As regulatory scrutiny continues to increase, crypto industry executives find themselves in legal battles more and more often. Sam Bankman-Fried’s (SBF) recent case highlights the challenges these individuals face as they strive to revolutionize the digital asset industry. To gain a better understanding of the industry, let us take a look at the top ten crypto fraud cases so far.
1. Do Kwon and the Collapse of Terra
In March 2023, Do Kwon, the co-founder of Singapore-based blockchain platform Terraform Labs, was arrested in Montenegro. He was charged with eight offenses, including securities fraud, wire fraud, commodities fraud, and conspiracy. Kwon was found with forged passports from Costa Rica and Belgium, and he spent a night in police custody before appearing in court. This incident resulted in the collapse of TerraUSD and Luna, two digital currencies issued by Terraform Labs, causing an estimated $40 billion loss in the crypto market. Kwon was sentenced to four months in prison for using a false passport for travel.
2. Avi Eisenberg
In December 2022, crypto trader Avi Eisenberg was arrested in Puerto Rico for manipulating prices on Mango Markets crypto exchange. He was charged with commodities fraud, commodities market manipulation, and wire fraud. Eisenberg was accused of fraudulently obtaining $110 million in cryptocurrency. His trial was initially set for December 8, 2023, but it was postponed to April 8, 2024 to allow his legal team more time to prepare.
3. Alex Mashinsky
In July 2022, former CEO of Celsius Network, Alex Mashinsky, was arrested and accused of wire fraud and other offenses. He allegedly defrauded customers, leading to Celsius Network’s collapse with over $1 billion in debt. Mashinsky pleaded not guilty and his trial will start in September 2024.
4. Su Zhu and the Fall of 3AC
On September 29, co-founder of the now-defunct Three Arrows Capital hedge fund, Su Zhu, was arrested at Changi Airport in Singapore. He was apprehended for failing to comply with a court order compelling him to cooperate with the liquidation process of Three Arrows Capital’s assets. His co-founder, Kyle Davies, is still missing. The liquidators are determined to ensure Zhu’s full compliance with the court order. The bankruptcy of Three Arrows Capital in July 2022 caused disruption in the crypto industry.
5. Thomas Smith, Kyle Nagy, and Braden Karony
The trio behind crypto token SafeMoon were accused of fraud and money laundering by the U.S. Department of Justice and the Securities and Exchange Commission in November 2023. They allegedly diverted millions of dollars for personal expenses and obtained investor funds dishonestly. Thomas Smith, Kyle Nagy, and Braden Karony were charged with conspiracy to commit securities fraud, wire fraud, and money laundering. While Nagy is evading authorities, Karony and Smith have been apprehended.
6. William Ulbricht
Ross William Ulbricht, aka Dread Pirate Roberts, is serving life in prison without possibility of parole. He created and operated Silk Road, an online marketplace where individuals used Bitcoin to purchase drugs, hacking tools, and counterfeit passports. Ulbricht was found guilty of seven offenses, including distributing narcotics and conspiring to distribute illegal goods.
7. Charlie Shrem
Charlie Shrem is the former CEO of crypto exchange BitInstant. In 2014, Shrem was sentenced to two years in prison for transmitting $1 million in Bitcoin meant for drug trafficking on Silk Road. After his release, Shrem works as a crypto venture capitalist.
8. Mark Karpeles
Mark Karpeles is the former CEO of the bankrupt crypto exchange, Mt. Gox. In 2014, Mt. Gox lost nearly $500 million worth of investors’ Bitcoin, leading to its collapse. Karpeles was arrested in Tokyo in 2015 and found guilty of unlawfully manipulating Mt. Gox’s electronic records, inflating the company’s holdings falsely by $33.5 million.
9. Nathaniel Chastain
Nathaniel Chastain was an employee of the non-fungible token (NFT) marketplace OpenSea. In June 2022, he was arrested by the FBI for wire fraud and money laundering. He was accused of taking advantage of his insider knowledge to buy tokens just before they were featured on OpenSea’s front page and selling them for a profit. In May 2023, Chastain was sentenced to three months in prison, three months of home confinement, 200 hours of community service, and a $50,000 fine.
10. Faruk Fatih Özer
Fatih Faith Ozer, the founder and CEO of Thodex, a Turkish crypto exchange, was captured in Albania in August 2022. He had fled Turkey after his exchange abruptly shut down in April 2021, leaving more than 400,000 users without access to deposits totaling $2 billion in cryptocurrencies. Ozer was extradited back to Turkey in June 2023 and sentenced to 11,196 years in prison for fraud-related crimes. The exact extent of losses suffered by investors during Thodex’s collapse remains uncertain. This incident had major implications for Turkey’s cryptocurrency landscape.
