Issue 77 – Whenever presidents get involved, if they become angry, you don't want to be there

Issue 77 – Whenever presidents get involved, if they become angry, you don't want to be there

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In the wake of President Trump’s unprecedented decision to launch a memecoin on January 17 (in which most people lost money, as I helped the New York Times report), other governments and government figures are jumping on board, and to even more catastrophic results.

The first country to seemingly follow Trump’s playbook was Cuba on January 19, although the announcement of a memecoin by the country’s official government Twitter account turned out to be a scam perpetrated by yet another hacker successfully compromising a high profile Twitter account — something that happens so frequently that I’ve had to stop covering most of them.¹ Then, a memecoin seemingly launched by the Central African Republic on February 9 was met with initial concern that it too was coming from a hacked account, although continued posts by the country’s president in the days following the launch makes it seem like the token was legitimately — if poorly — launched by government entities. As so often happens with memecoins, the token price collapsed by more than 95% within about a day of its launch.²

The most explosive by far, however, was the decision by Argentine president Javier Milei to promote a memecoin called $LIBRA.^a As I wrote when he was elected, Milei is a “right-wing libertarian and self-described anarcho-capitalist” and “as you might expect, he's a fan of Bitcoin” [I44]. Milei has styled himself in Trump’s image, and both have vocally bashed “woke ideology”, made claims of corruption and worse against political opponents and critics, and promised to dramatically cut the size of the government (with Milei sometimes wielding a chainsaw at political rallies in symbolism of this oath).

On February 14, Milei wrote in a tweet that the “private project” $LIBRA would be “dedicated to encouraging the growth of the Argentine economy by funding small Argentine businesses and startups” [W3IGG]. His endorsement sparked an influx of trading, which was suddenly wiped out within hours when it appeared that insiders had rug-pulled the token to the tune of at least $100 million. Milei then deleted his original endorsement and tried to distance himself from the project, tweeting that he was “not aware of the details of the project” and had “decided not to continue spreading the word” once he had become aware.³

While Milei probably hoped that would be the end of it, it only got messier from there. It wasn’t long before crypto sleuths, namely our friend Coffeezilla, got in touch with members of the team behind Libra. Hayden Davis is the CEO of a firm called Kelsier Ventures, and he reportedly launched the Libra token in concert with Julian Peh (of KIP Protocol) and two individuals from a group called Tech Forum Argentina. Davis had also been a part of the launch of the Melania Trump memecoin in January (though I will note the team behind $MELANIA was not the team behind $TRUMP, although many of the early snipers overlapped — put a pin in that) [I75].

In text messages published by CoinDesk and separately by Argentine publication La Nación, Davis wrote to an associate that he “controls” Milei. “I send $$ to his sister and he signs whatever I say and does what I want.”

Davis outright admitted in recorded interviews with Coffeezilla^b and Barstool Sports’ Dave Portnoy that they had sniped their own token — that is, used bots to buy up a large portion of the new token very early into its launch.

While sniping by outside entities is not unusual in the crypto world, an entity sniping their own token launch amounts to insider trading. Davis tried to play this off as an uncontroversial and sort of necessary evil in order to prevent others from sniping the token to the detriment of other traders, but the rest of the crypto world reacted with disgust at this blatant manipulation that left Davis sitting on around $100 million (on paper).

Davis claimed “I’m not running off with the money”, and that he had been instructed to “inject” the funds back into the project upon a signal from President Milei: a second video that never came once Milei distanced himself from the project. Once that happened, Davis seemed confused as to what to do. Asked who the money belonged to, he stammered, before stating “Argentina, I guess?”⁴ But later, Davis said “I do not feel comfortable transferring them to Milei's associates or the KIP team” and instead suggested he should “reinvest” the funds back into Libra.⁵

But the rot uncovered here seems to go far deeper than just some random blockchain venture capital firm. A recording of a 26-minute-long call between Moty Povolotski, the co-founder of a project called DefiTuna, and Ben Chow, a co-founder of the Meteora decentralized exchange, was posted on Twitter.⁶ Meteora and Jupiter are two popular Solana decentralized exchanges, which have enjoyed massive spikes in trading volume amid the memecoin frenzy. Ben Chow has just resigned amid allegations that he was directly involved in a massive insider trading scheme implicating other members of Solana defi projects including Jupiter, and involving presidentially-linked tokens Libra and $MELANIA. It turns out that the owner of Jupiter, known only as “meow”, also co-founded Meteora, which we learned when he came forward to announce that he would be kicking off an independent investigation of activities at Meteora under Chow’s leadership, although he also “reiterate[d his] confidence that no one at Jupiter or Meteora committed any insider trading or financial wrongdoing”.

