In a stunning turn of events, the implosion of crypto exchange FTX and its sister trading firm Alameda Research has taken an even darker twist. Newly filed bankruptcy court documents allege that a notorious crypto whale trader known as “Humpy” engaged in a series of market manipulation schemes that ultimately drained $1 billion from the now-defunct empire founded by Sam Bankman-Fried.
The Billion Dollar Whale
The 32-page lawsuit filed by FTX’s restructuring team in Delaware bankruptcy court last week paints a shocking picture of the havoc that one rogue trader can wreak in the Wild West frontier of crypto. It alleges that between January 2021 and September 2022, a crypto whale named Nawaaz Mohammad Meerun, a.k.a. “Humpy the Whale,” single-handedly orchestrated what it calls “massive market manipulation schemes” against FTX.
By allegedly accumulating huge positions in highly illiquid tokens, artificially pumping their prices by as much as 10,000%, and then borrowing against those inflated values to extract funds from FTX, Humpy is accused of defrauding FTX and Alameda out of a staggering sum. “All told, FTX and Alameda suffered approximately $1 billion in losses due to Meerun’s crimes,” the filing claims.
“Debtors also have identified extensive ties to Polish, Romanian, and Ukrainian organized crime networks, including groups linked to human trafficking, as well as to Islamic extremist networks linked to terrorist financing.”
– FTX bankruptcy lawsuit
The Anatomy of a Crypto Con
According to the suit, Humpy targeted thinly traded tokens like BTMX, BAO, and KNC, at one point amassing a position equal to half the entire circulating supply of BTMX. By bidding up prices to stratospheric heights and then borrowing against his inflated holdings on FTX, he was able to extract hundreds of millions from the exchange.
FTX’s margin rules, flawed as they were, required borrowers to repay loans as prices of the collateral fell. But Humpy “had no intention of complying with FTX’s rules,” the filing states. Instead, he simply walked away with the proceeds as token prices inevitably imploded without his price support.
“By the time the dust settled on the BTMX/MOB situation in August 2021, Alameda personnel estimated that Alameda had already lost $1 billion as a result of Meerun’s actions.”
– FTX bankruptcy lawsuit
Compounding the losses, Alameda reportedly attempted to cover Humpy’s short positions in some tokens by buying massive quantities, only to be left holding the bag. In one case involving the MOB token, this forced “Alameda to pay significantly inflated prices” before the token “collapsed shortly after Alameda slowed its buying spree.”
From Crypto to Crime
Perhaps most alarming are the lawsuit’s claims, albeit lacking in detail, that tie Humpy to transnational organized crime and terrorist groups. These allegations elevate the seriousness of the case from a matter of crypto market fraud to one with grave criminal and national security implications.
The filing asserts that Humpy has “used the proceeds of his exploits to fund a wide range of other criminal activity” but does not provide specifics. It goes on to state that FTX’s restructuring team has “identified extensive ties to Polish, Romanian, and Ukrainian organized crime networks, including groups linked to human trafficking, as well as to Islamic extremist networks linked to terrorist financing.”
Déjà vu: The Compound Connection
The FTX suit also sheds light on Humpy’s previous claim to fame: the so-called “governance attack” on decentralized lending protocol Compound Finance in 2022. Using the COMP governance token, Humpy and a group of allies dubbed the “Golden Boys” managed to force through a controversial proposal to create a new yield-bearing cToken called goldCOMP.
Critics accused Humpy and crew of not only manipulating the governance process but attempting to misappropriate over $20 million in Compound treasury funds. Concerns over the effective centralization of control by a small cabal of whales ultimately led to a “peace treaty” that saw Humpy walk away with additional payments “in exchange for not further seeking to exploit the protocol.”
The House of Cards Collapses
While the full scope of Humpy’s alleged manipulation has yet to be revealed, it certainly seems to have played a significant part in the staggering losses and leverage that brought down Bankman-Fried’s crypto empire. As the lawsuit notes, FTX and Alameda personnel sought to conceal the trader’s initial $450 million BTMX scheme in January 2021 by taking “the now-familiar course of action” of simply booking the losses to Alameda.
This apparent pattern of papering over holes left by Humpy’s attacks no doubt contributed to the over $8 billion shortfall in customer funds that was exposed when the music finally stopped in November 2022. While the lawsuit is seeking to recover as much of the $1 billion in Humpy-related losses as possible to make account holders whole, the chances of clawing back the full sum from an alleged international criminal seem remote at best.
The Whale in the Coal Mine
Regardless of how successful FTX’s estate is in extracting restitution from Humpy the Whale, his antics serve as a cautionary tale for the entire crypto space. The relative lack of liquidity, the concentration of token ownership among whales, and the lure of unregulated leverage make manipulation a constant threat.
Combine those factors with the apparent complicity of bad actors like those at FTX and Alameda in covering up the fallout, and you have a recipe for exactly the sort of disaster that played out. Until the industry matures to the point where such risks can be monitored and mitigated more effectively, crypto investors would do well to remember that even the biggest players can be capsized by a single rogue whale on the hunt.
