Cryptocurrency Expert Gets 5 Years In Nkorea Sanctions Case

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Employees called traces of lost crypto “dust,” and eventually, engineers discovered a gold mine. Over the years, customers accidentally deposited Bitcoin to wallets only designed to accept a popular crypto called Tether. The Bitcoin was blocked out of the wallets, undelivered, in a kind of suspended animation. It was unrecoverable by users, seemingly https://xcritical.com/ forgotten for years. He apparently fumed after trying and failing to get BitTorrent’s general counsel to write a finding to protect his kingmaking token, TRX, from securities law regulation. “In the end, they got somebody — a lawyer from Hong Kong — to write a finding that TRX is a utility.” The former employee was puzzled by the idea.

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You can influence them to do whatever you want them to do.” The team’s operations had ventured into the realm of what was essentially wholesale market manipulation. I also revisited 18 current and former employees from BitTorrent and Tron who spoke to me during my earlier reporting on Justin Sun for The Verge. Together, those accounts depicted a man desperately thirsty for success, with seemingly limitless energy, little to no empathy for his employees, who pursued hype tactics and technology that ran afoul of the US-China trade war. But that story didn’t delve into the cryptocurrencies that underpin Sun’s empire. Multiple former employees told me that Sun can never return to China.

• The former employee never learned the identity of the Hong Kong lawyer, and it’s unclear if they even had a license to practice law anywhere in the United States.
• Nearly every day, an engineer would find a new pocket of lost change.
• The same number appears in a dark web database of hacked Chinese phone numbers and personal information and identifies the owner as Luo Dan.
• Despite Sun’s demands for the Bitcoin, there was no obvious blockchain evidence he received it personally.
• The agent on the other end arranged to meet them at a restaurant that serves dessert in New York’s Koreatown.
• During interviews, not a single former employee believed Sun would be held personally accountable for his pattern of malfeasance.

Here, the dust’s trail is lost amidst flurries of Bitcoin being withdrawn and deposited by Poloniex users. Over the course of four hours, in hundreds of transactions, nearly all the Bitcoin dust was siphoned out of thousands of old Tether wallets. All told, it was 230 Bitcoin, or a little over $10 million in today’s value. “Justin would be in trouble, but he didn’t care,” a former employee believed. Sun ordered the office in China to carry out the airdrop instead.

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It’s hard to imagine Sun will be able to stay one step ahead forever, though it’s perhaps still possible. Other employees who worked for Sun have received grand jury subpoenas. The prosecutor’s office from the Southern District of New York, which normally handles financial crime on Wall Street, is searching for criminal evidence against Justin Sun. Many of Sun’s bank accounts could just be waypoints for moving money. As a former employee who knew about Sun’s banking speculated, “If he has to cash out all his cryptocurrencies, he has to do it outside both the US and China,” where they’re closely scrutinized or banned outright. Whatever the conclusion of this lawyerly debate over crypto, Sun embarked on an obsessive quest to secure Tron’s lawful legitimacy.

While they waited, the IRS agent told the former employee they were investigating Justin Sun but didn’t really know what to look for. When the FBI agent finally arrived, they asked about all sorts of employees in the US and Beijing, about rumors of beautiful models who flew around the world with Sun and whether he did business transactions under the table. The former employee got the impression that agents were interested in potential tax evasion.

It seemed as though Sun believed that counsel were disposable, like he could afford to leave them behind, tarred by the acts they unwittingly facilitated, while he kept his eye on the pathway out. Meanwhile, a former attorney for the SEC has been tasked with shepherding employees through the grand jury subpoena process. A source close to the investigation predicted they will try to fend off the subpoenas.

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His exact relationship with the Chinese authorities has been difficult to surmise, but he was recently appointed to an academic position at the Central Party School for the CCP to promote blockchain development. On the surface, it looks like Sun has made a strategic pivot back to China, possibly out of self-preservation. Sun hid in a high-rise apartment in San Francisco, afraid of returning to face Chinese authorities, especially if he fled because of the ICO ban. After a few months, the value of Tron’s token, TRX, had skyrocketed.