The call is so bonkers that I just transcribed the whole dang thing for you. “The whole thing just looks rotten to the very core. Like, I don't have words to express...” said Povolotski, describing witnessing rampant manipulation and token sniping by the people launching presidentially-linked tokens, the influencers being paid to promote them, and those working at major Solana projects including Jupiter and Meteora. Both Povolotski and Chow seem to grasp the weight of this during one exchange in the call:

Povolotski: And the worst thing of all is, it's a president that gets a bad image. And whenever presidents get involved, and if they become angry, you know, you don't want to be there. Not only that, this is international. This isn't $20. This is not $100 million. This is like 200 to— this is FTX type of shit.
Chow: Fucking hell, man. I feel sick. I feel so sick, man. Holy shit. I feel really, really fucking sick. Oh my god.
Povolotski: This is like Do Kwon or what's his name type of money. I mean...
Chow: This is, this is, this is, this is SBF level, man.

Later in the call, Povolotski reiterates: “This is like high-level stuff. This isn't $10 or $100. This is in the multi-millions with a president, two presidents, one with his wife and the other is a president. Like, this is... I don't know anyone higher.” Chow replies, “Okay. All right, let me... I'm really fucking scared, man.”

Meanwhile, Javier Milei is facing fallout of his own. Lawmakers in Milei’s opposing party have threatened to bring impeachment proceedings against the president, though they may not be able to muster the votes to bring a trial.⁷ Argentine lawyers have filed at least 100 fraud complaints against the president in criminal courts.⁸ A federal judge has been assigned to investigate Milei’s role in the scheme. The Argentine stock index crashed 5.6% after the scandal. And a source quoted by Reuters described this as “the biggest reputational crisis of [Milei’s] government”, and some speculated that this could damage his government’s momentum into midterm elections.⁹

Although Milei tried to do a televised damage control interview with Todos Noticias about the crypto scandal, when it was uploaded to YouTube by TN, an additional two-minute segment clipped from the original was also erroneously included. In the later-removed clip, Milei said he planned to use the state’s legal resources to work on his behalf. An adviser interrupts to whisper in his ear, after which the interviewer states, “Yes, I understand, I realize this could bring you a judicial mess.” Another earlier comment by the interviewer in the accidentally uploaded segment revealed that the interview questions had been vetted by Milei’s sister and several other close associates.¹⁰ Milei later stated in on-air section of the interview that those who had purchased the token knew what they were getting into, saying, “It's like playing Russian roulette and getting the bullet.”¹¹

In the courts

Alexander Vinnik, a Russian man who in May 2024 pleaded guilty to conspiracy to commit money laundering in connection to his operation of the notorious BTC-e cryptocurrency exchange [I57], has been freed in a prisoner swap with Russia. In return, Russia handed over American schoolteacher Marc Fogel, who was arrested in 2021 when he tried to enter Russia with a small amount of medical marijuana. Russia has been trying to obtain Vinnik’s release ever since he was arrested in Greece in 2017, including by charging him with minor fraud in an attempt to have him extradited there rather than to the United States. However, in that case he was extradited to France, where he served a five year prison term for money laundering before being sent to the US. “We have been actively lobbying with the old [US] administration and for the last month with the new administration so that our client would be released, let’s say, under any circumstances,” said Vinnik’s lawyer. The release has been cheered by Russian officials and others who view it as a deal that favors Russia; a pro-Kremlin analyst quoted by the Washington Post commented, “This exchange is beneficial to Russia. Russia freed Mark Fogel, an ordinary teacher who dabbled in drugs. And Russia gets Vinnik, who the U.S. accuses of creating a huge system for bypassing U.S. and E.U. sanctions using cryptocurrencies. There were billions there.” However, the Trump administration has been trying to downplay the swap by comparing it to the Biden administration’s release of international arms dealer Viktor Bout in exchange for American professional basketball player Brittney Griner, who had also been detained by Russian authorities for possessing medical cannabis. “We are not trading the Merchant of Death for a basketball player,” said a White House spokesperson;¹² Trump said the US gave up “not much” in exchange for Fogel’s release.¹³

