The year 2024 has seen a continuation of the crypto industry’s struggle with crypto scandals and scams. While some of the largest and most shocking incidents have already made their mark, many are still going, and smaller but persistent scams still plague the industry. These range from deceptive investment schemes and toxic addresses to advanced security breaches that compromise personal and institutional assets.
As the crypto market continues to expand, attracting a diverse range of participants, its resilience is tested by these ongoing challenges. The following overview highlights the most significant crypto scandals in the headlines this year, illustrating the ongoing need for enhanced security measures and regulatory frameworks to safeguard this dynamic financial landscape.
TerraUSD: Market Manipulation and the Fall of Jump Crypto
While the events surrounding the TerraUSD crypto scandal began in 2021, it wasn’t until this year that a whistleblower’s testimony came to light in a New York federal courthouse. The testimony marked a critical point in understanding the scandal and its impact on the crypto industry.
But what actually happened?
This crypto scandal surrounds Jump Crypto, a division of Jump Trading, a traditional finance (TradFi) powerhouse. Specifically, it revolves around its involvement in propping up the failing TerraUSD stablecoin, an algorithmic cryptocurrency designed to maintain a value of $1 USD.
In a desperate bid to restore confidence in the coin after it lost its peg to the US dollar, Jump secretly purchased large amounts of TerraUSD to artificially boost its market demand. Additionally, they entered into a highly lucrative but questionable agreement with Terraform Labs, receiving millions of Luna tokens at a significantly reduced price.
While the operation temporarily stabilized TerraUSD, allowing its founder to publicly claim a natural recovery, the stablecoin ultimately failed again, leading to a massive $40 billion loss for investors and initiating a series of crises across the crypto industry. This resulted in a significant SEC fraud lawsuit against Terraform Labs and its founder, revealing Jump’s actions.
MIT Brothers’ Ethereum Heist: 12 Seconds, $25 Million
Two MIT-educated brothers, Anton and James Peraire-Bueno, were arrested this year for a crime they committed in 2023. The novel crypto scandal involved the duo executing a sophisticated scheme that compromised the Ethereum blockchain to steal $25 million in cryptocurrency.
The incident, which occurred in April of last year, involved the brothers exploiting a vulnerability in the MEV-boost software used by Ethereum validators. This software is crucial for ensuring the integrity of transactions on the blockchain. By gaining unauthorized access to pending transactions, the brothers manipulated these to redirect $25 million to themselves in just 12 seconds.
This case, led by federal prosecutors in Manhattan, marked the first U.S. criminal charges for such a fraud, emphasizing the serious breach of trust and security in blockchain technology.
The $73 Million “Pig Butchering” Crypto Scandal
The U.S. Justice Department charged two Chinese nationals, Yicheng Zhang and Daren Li, for a sophisticated crypto scandal they committed in 2023. It involved laundering at least $73 million from victims defrauded through a method known as “pig butchering,” a crypto scandal where fraudsters “fatten” their victims by building a fake relationship and trust over time before “butchering” the investment and stealing the money.
Zhang was arrested in Los Angeles, and Li, who holds dual citizenship with China and St. Kitts and Nevis, was apprehended at the Atlanta airport. Their operation included the strategic use of shell companies to open U.S. bank accounts, where victims were deceived into depositing their money. These funds were then laundered across U.S. financial institutions and transferred to bank accounts in the Bahamas.
Charged with conspiracy to commit money laundering and multiple counts of international money laundering, Zhang and Li face up to 20 years in prison per count if convicted.
Khamzat Chimaev Crypto Scandal
UFC fighter Khamzat Chimaev came under scrutiny for his involvement in a crypto scandal involving a Solana-based memecoin named Smash. After promoting the coin to his substantial social media following, Chimaev allegedly orchestrated a “crypto rug pull,” causing the coin’s value to plummet dramatically within just 24 hours.
Initially, Smash reached a value of 0.01 SOL ($1.35), but following a massive sell-off reportedly triggered by Chimaev, the value dropped by over 91% to 0.004 SOL ($0.53) per token. This incident has led to accusations of a pump and dump scheme, where the fighter and possibly his team are believed to have profited by up to $1 million from unsuspecting investors.
Details from crypto investigator ZachXBT and blockchain transaction records suggest that insider wallets played a key role in this manipulation, damaging Chimaev’s reputation amidst his rise in the UFC.
