum continued to highlight Shahnaz’s history of charitable work:
“Unlike the79 Americans identified in the study who traveled to Syria and/or Iraq since 2011 and affiliated with jihadist groups active in those countries, none were motivated by the same things that drove Zoobia Shahnaz. That is, a desire to heal the sick and care for the wounded.”
Given that the five counts against her could have garnered her 110 years behind bars rather than 13, the defense’s strategy may have worked.
Co-Founders Behind Alleged $9 Million Crypto Ponzi Scheme Plead Not Guilty
Zachary Salter, the co-founder of Zima Digital Assets alongside 28-year-old John Caruso, has pleaded not guilty to charges of money laundering and conspiracy to commit wire fraud in his arraignment in Arizona on March 4. The criminal indictment alleges that the pair ran a purported cryptocurrency investment scheme that was used to defraud their customers of more than $9 million in a classic Ponzi scheme. Approximately $1.9 million in deposits were cycled back to early investors as supposed investment returns.
The purported profits served to validate the scheme, contributing to a further wave of deposits. The remaining $7 million was spent lavishly — on vacations, luxury car rentals, private jets, and casino gambling. Despite flaunting their lavish lifestyle on social media, the pair claimed no taxable income. The pair defrauded more than 90 investors, including elderly citizens and former-professional baseball players. They were arrested on Jan. 30.
The indictment includes allegations of false statements in investor contracts and misrepresentations in direct messages to clients. Caruso also pleaded not guilty during his arraignment on Feb. 26. Caruso has a criminal record and was last released from prison during 2017. Both men will now face a jury trial on July 4, 2020. If convicted of either charge, Salter and Caruso will have to forfeit all property derived through the criminal scheme.
Following a hearing in early February, the prosecution alleged that “there is no evidence any of the investment funds that have been provided to Caruso and Salter have gone to any cryptocurrency/digital asset investment, or to any investment of any kind, as fraudulently misrepresented by both Caruso and Salter.” It was heard that the pair used investors’ funds to rack up $830,000 in gambling losses, $670,000 in credit card expenses, $540,000 in private jet and luxury vehicle rentals, and $150,000 in rent for a 20,000-square-foot mansion. At the time of the February hearing, Zima Digital Assets was still actively receiving investor funds.
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