The High Court of Singapore has ruled that the Multichain Foundation, a cross-chain router protocol, must compensate the Fantom Foundation for losses incurred during a significant hack. This decision comes after the July 2023 incident where Multichain experienced abnormal outflows, later confirmed to be the result of a hack.
In July 2023, Multichain Foundation, a Chinese cross-chain protocol, suffered a major security breach. This hack led to a loss of over $210 million in assets across multiple blockchain networks. The affected protocols included Fantom, BNB, Ethereum, Cronos, Arbitrum, Polygon, Optimism, zkSync, and Moonbeam.
Legal Verdict for Multichain
The Fantom Foundation took legal action by reporting their financial losses to the High Court of Singapore. During the court hearing on June 3, 2024, Fantom’s legal team presented collected evidence demonstrating the financial impact of the hack.
Notably, representatives from Multichain were absent from the proceedings. The court reviewed the evidence and confirmed that the CEO of Multichain had ultimate privileges and control over the cryptocurrency assets stored in the Multichain Bridge.
On July 8, 2024, the court ruled in favor of Fantom, awarding them $2.18 million in damages. This compensation is intended to cover the losses it suffered during the hack.
Crypto Loss Incidents Double in Q2 2024
The ruling against Multichain comes when the cryptocurrency industry is grappling with increased losses from hacks and scams. According to research by blockchain analytics firm Immunefi, the second quarter of 2024 recorded crypto losses more than double compared to the same period in 2023, with a majority of these losses occurring due to hacks on centralized exchanges.
In Q1 2024, there was a decline in losses from hacks and scams, with Immunefi reporting a 23% reduction. This decline persisted through April and most of May. However, losses surged again towards the end of May and into June.
Paxful Co-founder Faces Jail for AML Failures
Meanwhile, Artur Schaback, Paxful’s co-founder, is facing up to five years in prison after pleading guilty to conspiring to fail to maintain an effective Anti-Money Laundering (AML) policy. Accordingly, the US Justice Department announced that Schaback’s sentencing is scheduled for November 4.
Schaback, who also served as Paxful’s Chief Technology Officer, has agreed to resign from the company’s board as part of the plea deal. Moreover, Schaback’s guilty plea includes a financial penalty, a fine of $5 million in three installments: the first $1 million at the time of his guilty plea, an additional $3 million by the date of his sentencing, and the final $1 million within two years.
Regulatory Failures at Paxful Exposed
The charges against Schaback stem from allegations that he, along with an unnamed co-conspirator identified as Paxful’s “President and Chief Executive Officer,” failed to establish an AML measure within the required 90 days of the business’s inception.
The Bank Secrecy Act mandates such a measure to prevent money laundering and other illicit activities. Additionally, Schaback neglected to implement a Know Your Customer (KYC) program, which is essential for verifying users’ identities on the exchange.
The lack of effective AML and KYC programs made Paxful vulnerable to being used for money laundering and other criminal activities such as fraud, extortion schemes, romance scams, and prostitution. Between July 2015 and June 2019, Paxful allowed users to open accounts and trade without providing sufficient identity information, which further facilitated illegal activities.
When third parties requested an AML policy, Schaback and his co-conspirator presented a plagiarized policy from another institution.