Humpy the Whale Cost FTX, Alameda $1 Billion in Losses, Lawsuit Alleges

As a seasoned crypto investor with over a decade of experience navigating the volatile digital asset market, I can’t help but feel a mix of disbelief and disappointment upon learning about the allegations against Humpy the Whale (Nawaaz Mohammad Meerun). The sheer scale of manipulation and exploitation he is accused of orchestrating is staggering, not only in terms of the financial losses incurred by FTX and Alameda Research but also the potential ties to organized crime networks.

In my analysis, among the legal actions initiated last week by the FTX estate, I’ve come across a detailed 32-page report that accuses Humpy the Whale, a well-known crypto trader, of eight distinct charges. This individual previously made headlines earlier this year for a governance attack on Compound DAO.

As an analyst, I’m referring to myself here. In the recent filing made in the U.S. Bankruptcy Court for the District of Delaware, I’ve come across a case involving an individual named Nawaaz Mohammad Meerun, a citizen of Mauritius. The accusations against Meerun are quite severe. From January 2021 to September 2022, it is alleged that he masterminded a string of market manipulation schemes, resulting in the fraudulent acquisition of hundreds of millions of dollars from FTX. Furthermore, there are claims suggesting Meerun’s association with organized crime groups.

The document mentions that debtors are connected to various criminal organizations from Poland, Romania, Ukraine, and some linked to human trafficking, as well as Islamic extremist groups suspected of funding terrorism.

As a researcher, I can assert that the combined entities of FTX and Alameda experienced an estimated loss of around $1 billion, which was primarily attributed to the illicit activities of Meerun. Notably, these ill-gotten gains were reportedly funneled towards financing a broad spectrum of criminal endeavors.

Massive amounts of tokens

As stated in the filing, starting in January 2021, Meerun started building a significant stake in BTMX, a scarcely traded token. By the end, he controlled nearly half of its total supply. This action, along with it, caused the price to skyrocket by more than 10,000% within just three months. Subsequently, there are allegations that Meerun took advantage of a loophole in FTX’s margin trading regulations. He reportedly used his ownership as collateral to borrow vast sums of money, approximately tens of millions of dollars, from the digital exchange.

As a crypto investor, I was aware that once my manipulative activities ceased, the price of BTMX would plummet and I’d be obligated to repay all the ‘loaned’ assets. However, I had no intention of abiding by FTX’s regulations. This is according to the court document.

After setbacks on FTX’s part, it was revealed that Meerun embezzled approximately $450 million from BTMX, as stated in the filing. FTX employees attempted to conceal this by transferring the losses to their affiliated company, Alameda Research, using a now-recognizable strategy.

Simultaneously, the lawsuit claims that Meerun accumulated a massive short position on MOB, and Alameda followed suit with this position. To offset their short position, Alameda bought substantial quantities of the token.

During Alameda’s prolonged buying frenzy of MOB, its price skyrocketed approximately 750%, causing Alameda to overpay significantly. Shortly after Alameda reduced its buying activity, the price of MOB plummeted. When the chaos surrounding BTMX/MOB ended in August 2021, Alameda’s team calculated that they had already suffered a loss of around $1 billion due to Meerun’s actions, as stated in the lawsuit.

In August 2021, Meerun employed fresh accounts and pseudonyms to replicate a strategy involving illiquid tokens BAO, TOMO, and SXP, successfully pocketing approximately $200 million until FTX detected the scheme, according to the filing. The attempt to continue with token KNC was intercepted during execution.

Compound DAO

Beyond the suggested connections to criminal organizations (that were not elaborated), the submission also brought attention to an incident where “Humpy the Whale” (Meerun), as a pseudonym, carried out a manipulation on Compound Finance’s lending platform using its COMP token. This token grants its holders the power to vote on governance proposals for the decentralized autonomous organization (DAO).

According to the lawsuit, Meerun amassed substantial amounts of the governance token and subsequently attempted to move over $20 million worth of assets from other users of the protocol. Subsequently, Meerun leveraged his position to negotiate a ‘peace treaty’ with Compound, receiving further payments in return for halting any further attempts to manipulate the protocol.

Through Humpy, Meerun put forward a Decentralized Autonomous Organization (DAO) proposition to establish a fresh yield-generating methodology labeled goldCOMP. This new system would be supported by a collective of COMP token owners, affectionately referred to as the “Golden Boys.

Despite the defendants claiming that their actions were facilitated by a supposed lack of engagement within the DAO, critics labeled it as a governance attack due to the apparent collaboration between Humpy and the Golden Boys in advancing the proposal. Questions were raised about manipulation of votes by the proponents, concentration of power, and potential hazards associated with managing the $24 million worth of COMP treasury funds.

Humpy and the group eventually came to an agreement on a revised plan, which involves establishing a staking system for COMP tokens. This system would allocate 30% of both existing and newly accumulated market funds each year among the token holders who have staked their COMP, in accordance with the proportion they control within the Compound DAO.

CoinDesk sought comment from Meerun through email addresses listed in the filing.