FTX Creditors Sue Kroll Over Data Breach Fueling Phishing Scams

FTX creditors are pursuing legal action against Kroll, the claims administrator in the failed cryptocurrency exchange’s bankruptcy, due to a security breach in August 2023 that led to a surge in phishing attempts. The class-action suit alleges that Kroll failed to adequately protect sensitive data, which was subsequently used in ongoing scam campaigns targeting claimants [1].

According to the lawsuit, attackers gained access to Kroll systems by compromising an employee’s mobile number, enabling them to access files containing names, home addresses, email contacts, and account balances of FTX creditors. While Kroll emphasized that no passwords or digital assets were exposed, the stolen data was reportedly used to craft targeted phishing emails that continue to appear on a daily basis [1].

A notice from Kroll acknowledged the breach, warning creditors to be cautious of fraudulent messages attempting to obtain private keys, seed phrases, or passwords. The company stated that it took immediate action to contain the breach, launched an internal investigation, and informed both law enforcement and the FTX bankruptcy estate [1]. However, creditors argue that these steps were insufficient and came too late to prevent financial harm.

The plaintiffs claim that scam emails mimicking official bankruptcy communications tricked claimants into clicking malicious links or disclosing sensitive account information. Some creditors allege personal losses from responding to these convincing but fraudulent requests, including the connection of digital wallets and exposure of private data [1]. The class-action filing asserts that Kroll breached its duty of care by failing to provide adequate protections or remedies following the breach.

The Delaware Bankruptcy Court, which continues to oversee the FTX bankruptcy, now faces the added complexity of determining whether Kroll should bear responsibility for the ongoing scams. With billions of dollars in customer assets still tied up in the recovery process, creditors view the breach as an additional layer of damage amid an already chaotic and trust-eroded process [1].

Court records confirm that Kroll has reported the incident to relevant authorities and cooperating with investigations. However, the lawsuit centers on whether these actions were enough to prevent the subsequent wave of scams or if Kroll should be held liable for the losses incurred by claimants [1].

The case highlights the growing scrutiny of data security in financial insolvencies and the challenges of managing digital assets and personal information during complex bankruptcy proceedings. As the FTX bankruptcy continues, the Kroll controversy adds to the mounting legal and reputational risks for firms handling sensitive financial data.

Source: [1] Daily Scam Emails Trigger Class-Action Suit Against Kroll in FTX Bankruptcy Fallout (https://blockonomi.com/daily-scam-emails-trigger-class-action-suit-against-kroll-in-ftx-bankruptcy-fallout/)