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SEOUL, May 19 (Yonhap) -- Lawmakers from the ruling People Power Party (PPP) visited the office of Wemade, the issuer of Wemix cryptocurrency, Friday as part of an investigation into suspicions surrounding now-independent lawmaker Kim Nam-kuk's dubious cryptocurrency trading.

A special investigation team from the PPP, including Reps. Kim Sung-won, Yun Chang-hyun, Park Hyeung-soo and Choi Hyung-du, as well as a group of outside experts, met with Wemade Co.'s CEO Chang Hyun-guk at the company's headquarters for clues into suspicions surrounding Kim's coin trading.

"The Democratic Party (DP) seems to have shut their ears to the public's pent-up frustration and calls for truth. We will embrace their desires and make every effort to uncover the truth," said Kim at a press conference in front of the company headquarters in Pangyo, south of Seoul.

Wemade Co. created the P2E, or play-to-earn, coin Wemix.

Kim, a first-term lawmaker, has come under fire following revelations that he owned around 800,000 Wemix coins in 2021, worth around 6 billion won (US$4.5 million) at the time, a significant amount inconsistent with his frugal image. Wemix was delisted in November 2022.

Rep. Kim Sung-won (C) of the ruling PPP speaks before reporters in front of Wemade Co.'s headquarters in Pangyo, south of Seoul, as part of the party's own investigation into suspicious cryptocurrency trading of former Democratic Party lawmaker Kim Nam-kuk on May 19, 2023. (Pool photo) (Yonhap)

The visit came amid suspicions that Wemade may have lobbied Kim by providing Wemix coins for free in exchange for Kim's legislative support for the P2E industry.

But Chang rejected the suspicions, saying the company never gave free Wemix coins to Kim via Airdrop or through a private sale, saying it would be nearly "impossible" to deposit the 800,000 Wemix coins owned by Kim through such methods.

Kim departed from the main opposition Democratic Party (DP) earlier this week as suspicions grew about the source of his massive crypto holdings and whether the lawmaker had insider information.

The DP had referred Kim to the parliamentary ethics committee over his dubious cryptocurrency dealings.

Rep. Kim Nam-kuk, a former member of the main opposition Democratic Party, checks his smartphone during a parliamentary inspection in Daejeon, 139 kilometers south of Seoul, on May 14, 2023. (Yonhap)

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Crypto crime has become a major concern to regulatory authorities. There have been sharp increases in crypto crime, especially hacks related to fraud, in recent years as Web3 becomes an integral part of daily life. But the spread is not even and there are many emerging trends and patterns to crypto crime, which can be best understood through deep blockchain analytics.

Hacks on Ethereum (or dApps built on Ethereum) are rampant because of its smart contract capabilities and wide-scale dApp usage. Last year, the Ethereum-based Ronin network was hacked for $625 million.

Ethereum currently has ten times more transaction volume than the second blockchain (Tron), with nearly 70% of the market. DeFi fraudsters often target cross-chain bridges when tokens are being transferred from one chain to another, and these bridges are typically built on the Ethereum network. Binance and Ethereum have the most unique active wallet (UAW) addresses, as gauged from January 2022 to January 2023.

A crypto-crime report from Crystal Blockchain outlined some of the statistics regarding the theft of digital tokens, highlighting that China and the USA are the worst hit by fraud and hacks. The US takes the top spot for the total number of incidents against entities, with 14 major attacks since 2011.

However, China is the worst affected in terms of overall value. This is due to two prominent hacks, PlusToken in 2019 ($2.25 Billion) and WoToken in 2020 ($1 Billion). The UK, South Korea, and Japan are also heavily affected by crypto scams. Since 2011, there have been 461 high-profile incidents across 45 countries, for a total of $16.7 billion in stolen crypto, mainly ERC-20 tokens.

The top five areas for security breaches related to crypto are the USA, China, Japan, South Korea, and the UK.

There were many exchanges in China in the early days of cryptocurrency before the government cracked down on it. Binance, one of the worlds largest exchanges, moved from China following the government ban on trading in 2017. Huboi, another Chinese exchange, moved its headquarters to South Korea.

The USA has also experienced high levels of crypto fraud. A lot of token offerings launched in the USA were later revealed to be in violation of the Securities and Exchange Commission (SEC) rules for selling securities. While some had good intentions and simply fell foul of unclear regulations, many were outright Ponzi schemes.

