Recently, a class of plaintiffs whose Digital Assets have been stolen filed a class action against Binance and its founder, alleging that Binance knowingly allowed Digital Asset hackers to use Binance.com to launder stolen assets, in order to increase Binance’s revenue. The lawsuit, Martin v. Binance Holdings, Ltd., No. 2:24-cv-01264 (W.D. Wash.), alleges that Binance knowingly participated in a “Crypto-Wash Enterprise” in which it allowed Digital Asset hackers and thieves to transfer stolen assets to Binance.com, in order to launder the assets and make them untraceable. This case highlights the growing problem of Digital Asset hacking and theft, and the lax safeguards currently in place to prevent it. If Binance and other Digital Asset exchanges can be held directly liable for the money laundering of stolen Digital Assets, it would set a major precedent that could change industry standards for addressing this issue.
The Binance “Crypto-Wash” plaintiffs assert a federal RICO claim for operating a criminal enterprise, and claims for conversion and aiding and abetting conversion on behalf of a class of people within the United States whose crypto was stolen from a non-Binance source, and transferred to a Binance.com account (operated by Binance) on or after August 16, 2020. The Plaintiffs draw heavily on the November 2023 Binance and Changpeng Zhao plea agreements to allege a “Binance Crypto-Wash Enterprise,” whereby defendants knowingly violated anti-money laundering, know-your-customer, and customer due diligence laws, and willfully violated U.S. economic sanctions, “in a deliberate and calculated effort to profit from the U.S. market, without” complying with U.S. law. In short, Binance allegedly knowingly violated U.S. law by deliberately allowing Digital Asset hackers and thieves to launder their money using Binance.com, in order to maximize profits for Binance’s business.
Binance allegedly permitted users to open accounts essentially anonymously, by requiring noting more than a user’s email address and password. This allegedly “turned Binance.com into a magnet and hub for criminals, users from sanctioned jurisdictions, terrorists and other bad actors” who sought to launder stolen Digital Assets. Once a hacker or thief transferred the stolen Digital Assets to a Binance.com account, the thief would then exchange the stolen Digital Assets for other tokens, and then eventually withdraw those converted assets through multiple wallets. This offered “bad actors a way to remove the connection between the ledger and their digital assets so the digital assets would no longer be traceable.”
This is a timely lawsuit, because Digital Asset hacking thefts are skyrocketing. Hackers stole over $1.38 billion worth of crypto as of June 24, 2024, compared with $657 million in the same period last year.[1] Thieves are getting bolder: the median 2024 theft is one-and-a-half times larger than last year. (Id.) And regulators are reacting. Last year, the New York State Department of Financial Services fined Coinbase, the largest American cryptocurrency exchange, $50,000,000 for failure to implement adequate know-your-customer and anti-money laundering processes, and Coinbase also agreed to commit an additional $50,000,000 toward better safeguards.[2] And last month, the Consumer Financial Protection Bureau revealed that it is investigating banks that own Zelle, the widely used money-transfer service, for failing to compensate customers who fall victim to crypto hacking scams while transacting on Zelle.[3]
Digital Asset hacking is a bigger problem than ever. So regulators and lawsuits will be pushing harder than ever to hold Digital Asset market participants liable for customer losses. Those who transact in cryptocurrency should stay vigilant of these scams. But even sophisticated customers can be victimized.
Sadis & Goldberg litigators have experience tracking down stolen Digital Assets through blockchain analysis, working with regulators, and bringing lawsuits to recover assets where necessary. We are also experienced in advising Digital Asset market participants on how to establish proper controls and procedures to prevent Digital Asset hacks from occurring. If you have had any Digital Asset hacked or stolen, please contact Douglas Hirsch (dhirsch@sadis.com), Samuel Lieberman (slieberman@sadis.com), or Frank Restagno (frestagno@sadis.com).
