The stablecoin wars are in full swing and the DeFi ecosystem has been destabilized. In the last few days, digital asset exchange Huobi Global has been in a tailspin due to the release of an explosive financial analysis by Adam Cochran, a professor, investor, and head of Cinneamhain Ventures.
Cochran pointed out that while Huobi claims to have $631 million in assets on its balance sheet, in fact, Huobi’s actual holdings are closer to $90 million. Cochran concluded that Huobi is likely insolvent.
In response, Huobi suffered a massive sell-off which reduced the investment capital on the platform by more than $73 million. Justin Sun has tried to quell the FUD, maintaining that these rumors are untrue, but past experience suggests that Sun is full of shit and nothing he says should be given credence.
Afterward, Justin Sun allegedly transferred more than $209 million worth of digital tokens into Huobi, according to Arkham Intelligence and Peckshield. Sun said he had no comment on the transactions.
A Platform in Crisis
An unconfirmed rumor has it that “at least three” Huobi executives have been detained by Chinese authorities in connection with the operation of a casino. Huobi’s head of social media tweeted that the Chinese government “invites” Huobi executives to “drink tea” every year, which is a Chinese euphemism meaning that people are summoned by police or security officers for investigation.
Meanwhile, Chinese authorities issued an edict that read in part, “Overseas online telecommunications fraud must be severely cracked down in accordance with the law, resolutely safeguard the vital interests of the people, resolutely maintain social order and good customs, and resolutely safeguard the majesty of the rule of law.”
However, Huobi is under criminal investigation in multiple jurisdictions, including Malaysia, Seychelles, France, and the U.S. The drama has caused a top Huobi executive to resign in recent days. Obviously, all is not well.
Multiple passports and foreign bank accounts
Justin Sun has managed to slip through the fingers of regulators for the past 6 years. He has hundreds of millions of dollars at his disposal, spread across dozens of foreign bank accounts, and he has citizenship in various small nations that cheapen their national heritage by offering it to global criminals in exchange for money.
At the office, he reportedly throws temper tantrums and screams at his staff who must bring him meals on a platter, and occasionally endure threats and physical violence.
All the while, reporters and investors treat Justin Sun like an elite mogul. Meanwhile, he is laughing at U.S. Attorneys, at the SEC, and at the FBI, and they can’t touch him, despite their years-long investigation into his many crimes.
On Twitter (sorry “X”), users remarked that the FBI cannot or will not acknowledge that a report has been filed, so nobody knows if the FBI is even reviewing the reports that people file. It’s sad that scumbags like Justin Sun are able to outwit law enforcement, which collects and processes evidence at a glacially slow pace. It makes those of us who respect the rule of law look like chumps.
A Common Thief
Justin Sun created TRON, a blockchain DAO with an associated token, TRX. Changpeng Zhao, founder of Binance, allegedly tipped off Sun that China was about to outlaw ICOs, and Sun launched the ICO just days before the law changed, then he fled the country while investor money piled into his coffers.
The White Paper for TRX was at least partially plagiarized from Ethereum and is “conceptually indistinguishable” from Juan Benet‘s decentralized crypto projects, including 9 pages that were copied word-for-word.
Sun later used the funds from the ICO to purchase BitTorrent and Poloniex, which he used to abet his fraudulent businesses and steal funds from depositors like a common thief.
Lately, he calls himself an adviser to Huobi Global, a Decentralized Exchange (DEX). However, it seems like his role is deeper than a mere advisory one. In January, there was a report that Sun was the “real buyer” of Huobi Global “possibly with help from SBF,” although both of these criminals denied the report.
It certainly seems like Sun owns the platform after he propped up with $200 million in the spring and recently held talks to find a buyer for the platform.
Bear Market? Just steal from your clients!
Huobi Global was launched in China in 2013 and it went on to capture over 20% of the market. When China banned crypto in 2021, Huobi Global had to flee the country, setting up shop in Hong Kong and Singapore.
Along with its venture capital arm Huobi Ventures, Huobi Global is owned by Huobi Group, which was recently acquired by About Capital, a Hong Kong-based fund.
About Capital’s acquisition of Huobi Global was supposed to provide the capital injection needed by the platform in the wake of its exit from China and the challenging market environment.
At the time, it was announced that Huobi was seeking a “new shareholding structure with a global vision and international resources.” It seems the platform resorted to stealing funds from depositors.
Like Poloniex after Justin Sun got involved, Huobi Global now faces allegations of theft and intimidation. Allegedly, there is credible evidence that Huobi has stolen investor funds.