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Mainly, cybercriminals will follow the money, and exploit any opportunities. It makes sense then, that regions where there are more centralized exchanges will be targeted more frequently. Where there are strict rules about the movement of money, more people will turn to crypto, which could potentially result in more incidents of fraud.

There are many ways that cybercriminals can conduct a fraud operation. One of the most common is the rug pull. This is where a team of fraudsters entices investors into a specific project and runs off with the funds. They are basically scam projects.

There are also various subcategories of rug pulls. For instance, a pump-and-dump scheme is where investors are encouraged to invest in a specific token, and then the fraudsters sell it all, reducing the price to nothing. This can be enormously profitable if the fraudsters also put options on the token or use different mechanisms to leverage the price decrease.

Developers can also defraud investors by coding tokens so they can only be sold by them. Rug pulls are not always illegal in the sense that initial investors have a right to sell at any time. But if claims are made to investors that turn out to be completely false, then legal authorities could easily launch an investigation.

According to the same Crystal Blockchain report, most crime occurs through decentralized protocols involving smart contracts. In 2022, over USD $2.6 billion was lost through 132 DeFi attacks. $277 million was lost due to security breaches in 13 instances, while $1.3 billion was lost in fraud schemes. The report also noted that rug pulls were the most popular fraud mechanism in 2022 and that Ethereum is the most popular chain for rug pulls, followed by BNB.

The prevention of crypto fraud is an ongoing issue that will require cooperation between regulatory authorities and Web3 developers, and exchanges. Investors continue to get duped by simple methods and are not conducting due diligence to investigate projects, typically being too easily misled in the hope of enormous profits. With AI and other technologies, fraud will get even more sophisticated as time goes by.

Exchanges and Web3 providers will also need to have an in-house compliance team alongside risk mitigation procedures to ensure customers funds are safe, secure, and insured. Blockchain analytics can go a long way to understanding the path through which stolen crypto travels and how to prevent a breach from occurring in the first place.

The post Why Most Cryptocurrency Fraud Cases Take Place in China and the US appeared first on Coin Edition.

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New research from the University of Nevada, Reno College of Business and Vanderbilt University explores how celebrity endorsement affects an initial coin offerings (ICO) success. Similar to initial public offerings (IPO) in stock, ICOs raise funds to develop things like a platform or business by issuing a new cryptocurrency before it is traded on an exchange.

Dr. Sean Wilkoff, assistant professor of finance at the University of Nevada, Reno, and Dr. Joshua T. White, assistant professor of finance at Vanderbilt University, previously researched the role of media coverage in the non-fungible tokens (NFTs) market and decided to explore the role of celebrity endorsements in the ICO market. The researchers wanted to find if endorsement works as a substitute for other demand-driving events for cryptocurrencies, such as a presale, if celebrity endorsement increases the overall amount of funds raised and if ICOs with celebrity endorsements had a higher likelihood of being scams.

The media is seen as reputable, and our research found that media reporting on NFTs educated investors about the NFT market, Wilkoff said. With celebrity endorsement, its a different story because celebrities are not defined solely by their ability to provide reputable financial advice.

The research examined 21 celebrities with an online following of 1 million or more people on at least one platform who endorsed an ICO between 2016 and 2018. Celebrities looked at were actors, athletes, a businessman, reality television stars, and a member of royalty.

Research findings indicated that celebrity endorsements can serve as an effective substitute for other demand-driving events, like a pre-sale, but that without a pre-sale, investors lose information such as price signals about the viability of the token, its platform and management team. Celebrity endorsements raise more money at the ICO and have a higher likelihood of being added to an exchange, likely due to the additional capital raised. However, these effects do not translate into long-term success. Researchers also found that celebrity endorsements are more likely to be a scam, especially when the celebritys expertise (e.g., a boxer) does not match that of the platform being built (e.g., a streaming video service). These findings are not generalizable to all investments, just ICOs.

An endorsement is not always a signal of quality, and there is a link between celebrity endorsement and the investment being a scam, Wilkoff said. However, it is important to remember that not all endorsed ICOs are scams and not all scams are celebrity-endorsed.

Recently, many celebrities such as Shaquille O'Neal were implicated in the lawsuit against Futures Exchange (FTX), for endorsing the cryptocurrency exchange, which collapsed as allegations of illegal activity were made public.

Taylor Swift was offered a deal to endorse FTX but declined after doing her research on it, Wilkoff said. Celebrities should conduct due diligence and research any cryptocurrency-related digital asset or exchange before endorsing it and investors should not just blindly trust a celebrity endorsement.

