Kwon’s Trial, China’s Blockchain Plan

Every week, ISMG rounds up cybersecurity incidents in digital assets. This week’s stories include Do Kwon’s trial, penalty on a Siberian firm over illegal crypto mining, 2024 drainer attack statistics, U.S. bank regulator’s crypto stance, Gemini’s CFTC settlement, China’s blockchain plans and Hong Kong’s push for DLT in banks.

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Terraform Labs co-founder and former CEO Do Kwon’s U.S. criminal fraud trial is tentatively scheduled for January 2026. The timeline will reportedly give prosecutors and Kwon’s defense team time to review six terabytes of data expected during discovery.

At a hearing in Manhattan federal court, lead prosecutor Jared Lenow said prosecutors needed time to process encrypted data and four locked phones provided by Montenegrin authorities after Kwon’s extradition on Dec. 31, 2024. The government also faces the challenge of translating Korean-language materials.

District Judge Paul Engelmayer said the trial’s lengthy schedule was “unprecedented” and urged Kwon attorney Michael Ferrara to consult his client, currently held without bail, on whether he’d prefer an earlier date. The defense has one week to propose an earlier trial.

Kwon has pleaded not guilty to nine counts, including securities fraud, wire fraud and money laundering, stemming from the $40 billion Terra/LUNA collapse in 2022. A civil jury previously ordered Kwon and Terraform Labs to pay a penalty of $4.5 billion.

The next status conference is scheduled for March 6.

In anticipation of Russia’s upcoming crackdown on illegal cryptocurrency mining, authorities fined an unnamed power provider in Siberia more than 330,000 rubles (about $3,000) for leasing state land intended for public utilities to an unauthorized mining operation. The Irkutsk Region Prosecutor-General’s Office announced the penalty in a social media post. Local prosecutors will also pursue an administrative case against the provider.

Siberia’s low operating costs, driven by cool temperatures and cheap electricity, have made it a hotspot for crypto mining. Residents blame these operations for power outages and grid instability, especially during the harsh winter. Russia legalized crypto mining last year and approved its use in international trade, generating $550 million in tax revenue but illegal mining operations evade taxation and exacerbate power grid issues. Russia is set to ban crypto mining in 10 regions for six years and impose seasonal restrictions in areas like Irkutsk.

Scammers stole $494 million in cryptocurrency through wallet drainer attacks last year, targeting more than 300,000 wallet addresses, said web3 anti-scam platform Scam Sniffer. This represents a 67% increase in stolen funds compared to 2023, despite only a 3.7% rise in the number of victims, suggesting that individual losses were higher.

Wallet drainers are phishing tools designed to steal digital assets from users’ wallets, often deployed on fake or compromised websites. Scam Sniffer reported 30 large-scale thefts exceeding $1 million each, including a $55.4 million heist in early 2024. The first quarter alone saw $187 million stolen as Bitcoin price hikes fueled phishing activity.

Phishing activity dipped in the second quarter after the shuttering of drainer service Pink Drainer, but surged again in the third quarter, with Inferno causing $110 million in losses. By the year’s end, Acedrainer had captured 20% of the drainer market, contributing to total fourth-quarter losses of $50.8 million.

Ethereum was the primary target, accounting for 85.3% of losses, with staking and stablecoins being the most affected. Scammers used fake CAPTCHA and Cloudflare pages, IPFS to evade detection, and used Google and Twitter ads to drive traffic to phishing sites. Signature exploits such as ‘Permit’ and ‘setOwner’ were key methods for draining funds.

A U.S. bank regulator reportedly advised banks to pause direct crypto involvement in 2022 and 2023, but did not mandate the discontinuation of banking services for crypto companies, refuting claims of widespread “debanking.”

The Federal Deposit Insurance Corporation issued “pause letters” to banks, advising caution in engaging directly with crypto assets. The letters’ disclosure followed a lawsuit by History Associates Incorporated, hired by Coinbase, to make these letters public. A court ordered the FDIC, which released redacted versions in December 2024, to rerelease them with fewer redactions.

The newly released batch of 25 letters includes two previously unreleased missives. Coinbase’s Chief Legal Officer Paul Grewal criticized the letters, claiming they show a “coordinated effort to stop crypto activity.”

The FDIC in response published a 2022 internal memo outlining supervisory guidance. It differentiated between banks directly engaging in crypto activities, such as custody services, and providing traditional banking services, such as lending and deposit accounts for crypto clients. The memo emphasized stricter scrutiny for direct crypto involvement due to evolving risks.

The disclosure comes ahead of President-elect Donald Trump’s anticipated executive order to ease crypto regulations, expected after his Jan. 20 inauguration.

Gemini Trust Company has reportedly agreed to pay a $5 million civil penalty to resolve charges brought by the U.S. Commodity Futures Trading Commission over its Bitcoin futures contract in 2017. Gemini also consented to a permanent injunction. The CFTC sued Gemini in 2022, accusing the company of making false or misleading statements and omitting material facts during its 2017 efforts to launch the Bitcoin futures contract.

China reportedly announced a roadmap for a national blockchain infrastructure as part of its data governance strategy, with full implementation targeted to 2029. The National Data Infrastructure Construction Guidelines, released by the National Development and Reform Commission, outline a phased approach to building one of the world’s largest blockchain-powered data networks. Zhulin Shen, deputy director of the National Data Administration, projected annual investments of 400 billion yuan ($54.5 billion) over the next five years.

The Hong Kong Monetary Authority introduced the Supervisory Incubator for Distributed Ledger Technology to help banks integrate DLT into their operations safely. The initiative features two main components. First, it offers individual bank support, providing access to a dedicated HKMA team for guidance during live trials. These trials will assess banks’ risk management systems before rolling out DLT services, initially focusing on tokenized deposits. Second, the incubator will advance industry-wide adoption by sharing best practices, offering supervisory guidance and conducting research to deepen the sector’s understanding of DLT.

Carmen Chu, HKMA’s executive director, said DLT could revolutionize asset management through real-time ledger updates, autonomous bookkeeping and streamlined reconciliation. She said that tokenizing real-world data could enable banks to create tailored financial products using smart contracts, unlocking new revenue streams and enabling innovative transactions beyond traditional infrastructure.