On Yavin, founder, and managing partner at Cointelligence Fund and co-founder and head of business at Syndika, posted a blurb on LinkedIn that read, in part, “We have seen credible evidence proving they stole $2M from a Cointelligence Fund portfolio company. Huobi also invested in that same company, which makes it a portfolio company of its own. Founders should not accept investments from Huobi Ventures. Investors are getting allocation in projects because they are supposed to help them grow and succeed, but in this case, Houbi is using its position as an investor to take advantage of founders and steal their money!”
Yavin might have been referring to Decimated, which responded to Justin Sun’s attempt to stabilize the markets.
When allegations surfaced online, Huobi filed fraudulent DMCA takedown requests to remove them from the internet. Yavin called this action “a despicable attempt to silence people.”
SEC jumps into the fray
Earlier this year, the SEC came after Justin Sun in March, accusing him of manipulating the secondary market for Tronix (TRX) with extensive wash trading. The SEC charged three of his wholly owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent).
Justin Sun tweeted that it was not because they had committed fraud but rather because the SEC was on a crusade against companies in the crypto space.
Normally, we might be sympathetic to this explanation. With Justin Sun, it’s a different story. His own employees have told reporters in the past that he openly engages in fraud and market manipulation, instructing his staff to break the law.
While running Poloniex, for example, Sun became frustrated with his staff’s pesky objections to breaking U.S. law regarding KYC (Know your customer) requirements, and he shouted, “Fake the KYC! Fake it!”
In the same action, the SEC also charged several celebrities, including Lindsay Lohan and Jake Paul, for shilling TRX without disclosing the payments they received for their endorsement. Sound familiar?
The SEC accused Sun of directing, “the manipulative wash trading of TRX to create the artificial appearance of legitimate investor interest and keep TRX’s price afloat,” while his team “engaged in hundreds of thousands of TRX wash trades between accounts that Sun ultimately controlled.”
“Buy my shitcoin!”
Someone asked Justin Sun if TRON is “a valid coin or a shit coin,” and he answered, cackling, “It’s a shit coin” and then suggested that people should “Buy it immediately.”
Justin Sun openly admits that his business is a fraud. Nobody has held him accountable in any jurisdiction and he thinks it’s all just a funny joke. Investors aren’t laughing, but they have been unable to recover their funds due to the lack of regulation in Seychelles, the jurisdiction where Huobi’s headquarters (read: mailing address) is located.
This situation is reminiscent of how Justin Sun supervised the theft of user funds on Poloniex, which was referred to internally as “Operation Couch Cushions.”
Huobi enables sanctions-busting
Huobi has violated sanctions by accepting transactions with Garantex, a sanctioned digital currency exchange originally registered in Estonia and based in Moscow and St. Petersberg since February 2022 when Estonian authorities revoked its license. Yuriy Gorodeskiy, a cybercrime researcher, has tracked various large transactions between Huobi and Garantex, which is a sanctions violation.
Russia has long been a haven for cybercriminals because the Kremlin has found them useful in the furtherance of its global intelligence and policy goals. Cryptocurrency has been integral in the operation of ransomware as a service (RaaS) and money-laundering networks. Western regulators have targeted several digital asset exchanges with sanctions recently because they enabled such operations.
Recently, The U.S. Department of the Treasury’s Office of Foreign Asset Control (OFAC) added SUEX, CHATEX, Hydra, and Garantex to the list of sanctioned entities because they “willfully disregard anti-money laundering and countering the financing of terrorism (AML/CFT) obligations and allow their systems to be abused by illicit actors.”
In an email to #DisruptionBanking, Yuriy Gordodeskiy noted that Garantex changes wallet addresses every week in order to avoid being tracked.
Justin thinks it’s okay.
Ultimately, it seems likely that Justin Sun may have been pulling an SBF, moving investor funds without permission or notice from one platform, FTX, to invest in another, Alameda. Cochran observed that Sun might be utilizing exchanges like Poloniex and Huobi as his “piggy” banks, borrowing substantial amounts against Huobi assets, then investing in JustLend, a lending platform on the Tron.
Justin Sun did not respond to requests for comment sent on Twitter (Sorry, “X“) or by email.
If the appearance of dwindling capital is real, it’s likely that TRON, USDT, and Huobi users will all be impacted in a major way.
Among those who have worked for him, Justin Sun is famous for saying “I think it’s okay,” when his subordinates bring up potential legal and ethical issues. We at #DisruptionBanking don’t think that it’s going to be okay this time around.
Author: Tim Tolka, writer, journalist, and BI researcher
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.