Phantom Technologies Sued Over $500,000 Crypto Theft

A lawsuit has been filed against Phantom Technologies, alleging that security vulnerabilities in its crypto wallet led to the theft of over $500,000 worth of Wiener Doge (WIENER) tokens. The lawsuit, filed in the Southern District of New York, is led by attorney Thomas Liam Murphy and includes 13 other plaintiffs who are seeking $3.1 million in damages. The complaint asserts that Phantom's wallet exposed users to malware and crypto theft due to fundamental design flaws, despite the company's claims of "best-in-class" security.

The lawsuit details that a cybercriminal hacked into Murphy's personal computer and exported his private key from his web browser's working memory. This allowed the attacker unrestricted access to all funds in Murphy's three co-linked Phantom wallets without needing to bypass multi-factor authentication. The plaintiffs allege that Phantom stored private keys in unencrypted browser memory, making them vulnerable to extraction by malware.

Phantom has denied these allegations, stating that the claims are "entirely without merit" and that they look forward to demonstrating why the lawsuit should be dismissed. The company maintains that it gives users full control of their funds and cannot prevent scams from malicious links, but works with law enforcement when criminal activity is reported. Phantom also offers in-app security education and safety resources.

The lawsuit further alleges that Phantom lacked essential security features such as transaction velocity checks, geolocation anomalies, and withdrawal limits. The plaintiffs claim that Phantom's built-in "Swapper" feature was used to liquidate Wiener Doge tokens worth approximately $500,000 for only $37,537 in Solana (SOL). This mass liquidation allegedly destroyed the value of the entire Wiener Doge project, which had reached a market capitalization of $3.1 million at its peak.

The plaintiffs are seeking at least $3.1 million in damages, claiming that Phantom violated the Commodity Exchange Act by operating as an unregistered trading platform while evading regulatory oversight through "superficial claims of decentralization." The lawsuit also names OKX, a crypto exchange that partnered with Phantom, citing OKX's guilty plea to federal money laundering charges for facilitating illicit transactions. The plaintiffs argue that OKX's integration was the direct enabler of the unauthorized liquidation of Murphy's assets.

The lawsuit highlights seven major claims against Phantom, including operating as an unregistered trading platform, negligence in cybersecurity protection, false advertising, and aiding money laundering through OKX. The plaintiffs allege that Phantom's leaders knew about the vulnerabilities in their browser wallet but chose to remain silent, putting users at risk of cyberattacks and malware.

In summary, the lawsuit against Phantom Technologies alleges that security flaws in its crypto wallet led to the theft of $500,000 in Wiener Doge tokens, resulting in a $3.1 million loss for the project. The plaintiffs claim that Phantom's lack of essential security features and its partnership with OKX contributed to the theft. Phantom has denied the allegations, stating that the claims are without merit and that they will work to dismiss the lawsuit. The outcome of this legal battle will have significant implications for the crypto industry, highlighting the importance of robust security measures and regulatory compliance in protecting users' assets.