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Cryptocurrency has become a popular way to invest and transact, but with that comes the need for sanctions compliance. In this episode, Michael Volkov and Matt Stankiewicz discuss the recent enforcement actions against Poloniex, Bittrex, and Kraken for violating US sanctions regulations with cryptocurrency transactions. Matt is a Partner at Volkov Law and a leading cryptocurrency expert. He and Michael dive into the common themes and basic failures that led to these enforcement actions, including IP blocking, transaction monitoring, Seemore+

1. Cryptocurrency companies are struggling to implement KYC and geo-blocking controls, which is leading to violations involving sanctioned jurisdictions.

2. OFAC is taking an aggressive stance against cryptocurrency companies. Companies in the cryptocurrency industry need to implement effective sanctions compliance programs to avoid hefty fines and enforcement actions from regulatory authorities.

3. There is no materiality requirement for sanctions violations, and even small transactions can result in multimillion-dollar fines.

4. Retroactively applying controls to existing customers is important, and failing to do so can lead to violations.

5. Companies need to have a comprehensive and automated system in place to detect and prevent violations.

6. Companies need to be vigilant about screening individuals and transactions against the relevant sanctions lists, including screening field text, addresses, and ID cards.

7. Geo-blocking for IP addresses is a crucial compliance control, but it is not perfect and can be circumvented by VPNs.

8. Voluntary disclosure of violations can lead to more favorable outcomes and lower fines from regulatory authorities.

9. OFAC and other regulatory authorities are using analytical tools to monitor transactions and flag potential violations, so cryptocurrency companies should not assume they can go under the radar.

10. Companies can use the public blockchain to monitor transactions and identify potential sanctions risks.

11. Sanctions compliance programs should be regularly reviewed and updated to address new risks and changes in regulations.

KEY QUOTES:

There are a lot of tools available to these companies to monitor transactions, maybe better than in the traditional finance world, just because everything on the blockchain is public record essentially. Matt Stankiewicz

Its just interesting to see OFAC go so aggressively against these companies. Not too surprising considering the extreme sanctions risk that cryptocurrency poses. Very importantly, theres still a lot of takeaways that really any industry can take away from these enforcement actions. Matt Stankiewicz

If you find problems, obviously you want to remediate them, but figure out what you need to do in terms of voluntary disclosures, because typically youll be much better off than if OFAC figures it out on their own, which they usually do. Matt Stankiewicz Seeless-

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Nova Scotia

Richard Woodbury - CBC News

Posted: May 16, 2023

The law firm representing creditors of defunct cryptocurrency company QuadrigaCXsays each creditor with a proven claim will get back13 per cent of what they invested.

QuadrigaCXwas one of Canada's biggest cryptocurrency exchanges before it collapsed in early 2019, following the death of its founder, Gerald Cotten.Hedied while on his honeymoon in India in December 2018.

The company turned out to be a Ponzi scheme.

In a notice posted late last week, law firm Miller Thomson said as of this month, there are $305.66 million in total claims against QuadrigaCX.

Elvis Cavalic of Calgary lost around $15,000 from QuadrigaCX. He was surprised to learn from CBC News that some of the creditors would be eligible to get back some of their lost money.

"My interpretation was that the money was gone," he said."It's been years and they've blown through it in legal fees and perhaps some of the holders with larger volumes, you know, [I thought] they were prioritized."

Cavalic said the last update he received from Miller Thomson was in November 2020.

He said he's going to file a claim to hopefully recoup some of his money.

Cavalic said his experience soured him on cryptocurrency.

"I just don't trust any of the exchanges," he said."Ever since Quadriga, you've seen this happen again and again in various countries, including Canada."

Cotten, who lived in Nova Scotia,was the only person who had the codes needed to access where the company kept much of its customers' money.

Investigatorsuncovered that Cottenhad been moving money from the exchange into his personal accountsand engaging in other suspicious behaviour.

Cottenlived a life of luxury that included exotic vacations, luxury vehicles, a yacht and a Cessna aircraft.

His widow, Jennifer Robertson, saidshe did not know about her husband's fraudulent activities.

After Cotten's death,she agreed to forfeit $12 million in assetsthat included vehicles and real estate. She was allowed to keep $90,000 in cash, $20,000 in retirement savings, a 2015 Jeep Cherokee, $15,000 in furniture and some jewelry, including her wedding band.

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Richard Woodbury Reporter

Richard Woodbury is a journalist with CBC Nova Scotia's digital team. He can be reached at richard.woodbury@cbc.ca.

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