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HSI San Diego, multiagency case results in the arrest of a former security engineer for defrauding decentralized cryptocurrency exchange

CryptoHSI San Diego, multiagency case results in the arrest of a former security engineer for defrauding decentralized cryptocurrency exchange

SAN DIEGO – On July 10, a New York City man was arrested for defrauding decentralize cryptocurrency exchange following a case by Homeland Security Investigations (HSI) San Diego and Los Angeles field offices and the Internal Revenue Service Criminal Investigation (IRS-CI) division.

Shakeeb Ahmed, 34, of New York, New York, is charged with wire fraud and money laundering, each of which carries a maximum sentence of 20 years in prison. The unsealed indictment charges Ahmed with wire fraud and money laundering in connection with his attack on a decentralized cryptocurrency exchange.

“Financial crime strikes at the core of our national and economic banking security,” said, Special Agent in Charge for HSI San Diego Chad Plantz. With an attack of this magnitude, it’s crucial we ensure continued consumer confidence in our financial system. Ruthless and reckless attempts aimed to sabotage legitimate commerce for greed must be stopped. It’s cases like these that demonstrate HSI’s commitment and ability to work with a coalition of the willing to dismantle these complicated and technical fraud schemes and identify those responsible regardless of where they operate.”

As alleged in the Indictment, the Crypto Exchange was incorporated overseas and operates on the Solana blockchain. At all relevant times, the Crypto Exchange allowed users to exchange different kinds of cryptocurrencies and paid fees to users who deposited cryptocurrency to provide liquidity on the Crypto Exchange.

In July 2022, Ahmed carried out an attack on the Crypto Exchange by exploiting a vulnerability in one of the Crypto Exchange’s smart contracts and inserting fake pricing data to fraudulently cause that smart contract to generate approximately $9 million dollars’ worth of inflated fees that Ahmed did not legitimately earn, which fees Ahmed was able to withdraw from the Crypto Exchange in the form of cryptocurrency. This conduct defrauded the Crypto Exchange and its users, whose cryptocurrency Ahmed had fraudulently obtained. Additional details regarding the attack, including Ahmed’s use of cryptocurrency “flash loans” to further defraud the Crypto Exchange, are described in the indictment.

U.S. Attorney Damian Williams said: “This is the second case we are announcing this week to shed light on fraud in the cryptocurrency and digital asset ecosystem. As alleged in the indictment, Shakeeb Ahmed, who was a senior security engineer at an international technology company, used his expertise to defraud the exchange and its users and steal approximately $9 million in cryptocurrency. We also allege that he then laundered the stolen funds through a series of complex transfers on the blockchain where he swapped cryptocurrencies, hopped across different crypto blockchains, and used overseas crypto exchanges. But none of those actions covered the defendant’s tracks or fooled law enforcement, and they certainly didn’t stop my office or our law enforcement partners from following the money.”

IRS-CI Special Agent in Charge Tyler Hatcher said: “As alleged, Mr. Ahmed used his skills as a computer security engineer to steal millions of dollars. He then allegedly tried to hide the stolen funds, but his skills were no match for IRS Criminal Investigation’s Cyber Crimes Unit. We, along with our partners at HSI and the Department of Justice, are at the forefront of cyber investigations and will track these fraudsters anywhere they try to hide and hold them accountable.”

After he stole the fees he never legitimately earned, Ahmed had communications with the Crypto Exchange in which he decided to return all the stolen funds except for $1.5 million if the Crypto Exchange agreed not to refer the attack to law enforcement. At the time of the attack, Ahmed was a senior security engineer for an international technology company whose resume reflected skills in, among other things, reverse engineering smart contracts and blockchain audits, which are some of the specialized skills Ahmed used to execute the attack. Ahmed laundered the millions in fees that he stole from the Crypto Exchange to conceal their source and ownership, including through (i) conducting token-swap transactions, (ii) “bridging” fraud proceeds from the Solana blockchain over to the Ethereum blockchain, (iii) exchanging fraud proceeds into Monero, an anonymized and particularly difficult cryptocurrency to trace, and (iv) using overseas cryptocurrency exchanges.

After the attack, Ahmed searched online for information about the attack, his own criminal liability, criminal defense attorneys with expertise in similar cases, law enforcement’s ability to successfully investigate the attack, and fleeing the United States to avoid criminal charges. For example, approximately two days after the attack, Ahmed conducted an internet search for the term “defi hack,” read several news articles about the hack of the Crypto Exchange and visited several pages on the Crypto Exchange’s website. As another example, he conducted internet searches or visited websites related to the charges in the indictment, including by searching for the term “wire fraud” and for the term “evidence laundering.” Finally, Ahmed also conducted internet searches or visited websites related to his ability to flee the United States, avoid extradition, and keep his stolen cryptocurrency: he searched for the terms “can I cross border with crypto,” “how to stop federal government from seizing assets,” and “buying citizenship”; and he visited a website titled “16 Countries Where Your Investments Can Buy Citizenship . . .”

The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

The case is being prosecuted by the Office’s Money Laundering and Transnational Criminal Enterprises Unit and Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys David R. Felton and Kevin Mead are in charge of the prosecution.

HSI is the principal investigative arm of the U.S. Department of Homeland Security (DHS), responsible for investigating transnational crime and threats, specifically those criminal organizations that exploit the global infrastructure through which international trade, travel, and finance move. HSI’s workforce of more than 8,700 employees consists of more than 6,000 special agents assigned to 237 cities throughout the United States, and 93 overseas locations in 56 countries. HSI’s international presence represents DHS’ largest investigative law enforcement presence abroad and one of the largest international footprints in U.S. law enforcement.

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Disclaimer: The views expressed in this article are independent views solely of the author(s) expressed in their private capacity.

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