The lawsuit additionally associates him with organized criminal activities in Eastern Europe as well as with terrorist organizations.
- Humpy the Whale, identified as a compound DAO governance exploiter, was recently named in lawsuits filed by the estate of FTX.
- Between 2021 and 2022, he reportedly acquired substantial quantities of illiquid tokens, artificially inflating their prices, and subsequently utilized these tokens to secure loans from the crypto exchange, which were never repaid.
- The lawsuit claims that his activities, which took advantage of a loophole in FTX’s margin trading regulations, resulted in losses amounting to $1 billion for both the exchange and Alameda Research.
Last week, the FTX estate initiated legal proceedings that include a comprehensive 32-page document detailing eight allegations against Humpy the Whale, a cryptocurrency trader who gained notoriety earlier this year for executing a governance attack on Compound DAO. The lawsuit, which has been submitted to the U.S. Bankruptcy Court for the District of Delaware, identifies the defendant as Nawaaz Mohammad Meerun, a citizen of Mauritius. The allegations assert that between January 2021 and September 2022, Meerun engaged in extensive market manipulation tactics, resulting in the fraudulent acquisition of hundreds of millions of dollars from FTX.
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Furthermore, the lawsuit suggests that Meerun may have affiliations with organized crime syndicates, raising serious concerns about the integrity of his trading activities. The gravity of these accusations underscores the ongoing challenges within the cryptocurrency sector, particularly regarding regulatory oversight and the potential for illicit behavior among market participants. As the case unfolds, it will likely attract significant attention from both legal experts and the broader financial community, highlighting the need for enhanced scrutiny in the rapidly evolving digital asset landscape.
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The filing indicates that debtors have recognized significant connections to organized crime networks from Poland, Romania, and Ukraine, which encompass factions associated with human trafficking, in addition to Islamic extremist groups involved in financing terrorism.
In total, FTX and Alameda incurred losses estimated at around $1 billion as a result of Meerun’s illicit activities, with Meerun reportedly utilizing the financial gains from these crimes to support a diverse array of additional criminal enterprises.
A substantial quantity of tokens
The filing reveals that in January 2021, Meerun began amassing a large position in BTMX, an illiquid token. Over a span of three months, he accumulated nearly half of the token’s supply, driving its price up by more than 10,000%. Allegedly, Meerun then exploited a loophole in FTX’s margin trading system, using his substantial holdings as collateral to borrow tens of millions of dollars from the crypto exchange.
The lawsuit claims, “Meerun knew that once his market manipulation ended, BTMX’s price would plummet, and he would be obligated to return all the assets he had borrowed. However, Meerun had no intention of following FTX’s rules.”
Due to shortcomings on FTX’s end, Meerun ultimately walked away with more than $450 million from his BTMX trades, the filing asserts. In response, FTX staff allegedly attempted to hide the massive loss by employing a “now-familiar course of action”—transferring the financial burden to sister company Alameda Research.
The lawsuit indicates that Meerun had established a substantial short position in MOB, which was subsequently taken over by Alameda. In an effort to mitigate this short position, Alameda engaged in the acquisition of large quantities of the token.
According to the suit, during the weeks of Alameda’s aggressive purchasing, the price of MOB surged by 750%, compelling Alameda to pay considerably higher prices. However, this price increase was followed by a rapid decline once Alameda reduced its buying activities. By the conclusion of the BTMX/MOB situation in August 2021, personnel from Alameda estimated that the company had incurred losses amounting to $1 billion due to Meerun’s actions.
In August 2021, Meerun allegedly replicated this strategy using new accounts and aliases with illiquid tokens such as BAO, TOMO, and SXP, resulting in a theft of nearly $200 million before FTX became aware of the situation. Furthermore, an attempt to execute a similar scheme involving a token named KNC was reportedly intercepted while it was still underway.
Compound DAO
The filing not only referenced alleged connections to organized crime, details of which remain unspecified, but also emphasized that Meerun, under the alias “Humpy the Whale,” conducted a “governance attack” on the lending platform Compound Finance. This was achieved through the utilization of its COMP token, which grants holders the authority to vote on governance proposals for the decentralized autonomous organization (DAO).
The lawsuit alleges that Meerun amassed a considerable quantity of the governance token associated with the protocol and subsequently attempted to misappropriate over $20 million in assets belonging to other users of the protocol. It is claimed that Meerun leveraged his holdings to negotiate a ‘peace treaty’ with Compound, wherein he received additional financial compensation in return for refraining from further attempts to exploit the protocol.
Operating under the name Humpy, Meerun put forth a proposal to the Decentralized Autonomous Organization (DAO) aimed at establishing a new yield-generating protocol known as goldCOMP, which was supported by a faction of COMP holders referred to as the Golden Boys. Critics of this initiative attributed its feasibility to a perceived lack of engagement and activity within the DAO, labeling it a governance attack due to the orchestrated collaboration between Humpy and the Golden Boys to advance the proposal.
In response to the criticisms, Humpy and the group ultimately reached a consensus on a counter-proposal that aimed to develop a staking product. This product would allocate 30% of both existing and newly generated market reserves on an annual basis to COMP holders who stake their tokens, with the distribution being proportional to the amount of stake they control within the Compound DAO. Concerns regarding vote manipulation, centralization of authority, and the potential mismanagement of the $24 million COMP treasury funds were also highlighted during this process.
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