Burwick Law and Wolf Popper, the two law firms suing the pump.fun memecoin platform in two separate class action suits [I74, 76], have filed a cease and desist with pump.fun demanding they remove from the platform memecoins including $DOGSHIT2 and several others using the companies’ logos. As I noted in Issue 76, the “Dog Shit Going Nowhere” token (which uses the $DOGSHIT2 ticker) appeared to have been created by Burwick Law as an example for the court as to how easy it is to deploy a memecoin on the platform. However, after crypto traders spotted the token in the court filings and began trading it, Burwick denied having launched it, claiming it was only ever “memory on the server”. Now they’re demanding pump.fun remove it from their platform, repeating that “our firms have no affiliation, endorsement, or ownership interest in the Dogshit2 token or any related assets. Simply put, our firms have not launched any memecoins onchain.” The announcement of the cease-and-desist, and accompanying legal threats against pump.fun for “launch[ing] tokens through, and in conjunction with, the efforts by third parties to intimidate our clients and interfere with ongoing litigation”, were met with widespread ridicule from the crypto world, and the $DOGSHIT2 token — naturally — spiked in price.¹⁴

A federal judge has denied Coinbase’s latest motion to dismiss a class action lawsuit brought against them in October 2021. The suit, which alleges that Coinbase illegally offered securities, was dismissed in 2023, but the Second Circuit reversed a portion of the judgment in April 2024. Coinbase moved to dismiss the case again, but Judge Paul Engelmayer denied the motion, and the case will move forward to discovery.¹⁵

Braden John Karony, one of the executives charged in connection to the massive SafeMoon fraud [I43, W3IGG], attempted to delay his trial by a month, arguing that “the new administration has announced that the current regulatory regime governing digital assets will undergo significant changes.”¹⁶ Prosecutors opposed the request, writing that “Karony points only to aspirational regulatory policies that do not exist.” They also noted that Karony is charged with wire fraud and money laundering conspiracy in addition to securities fraud conspiracy, and that the former two charges would not be impacted by changes to securities laws.¹⁷ The judge denied Karony’s request, and jury selection is scheduled for March 31.¹⁸ It was worth a shot.

Austin Michael Taylor, a Twitch streamer who went by DNP3, was sentenced to 27 months in prison for wire fraud after stealing and gambling away investor funds. Investors had sunk $1.14 million into several crypto projects launched by Taylor, but in January 2023, Taylor publicly admitted he had taken the funds to feed his gambling addiction [W3IGG]. Taylor will also pay $1.14 million in restitution and forfeiture.¹⁹

Eric Council Jr., the man who compromised the SEC’s Twitter account in January 2024 and used it to falsely — or at least prematurely — announce that bitcoin spot ETFs had been approved [I48, 69], has pleaded guilty to conspiracy to commit aggravated identity theft and access device fraud. (The SEC did approve bitcoin spot ETFs, which it announced the day after Council’s tweet.) Prosecutors allege that Council and his co-conspirators were hoping to profit from the brief increase in bitcoin prices as a result of the fake tweet. He faces up to five years in prison, and has agreed to forfeit $50,000 in proceeds from the scam.²⁰

The two operators of the $575 million HashFlare cryptocurrency Ponzi scheme have pleaded guilty, after they were extradited from Estonia last June [I59]. They’ve agreed to forfeit more than $400 million in assets, and face up to 20 years in prison.²¹

Brent Kovar, a Las Vegas businessman, has been indicted on multiple counts of wire fraud, mail fraud, and money laundering in connection to a $24 million cryptocurrency Ponzi scheme called Profit Connect. He claimed that he was using artificial intelligence running on a supercomputer to mine cryptocurrency, and promised his investors 15–30% APR with a 100% money back guarantee. Instead, the project is alleged to have been a classic Ponzi scheme, and what “returns” he did pay out came from others’ investments.²²

