The repercussions of #SteemHeist are far from over.
What happened next
The suit against Bittrex and John Doe
In June a number of those whose funds were taken in the SteemHeist opened a court case against two parties in a court in the US State of Virginia.
They named Bittrex's US Delaware corporation and unknown others, J.Doe:
- The identity of Defendant(s) J. Doe is/are unknown to the Plaintiffs; however, their identity is known to Defendant Bittrex, Inc.
They opened this case under the following law:
This Court has jurisdiction pursuant to 28 U.S.C. §1332
This law relates to the handling of goods which are being held by a third party on behalf of others but which are not the property of the third party and where the ownership is disputed and where those disputing are in different jurisdictions. This is known as an "Interpleader". What's a touch unusual is that the original case was not brought by Bittrex, but was brought to compel Bittrex to do this:
Interpleader is a civil procedure device that allows a plaintiff or a defendant to initiate a lawsuit in order to compel two or more other parties to litigate a dispute. An interpleader action originates when the plaintiff holds property on behalf of another, but does not know to whom the property should be transferred. It is often used to resolve disputes arising under insurance contracts.
Essentially the main purpose of opening the case against Bittrex was to force Bittrex (or allow them) to reveal the identity of anyone blocking the release of the Steem held by Bittrex. The Plaintiffs in this case were each asking for a specific and very well defined amount of Steem. Their total claims amount to well below the complete amount of Steem being held by Bittrex: 6,999,300 of Steem and 250 Steem Backed Dollars (SBD) out of 23,627,501 Steem and 427 SBD.
So the only dispute could come from a third party, one who was responsible for the Hard Fork 23 code which stole the Steem. Whilst there is strong evidence this came from Justin Sun, via Steemit and out to his bot-army of sock puppet witnesses, the real proof comes if Justin Sun and/or Steemit Inc are actually claiming title to all the Steem which Bittrex holds.
The most important part of the entire legal back and forth so far comes in these two paragraphs from the original suit and in Bittrex's answer to the original suit.
Original 19. In spite of their receipt of proof of ownership, Bittrex, Inc. has refused to release the Steem to their rightful owners. Bittrex, Inc. stated its intent to release the Steem only (a) pursuant to a final order of a court; (b) an order from law enforcement, or (c) a notarized agreement signed by all parties exerting a claim on the Steem.
*Answer 19. Bittrex states that it has informed Plaintiff that, pursuant to its pre-existing policy, Bittrex will not release the Disputed Steem until it receives (a) a settlement agreement signed by all parties asserting a claim to the Disputed Steem, or (b) valid and final court order or order from law enforcement demanding release of the Disputed Steem. Except as admitted, Bittrex denies the allegations in Paragraph 19.
Original 20. Bittrex, Inc. has refused to identify any other parties exerting claims on the Steem. It will only identify a claimant with permission of that claimant. Although Plaintiffs have given permission to release their identities, Bittrex, Inc. refuses to tell Plaintiffs if any other party is in fact making a claim.
Answer* 20. Bittrex states that its counsel has recently corresponded with counsel for unidentified persons associated with Steemit, Inc. and/or Steemit who have instructed Bittrex not to release the Disputed Steem to Plaintiffs, and have informed Bittrex that Plaintiffs were potentially involved in and/or connected to the actions of the purported "white knight hacker." These persons have declined to identify themselves to Bittrex and/or declined to allow Bittrex to release their identities to Plaintiff. Since Plaintiffs filed their Complaint, Bittrex's counsel has informed Plaintiffs' counsel that other parties are making a claim to the Disputed Steem. Except as admitted, Plaintiff denies the allegations in Paragraph 20.
Bittrex are, quite rightly, happy to say that they don't own the Steem and would like nothing more than to be rid of it. To that end, Bittrex has counter sued and introduce some new information.