The former employee never learned the identity of the Hong Kong lawyer, and it’s unclear if they even had a license to practice law anywhere in the United States. But in many cases, the coin founders immediately sold all the tokens they held for a vast sum of money, crashing its value in the process and every other buyer’s investment. These were “exit scams” or “pump-and-dumps,” and all told, they bilked crypto buyers for billions of dollars. People were swindled so frequently the United States Securities and Exchange Commission could barely file charges fast enough.

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According to multiple Tron employees, Sun made two additional €50,000 “investments” in Malta. Meanwhile, Sun wired thousands of dollars to lawyers assisting him with his citizenship application. According to a prominent Maltese immigration lawyer, an “individual investor” is “required to contribute at least €650,000 to Malta” in order to qualify for citizenship. Sun received his residency card for Malta, and in 2020, his Maltese company, Tron Limited, dissolved. Sun made a radical change in his crypto empire when he bought a cryptocurrency exchange called Poloniex. Crypto exchanges function like stock exchanges, but instead list tokens.

A “security” is an old-fashioned 1930s term for an investment — stocks or bonds, for example. The government regulates securities because they can easily be exploited by well-connected whisper networks to make enormous riches while conning the public out of fair market conditions. The multi-billion-dollar question is whether most cryptocurrencies are securities or not. But if a crypto token qualifies as a security, insider trading law applies. Sun supposedly wanted Labhart to write a legal opinion to protect him if he were later charged for selling unregistered securities and “avoid liability,” a former employee explained. “I think that was the straw that broke [Labhart’s] back.” He resigned.

Maltese business registry records also show Sun set up a company called Tron Limited using his Chinese name, Yuchen Sun. But a source involved in the company’s founding couldn’t say whether it conducted any meaningful business. According to them, Sun made zero commercial investments that might have stimulated the Maltese economy. When engineers finished searching, their ballpark estimate for the dust they found was roughly 300 bitcoin, or about $20 million. WikiScanner essentially could determine the business, institutions or government agencies that owned the computers from which some edits were made. It quickly identified businesses that had sabotaged competitors’ entries and government agencies that had rewritten history, among other findings.

But suddenly, Sun seemed intent on putting a Chinese imprint on the company. He decided to consummate the marriage between BitTorrent and Tron with a summit meeting at Tron’s Beijing headquarters. After months of ducking Chinese authorities, Sun apparently now felt safe there. At 4PM in Seoul, Sun boarded his flight, and aircraft marshals waved the Korean Air plane across the tarmac.

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These “easy marks” are not just everyday investors — many are the people who work in crypto. A combination of “delusional optimism,” as one former employee described it, and a lack of legal Ethereum vs Bitcoin: the two cryptocurrencies compared guidance from regulators has allowed an atmosphere of anything-goes to fester. There were employees at Poloniex who were unsure whether Sun’s Bitcoin dust heist was illegal or not.

Klein previously said Griffith cooperated with the FBI and “helped educate law enforcement” about the so-called dark web, a network of encrypted internet sites that allow users to remain anonymous. Virgil Griffith, 39, pleaded guilty last year to conspiracy, admitting he presented at a cryptocurrency conference in Pyongyang in 2019 even after the U.S. government denied his request to travel there. During interviews, not a single former employee believed Sun would be held personally accountable for his pattern of malfeasance. A majority seem to believe he exists beyond the fingertips of American law.

Despite Sun’s demands for the Bitcoin, there was no obvious blockchain evidence he received it personally. Former employees explained that the Poloniex communal wallets have so much user money pumping through them 24/7 they incidentally obscure any money trail. But ultimately, the legal distinction between Sun himself or Poloniex taking the money may be moot. Andrew Verstein, a UCLA professor and lawyer specializing in cryptocurrency and financial crime, told me that because Sun is the sole owner of Poloniex, he would be responsible anyway.