In the US government

Maxine Waters (D-CA) has published her own draft stablecoin bill, following the Republican-led STABLE Act in the House and GENIUS Act in the Senate (hmm). Waters’ draft is a product of her work under the previous administration, where she and previous House Financial Services Committee Chair Patrick McHenry (R-NC) grappled over it for several years. The Waters draft, unsurprisingly, suggests more stringent regulations and oversight than the newer Republican-led bills, leading crypto commentators to attack it as a “non-starter” and as though it was “written by the American Banker's Association”.²³

In regulators

Although early reporting suggested the SEC would likely look to “potentially freeze some litigation that does not involve allegations of fraud” [I74], the first case the SEC has proposed freezing is SEC v. Binance: a case alleging serious fraud and knowing violation of US securities laws.²⁴ To jog your memory, this is the case where the company’s Chief Compliance Officer put in writing: “we are operating as a fking unlicensed securities exchange in the USA bro”. The original complaint alleges that not only did Binance lie about trying to prevent fraudulent behavior on Binance.US, one of the primary companies involved in illegal wash trading on the exchange was controlled and operated by Binance’s founder and Binance employees. Despite claims from the SEC’s new leadership that they intend to provide “sensible, clear rules” without providing a “haven for fraudsters”,²⁵ this action definitely seems to reveal their true marching orders. The judge in the case granted a sixty day stay.

When I saw the news about the Binance stay on February 11, I observed: “It’s likely that [the SEC] will soon request to pause ongoing enforcement cases against companies including Coinbase, a company which has alone spent more than $100 million on political lobbying over the past two years.” Sure enough, on February 14, the SEC requested a 28-day extension of the deadline to respond to Coinbase’s appeal to the Second Circuit, commenting that President Trump’s “crypto task force’s work may affect and could facilitate the potential resolution of both the underlying district court proceeding and potential appellate review, conserving judicial resources. Because the Commission’s review of crypto-related issues is ongoing, the Commission requests this additional time to prepare its answer to Coinbase’s petition and for appropriate review.”²⁶ In other words, this case is almost certainly toast.

Over at the CFTC, Trump has finally formally picked a nominee to lead the agency, and it is yet another employee of Andreessen Horowitz.²⁷ By my count, Brian Quintenz is the fourth a16z-er to take a major role at the White House (in addition to founder Marc Andreessen, who has been influential with Musk’s “DOGE”; Scott Kupor, new head of the Office of Personnel Management; and Sriram Krishnan, who is advising on AI for the Office of Science and Technology Policy.) Quintenz is a former CFTC commissioner who waltzed through the revolving door from Trump’s last administration into a role as cryptocurrency policy lead at a16z, and will certainly take a lead role in installing the friendly regulatory policy a16z has spent over $75 million (and counting) to essentially write themselves.

$TRUMP

Consumer advocacy group Public Citizen has filed a complaint with the Justice Department and the Office of Government Ethics over the $TRUMP memecoin, asking for a federal investigation into whether Trump’s promotion of the token violated laws against soliciting gifts.²⁸ Given that new DOJ head Pam Bondi has taken a central role in the “Thursday Afternoon Massacre” — an exhibit of judicial corruption that in more normal times should well eclipse its Nixon-era namesake — and that Trump has already fired the OGE head to replace him with a devoted loyalist, this complaint may well be swept under the rug along with many other similarly justified concerns.

The Web3 is Going Just Great recap

There were four entries between February 5 and February 17, averaging 0.3 entries per day. $117.08 million was added to the grift counter.

• Argentine president Javier Milei promotes memecoin that then crashes 95% in apparent $100 million+ rug pull [link]
• zkLend hacked for around $9.5 million [link]
• Trader accidentally sends 2,000 SOL to bankrupt FTX [link]
• BNB-based pump.fun competitor Four.Meme loses $183,000 to attack [link]

Worth a read

In the news

Other mentions and appearances since my last recap issue can be found in 404 Media, 404 Media again, The Washington Post, Voice of America (video) and the two German language publications Watson and Der Tagesspiegel. I also appeared on episodes of the podcasts Fast Politics (with a Molly of the Jong-Fast variety), Western Kabuki, and Ten Thousand Posts (paywalled).

That's all for now, folks. Until next time,

– Molly White

I have disclosures for my work and writing pertaining to cryptocurrencies.