From the beginning of the process Bittrex asked each of those people claiming rights to some of the Steem to put in their claim and to allow their identity to be revealed to all those others claiming Steem. The only claim Bittrex got from a claimant who refused to identify to others was from Steemit as is revealed here (highlighted):
- Counsel for Bittrex has corresponded with Michael Dicke of Fenwick & West LLP, who purported to represent unidentified persons associated with Steemit, Inc. and/or Steemit who instructed Bittrex not to release the Disputed Steem to Plaintiffs, and have informed Bittrex that Plaintiffs were potentially involved in and/or connected to the actions of the purported "white knight hacker." As of July 15,2020, when Bittrex initially filed its Answer, Counterclaim, and Third Party Claim, those persons had declined to identify themselves to Bittrex and/or declined to allow Bittrex to release their identities to Plaintiffs. On or about July 21,2020, Mr. Dicke confirmed that he represented Steemit, Inc. Mr. Dicke has confirmed that Steemit, Inc. claims a right to and interest in the Disputed Steem claimed by Plaintiffs, and that Steemit, Inc. plans to participate in this litigation to pursue its rights and interests against Plaintiffs.
All your Steem are belong to Sun
This constitutes absolute proof that Steemit Inc has now claimed funds taken in HF23 from the targeted accounts (list here) "are all belong to them".
As Andrew wrote in his legal opinion:
In my legal opinion:
Justin Sun controls @dev365, either directly or via Steemit Inc, which in turn controls Steem's top 20 witness list, which in turn operates and controls the code of the Steem blockchain.
Justin Sun, Steemit Inc and the persons controlling witnesses @justyy, @steemchiller & @dlike are the persons responsible for implementing HF23.
Based on my analysis above, in my considered legal opinion, Justin Sun, Steemit Inc and the persons controlling the Steem accounts @justyy, @steemchiller & @dlike have committed the criminal offence of THEFT in relevant jurisdictions.
Bittrex's court filing now contains an admission that Steemit Inc., which is now and was then controlled by Justin Sun, claims the proceeds of a code change which can be shown to be theft and a criminal conspiracy.
Law Enforcement
It's is known to me personally that a number of victims of this crime reported the crime to the police in their own jurisdictions including the UK's online fraud police and the FBI in the USA. I don't know of any practical result of that yet.
What next?
The two tangible things Bittrex is asking the court for is somewhere to offload the Steem and for someone to pay them back their legal costs.
A. permitting Bittrex to interplead the Disputed Steem into the Court Registry or otherwise satisfy the requirements of 28 U.S.C. $ 1335(a)(2), as requested by Bittrex's currently pending Motion to Deposit Disputed Cryptocurrency Into Court Registry (Dkt. 14);
Those of us with a detailed knowledge of how the Steem network once worked, and how it works today as a centralised database under the control of one person, Justin Sun, understand the problem. Explaining this problem to the court might be tricky.
If Bittrex transfer the Steem to any other account, the Court will need to be hyper vigilant about ownership of that account and the actions of Justin Sun and his co-conspirators. Would he have the nerve to Hard Fork Steem deposited into the care of a Virginia Court away from it? Who knows. Would you trust him with your money today?
And this is assuming the Court can find someone who is both technically competent to create a Steem account and maintain the rigorous security whilst also being neutral in this fight.
This saga isn't over! Follow me here on Hive or any of my other accounts and I'll keep you updated. Feel free to like, share and tip if you found this analysis valuable. If I've made any mistakes, leave a comment and I'll fix them.
Introduction
Back in March, many of us watched in shock as the witnesses and bot-witnesses of what had formerly been the largely decentralised Steem blockchain stolen $5m worth of cryptocurrency straight out of people's accounts. Not your keys, not your crypto is the mantra, however even if you don't loose your keys, if the entire network suffers what would have been a 51% attack in Bitcoin/ETH language, your crypto is gone.
Details
If you want more details on that, you can read this warning before the theft. For the exact run down of how it happened, read this post which includes links to the actual blocks where it happened.
At the time of this, my friend and partner, Andrew Hamilton (@apshamilton) published a detailed legal analysis and advice to victims of this and presented compelling evidence that this was straight up theft.
In recent days the entire saga was well described (all be it with a number of omissions for reasons of keeping it readable) by Tim Copeland in Decrypt. That's a good wider background piece: Steem vs Tron: The rebellion against a cryptocurrency empire.
