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Compound DAO governance exploiter Humpy the Whale was among the targets of lawsuits brought by FTX’s estate last week.
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In 2021 and 2022 he allegedly bought massive amounts of illiquid tokens, pumping the price, and then used them to take out loans on the crypto exchange that were not repaid.
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His actions, which exploited a flaw in FTX’s margin trading rules, led to $1 billion of losses for the exchange and Alameda Research, according to the lawsuit.
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Among the lawsuits filed last week by the FTX estate is a 32-page document listing eight counts against Humpy the Whale, the crypto trader who earlier this year attracted attention for a governance attack on Compound DAO.
Naming him as Nawaaz Mohammad Meerun, a Mauritian citizen, the suit filed in the U.S. Bankruptcy Court for the District of Delaware alleges that between January 2021 and September 2022, Meerun “orchestrated a series of massive market manipulation schemes and defrauded hundreds of millions of dollars from FTX.” It also claims Meerun had connections to organized crime groups.
“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,” the filing says.
“All told, FTX and Alameda suffered approximately $1 billion in losses due to Meerun’s crimes, and Meerun has used the proceeds of his exploits to fund a wide range of other criminal activity.”
According to the filing, in January 2021, Meerun began accumulating a position in BTMX, an illiquid token, eventually holding around half the supply, and helping drive up the price by over 10,000% in three months. He then allegedly exploited a flaw in FTX’s margin trading rules by using his stake as collateral to borrow tens of millions of dollars from the crypto exchange.
“Meerun knew that as soon as his manipulation stopped, BTMX’s price would crash and he would be required to return all of his ‘borrowed’ assets. But Meerun had no intention of complying with FTX’s rules,” the suit states.
Following failures on FTX’s side, Meerun made off with over $450 million from BTMX, according to the filing. FTX personnel tried to cover it up using the “now-familiar course of action” of shifting the losses to sister company Alameda Research.
At the same time, the suit says, Meerun had built a huge short position in MOB, which Alameda also assumed. In an attempt to cover the short position, Alameda purchased significant amounts of the token.
“MOB’s price spiked by 750% during the course of Alameda’s weeks-long buying spree, forcing Alameda to pay significantly inflated prices, and then collapsed shortly after Alameda slowed its buying spree. 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,” the suit states.
Using new accounts and aliases, in August 2021 Meerun repeated the scheme with illiquid tokens BAO, TOMO and SXP, making off with nearly $200 million before FTX cottoned on, the filing says. An alleged attempt to have another go with a token called KNC was caught while still in progress.
In addition to the supposed links to organized crime — which are not detailed — the filing also highlighted how, as “Humpy the Whale”, Meerun executed a “governance attack” on lending platform Compound Finance using its COMP token, which gives holders the right to vote of governance proposals for the decentralized autonomous organization (DAO).
“Meerun accumulated significant holdings of the protocol’s governance token and then sought to divert more than $20 million in assets from other protocol users,” the suit says. “Meerun then used his leverage to force a ‘peace treaty’ with Compound in which he received additional payments in exchange for not further seeking to exploit the protocol.”
As Humpy, Meerun submitted a DAO proposal to create a new yield-bearing protocol called goldCOMP using the backing of a group of COMP holders known as the Golden Boys.
Although they blamed a lack of activity and participation in the DAO for making their actions possible, critics dubbed it a governance attack due to the coordinated efforts between Humpy and the Golden Boys in pushing through the proposal. Concerns were also raised about vote manipulation by the proposers, the centralization of control and potential risks of mismanaging the $24 million COMP treasury funds.
Humpy and the collective ultimately agreed to a counter-proposal to create a staking product that distributes 30% of existing and new market reserves annually to staked COMP holders, proportional to their stake controlled by the Compound DAO.
CoinDesk sought comment from Meerun through email addresses listed in the filing.
