4 ms·

They really don't have any leg to stand on. A smart contract is a piece of code running on a public permissionless blockchain. The developers who deployed that

by glerk 4y ago

They really don't have any leg to stand on. A smart contract is a piece of code running on a public permissionless blockchain. The developers who deployed that code do not own it. Medjedovic had as much the right to take money out of the smart contract using the contract's logic as Kellar and Day. Being blockchain developers, Kellar and Day know these facts very well, but they persist in their hypocrisy because it is in their financial interest to do so. They are betting on a non-technical jury being convinced by a good lawyer that Medjedovic "hacked them" or "stole their funds" (which is not at all what happened here).

woojoo666 4y ago
By that token, wouldn't rugpulls be legal too?
- glerk 4y ago
  Probably? A priori there is nothing wrong with someone who owns a large amount of a certain asset transferring it into a liquidity pool in exchange for a different asset. It gets more murky if a founder explicitly lies to investors in order to get them to buy their token. Fraudulent misrepresentation is problematic in most jurisdictions, but this has nothing to do with the mechanics of the "rugpull" itself.
  - s1artibartfast 4y ago
    rugpulls are different because crypto developers lie and deceive investors in their disclosure. A better example would be 3rd parties pumping and dumping a crypto asset. Should this be illegal?
  - ac29 4y ago
    Here's a recent case where the SEC litigated misappropriation of funds among other things: "According to the SEC's complaint, the defendants misappropriated nearly $4 million of investor funds. The SEC also alleges that Chiang and Tippetts misused additional Sharenode investor funds by spending at least 133 bitcoin to list NSG tokens on an unregistered trading platform and to fund a team of captive traders to trade NSG tokens amongst themselves to create the false appearance of a robust market with increasing prices. These traders allegedly created the false impression that more than $2.5 million worth of NSGs were traded daily on BitForex during the first 60 days and that the price of NSGs was steadily increasing due to investor demand. According to the complaint, however, the manipulation scheme collapsed when investors tried to sell their NSG tokens, because there were no actual buyers, causing the token's trading price and volume to fall precipitously." This isnt exactly a classic "rugpull", but it does make it fairly clear that you cant just take customer funds and use them however you'd like just because its a cryptotoken and you have access to the smart contracts controlling it. You really shouldnt use customer funds in furtherance of additional frauds, like these people did here. https://www.sec.gov/litigation/litreleases/2022/lr25377.htm https://www.sec.gov/litigation/litreleases/2022/lr25377.htm
    - paulmd 4y ago
      That doesn't really turn on any crypto-related concepts at all, but rather false/deceptive disclosures about the security itself. That actually would be equally illegal to do with regular securities too - you don't fuck around with disclosure documents, that's an absurdly easy way to go straight to jail. > These traders allegedly created the false impression that more than $2.5 million worth of NSGs were traded daily on BitForex during the first 60 days and that the price of NSGs was steadily increasing due to investor demand. According to the complaint, however, the manipulation scheme collapsed when investors tried to sell their NSG tokens, because there were no actual buyers, causing the token's trading price and volume to fall precipitously." This is also the fund owners doing something nefarious - that doesn't mean that somebody else executing a transaction according to the contract and the market could be held accountable because the fund's customers lost money. Someone has to be on the other end of every transaction, that is how a market works.
- t_mann 4y ago
  Rugpulls, as in projects attracting funds and then absconding with them, are different from exploits in that they involve outright lies / deception. There's a (moral, at least) difference between bad intent and honest incompetence. The attacker didn't ask anyone to contribute the funds that he appropriated.
  - woojoo666 4y ago
    But if we're talking about bad intent, then we could easily argue that Medjedovic (the hacker) acted with bad intent in this case. It goes both ways. If code is law, then hacks would be legal but so would rugpulls. If code is still ruled by law, then rugpulls and hacks can be judged by things like intention.
    - t_mann 4y ago
      That dichotomy doesn't exist, because everything is ruled by law. But the courts look at the entire situation as well, and you'll find that having actively lied to people or not does make a difference in fraud cases.

by glerk 4y ago

woojoo666 4y ago

By that token, wouldn't rugpulls be legal too?

glerk 4y ago
Probably? A priori there is nothing wrong with someone who owns a large amount of a certain asset transferring it into a liquidity pool in exchange for a different asset. It gets more murky if a founder explicitly lies to investors in order to get them to buy their token. Fraudulent misrepresentation is problematic in most jurisdictions, but this has nothing to do with the mechanics of the "rugpull" itself.
- s1artibartfast 4y ago
  rugpulls are different because crypto developers lie and deceive investors in their disclosure. A better example would be 3rd parties pumping and dumping a crypto asset. Should this be illegal?
- ac29 4y ago
  Here's a recent case where the SEC litigated misappropriation of funds among other things: "According to the SEC's complaint, the defendants misappropriated nearly $4 million of investor funds. The SEC also alleges that Chiang and Tippetts misused additional Sharenode investor funds by spending at least 133 bitcoin to list NSG tokens on an unregistered trading platform and to fund a team of captive traders to trade NSG tokens amongst themselves to create the false appearance of a robust market with increasing prices. These traders allegedly created the false impression that more than $2.5 million worth of NSGs were traded daily on BitForex during the first 60 days and that the price of NSGs was steadily increasing due to investor demand. According to the complaint, however, the manipulation scheme collapsed when investors tried to sell their NSG tokens, because there were no actual buyers, causing the token's trading price and volume to fall precipitously." This isnt exactly a classic "rugpull", but it does make it fairly clear that you cant just take customer funds and use them however you'd like just because its a cryptotoken and you have access to the smart contracts controlling it. You really shouldnt use customer funds in furtherance of additional frauds, like these people did here. https://www.sec.gov/litigation/litreleases/2022/lr25377.htm https://www.sec.gov/litigation/litreleases/2022/lr25377.htm
  - paulmd 4y ago
    That doesn't really turn on any crypto-related concepts at all, but rather false/deceptive disclosures about the security itself. That actually would be equally illegal to do with regular securities too - you don't fuck around with disclosure documents, that's an absurdly easy way to go straight to jail. > These traders allegedly created the false impression that more than $2.5 million worth of NSGs were traded daily on BitForex during the first 60 days and that the price of NSGs was steadily increasing due to investor demand. According to the complaint, however, the manipulation scheme collapsed when investors tried to sell their NSG tokens, because there were no actual buyers, causing the token's trading price and volume to fall precipitously." This is also the fund owners doing something nefarious - that doesn't mean that somebody else executing a transaction according to the contract and the market could be held accountable because the fund's customers lost money. Someone has to be on the other end of every transaction, that is how a market works.
t_mann 4y ago
Rugpulls, as in projects attracting funds and then absconding with them, are different from exploits in that they involve outright lies / deception. There's a (moral, at least) difference between bad intent and honest incompetence. The attacker didn't ask anyone to contribute the funds that he appropriated.
- woojoo666 4y ago
  But if we're talking about bad intent, then we could easily argue that Medjedovic (the hacker) acted with bad intent in this case. It goes both ways. If code is law, then hacks would be legal but so would rugpulls. If code is still ruled by law, then rugpulls and hacks can be judged by things like intention.
  - t_mann 4y ago
    That dichotomy doesn't exist, because everything is ruled by law. But the courts look at the entire situation as well, and you'll find that having actively lied to people or not does make a difference in fraud cases.