He began approaching lawyer after lawyer after lawyer to find legal opinions that could protect his cryptocurrency businesses. He knew his path to riches in the United States was littered with legal pitfalls to dodge. When another former employee asked Sun’s top lieutenant in Beijing what “market making” meant, he chuckled and said, “You know how the Chinese folks do it, right? ” He apparently explained that the market-making team’s job was to work with “whales” who were wealthy cryptocurrency spenders outside of Tron. “You know those folks that have a lot of money and don’t have a lot of brains?

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NEW YORK — A cryptocurrency expert was sentenced Tuesday to more than five years in federal prison for helping North Korea evade U.S. sanctions. When I spoke to one employee who told me about Operation Couch Cushions, I challenged them and asked why Sun would possibly risk something so brazen. If Sun truly curried favor with someone powerful inside the Chinese government who could protect him, he might have been wise to do so. I spent a week calling his number at the same time every day. The same number appears in a dark web database of hacked Chinese phone numbers and personal information and identifies the owner as Luo Dan.

In fact, his company, Tron, introduced a coin called TRX — a huge success, selling out quickly for $70 million. The problem for Sun was that the Chinese government, just days before, had banned ICOs entirely. ICOs aren’t banned in the United States like they are in China. A former employee who was generally effusive about Sun explained that when he acquired BitTorrent, it came with upwards of 100 million active users.

The former employee stepped into the restaurant, bought a puff pastry, and sat down. Part of Luo Dan’s WeChat presence is defined by incessantly posting about the Panchen Lama’s political appearances. While Luo Dan may be an access point to influence for Sun, it’s unclear what Luo Dan has gained from the relationship, other than possibly two Google Fi phones he can read the news with. Sometimes, second- and third-generation descendants of some of the highest-ranking Chinese Communist Party officials live there, some of whom were Chinese Communist Party founders alongside Chairman Mao. Sun started renting a lavender-blue flat in Malta, with white ornamental burglar bars over the windows on a narrow street in the resort town of Sliema.

The Chinese government’s ICO ban was why, a week later, Sun was waiting for a flight in Incheon International Airport. Sources who heard him tell this story say Justin believed he was a fugitive and was ready to take off at a moment’s notice. Sun also announced he’s now Grenada’s ambassador to the World Trade Organization, where he says he’ll advocate for favorable cryptocurrency policy. Because of the new title, one of his senior employees issued proper guidance to workers on Slack for how to correctly refer to Sun as “his excellency.” Former employees speculated the ambassadorship is a play for diplomatic immunity. But so far, he’s most notably used his public office to promote Tron.

Sun dodged the ICO ban, and in the midst of the trade war, he ignored the Chinese authorities’ attempts to contact him and demand he abandon a highly publicized lunch with Warren Buffet . In retaliation, the Chinese authorities detained six senior Tron employees and tried to sully Sun’s name in the press with corruption allegations. In some ways, Sun’s Maltese citizenship isn’t exceptional because he has other destinations he could escape to. He claimed in a court declaration that he is also a citizen of the Caribbean islands, Saint Kitts and Nevis. Another former employee told me Sun bragged offhand about intending to buy a passport from the small West African nation of Guinea-Bissau. But there was another more important secret about Sun’s relationship with Malta.

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The Many Escapes Of Justin Sun

The legal murk in which cryptocurrency originally exploded is one reason Sun looks to be legally unassailable. Seemingly, long-standing securities statutes ought to apply to crypto in obvious ways, but some haven’t been tested, like insider trading law. Some might even argue these are not new scenarios, and in some cases, cryptocurrency at large is just rehashing some of the same mistakes and scandals that begged for the financial laws the United States and many other countries have on the books.

“It’s definitely a crime to convert customer funds for personal use,” Verstein said. When Sun said he would chase citizenship for Guinea-Bissau, he urged a worker to start opening bank accounts there if it worked out. When he opened a checking account at First Republic Bank, he was vague about his occupation, saying he was a technology services provider, and told a former employee to never disclose his cryptocurrency work to bankers.