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California School Officials Plead Guilty to Running Crypto Mining Scheme With School Resources
A sophisticated scheme to defraud Patterson Joint Unified School District has been unveiled, with senior officials Jeffrey Menge and Eric Drabert at the helm, using the district’s resources to mine cryptocurrency illegally, as disclosed by the DOJ.
School Officials Plead Guilty to Crypto Mining Operation Using District Resources
Two senior officials from the Patterson Joint Unified School District in California have admitted to exploiting school resources for their own gain, including orchestrating a cryptocurrency mining operation, the U.S. Department of Justice (DOJ) disclosed. Jeffrey Menge, 43, of Copperopolis, and Eric Drabert, 44, of Modesto, entered guilty pleas to charges of theft concerning programs receiving federal funds, as announced by U.S. Attorney Phillip A. Talbert.
From 2018 through 2022, Menge, serving as the Assistant Superintendent and Chief Business Officer, alongside Drabert, the IT Director hired in 2020, engaged in fraudulent activities to siphon off funds from the school district. Their elaborate scheme involved over .2 million in deceitful dealings through Cencal Tech LLC, a company under Menge’s control. By creating a fictitious executive, “Frank Barnes,” they bypassed restrictions on transactions with the school, engaging in double billing and charging for undelivered items.
The duo’s illicit activities extended beyond financial misconduct. Utilizing high-end graphics cards and other district-owned resources, Menge and Drabert established a crypto mining farm within the district’s facilities, directing the proceeds into personal wallets. The operation, whose scope across the district’s 10 schools remains unclear, significantly increased electricity consumption, a matter of growing concern for U.S. energy regulators amidst a crackdown on energy-intensive crypto mining.
In addition to the mining operation, Menge exploited district vehicles for personal gain, including the sale of a Chevy truck acquired at a bargain and the personal use of a Ford Transit van. The funds embezzled, ranging between million to .5 million for Menge and 0,000 to 0,000 for Drabert, were lavishly spent on home renovations, luxury cars, and other personal expenses.
Do you think there are many other illicit mining operations? Share your thoughts and opinions about this subject in the comments section below.
California Enacts Digital Financial Assets Law
On October 13, 2023, California enacted the Digital Financial Assets law. This law is California’s first comprehensive framework for regulation of digital asset markets, and some of its provisions may sound familiar to those versed in the state’s money transmitter licensing requirements. Under this new law, on and after July 2025, crypto companies and everyone else will need, in addition to other criteria, a license to operate or hold themselves out as being able to operate digital financial asset business activity, with or on behalf of California residents.
The following editorial was written by guest authors Wyatt Noble and Michael Handelsman for Kelman.Law
Key Definitions
Before diving into the key provisions of the Digital Financial Assets law, it’s important to understand exactly what some of its key terms mean, what they cover, and what they don’t. Under the law, “digital financial asset” means digital mediums of exchange, units of account, or stores of value. However, “digital financial asset” “does not include any of the following: (A) [a] transaction in which a merchant grants, as part of an affinity or rewards program, value that cannot be taken from or exchanged with the merchant for legal tender, bank or credit union credit, or a digital financial asset[;] (B) [a] digital representation of value issued by or on behalf of a publisher and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform[;] (C) [a] security registered with or exempt from registration with the United States Securities and Exchange Commission or a security qualified with or exempt from qualifications with the department.”
The term “digital financial asset business activity” can be understood to mean those activities that trigger the law’s licensing requirement. Specifically, “digital financial assets business activity is defined as: “(1) [e]xchanging, transferring, or storing a digital financial asset or engaging in digital financial asset administration, whether directly or through an agreement with a digital financial asset control services vendor[;] (2) [h]olding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals[;] (3) [e]xchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for either of the following: (A) [a] digital financial asset offered by or on behalf of the same publisher from which the original digital representation of value was received [or] (B) [l]egal tender or bank or credit union credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received.”
Stablecoins are defined as “a digital financial asset that is pegged to the United States dollar or another national currency and is marketed in a manner that intends to establish a reasonable expectation or belief among the general public that the instrument will retain a nominal value that is so stable as to render the nominal value effectively fixed.”
Who Will Handle Regulation and Enforcement?
The new law grants the California Department of Financial Protection and Innovation (DFPI) broad enforcement power. Now, the DFPI may bring enforcement actions against those that are “engaged, [are] engaging, or [are] about to engage in digital financial business activity.” If this seems a bit broad and vague, that’s because it is, but further changes narrowing the DFPI’s reach may be coming. California Governor Gavin Newsom has already called for the DFPI to clarify ambiguities in the law, and he is likely not the only California resident who will push for greater clarity.
How are Exchanges Impacted?
Among other requirements, exchanges must identify the probability that digital financial assets listed on their platforms “would be deemed a security by federal or California regulators.” However, the law provides no guidance as to how exchanges should make such an assessment. Exchanges must also provide “full and fair disclosure of all material facts relating to conflicts of interest that are associated with” assets on their platforms. Additionally, exchanges must conduct “comprehensive risk assessment[s] designed to ensure consumers are adequately protected from cybersecurity risk, risk of malfeasance, including theft, risks related to code or protocol defects, or market-related risks, including price manipulation and fraud.” Further, exchanges must establish “policies and procedures to reevaluate the appropriateness of the continued listing or offering of the digital financial asset, including an evaluation of whether material changes have occurred,” and conversely must also establish “policies and procedures to cease listing or offering the digital financial asset, including notification to affected consumers and counterparties.” Finally, exchanges are also required to “use reasonable diligence” to ensure that exchange rates between assets are as “favorable as possible” to consumers “under prevailing market conditions.”
How Are Stablecoins Affected?
The law grants the DFPI discretion in deciding which stablecoins are approved for exchange, transfer, or storage. In so doing, the DFPI will look to the “amount, nature, and quality of assets owned or held by the issuer of the stablecoin that may be used to fund any redemption requests from residents.” Additionally, the DFPI commissioner may require stablecoin issuers to obtain licenses “to protect the interests of residents who may use the stablecoin as payment for goods or services or as a store of value.” In furtherance of consumer protection, the law also requires that the “issuer[s] of … stablecoin[s] at all times own eligible securities having an aggregate market value computed in accordance with United States generally accepted accounting principles of not less than the aggregate amount of all of its outstanding stablecoins issued or sold.”
Streamlined Licensure for Bitlicense Holders
Those few companies or individuals holding a New York Bitlicense or limited purpose trust company charter with approval to conduct virtual currency business in New York issued on or before 1 January 2023, may be granted conditional licenses provided they have “supplied all fingerprints required” and meet all other requirements for licensure.
Fill out our contact form here to set up a free 30-minute consultation, and read up on whether you need a crypto lawyer.
What do you think about California’s Digital Financial Assets law? Share your thoughts and opinions about this subject in the comments section below.
JPMorgan Chase Assumes Control of First Republic Bank Following Seizure by California Regulators
On May 1, 2023, the California Department of Financial Protection and Innovation (DFPI) seized First Republic Bank, placing it into Federal Deposit Insurance Corporation (FDIC) receivership. According to reports, this move came after the bank’s financial troubles made it insolvent and unable to meet its obligations. Following the seizure, JPMorgan Chase submitted the winning bid to assume control of First Republic Bank’s deposits, including uninsured deposits.
California Regulator Seizes First Republic, JPMorgan Takes Over Bank’s Assets
From the first week of March, four major banks — Silvergate Bank, Silicon Valley Bank, Signature Bank, and First Republic Bank — have failed. The failures of the latter three banks are said to be the largest in American history, since the collapse of Washington Mutual (Wamu) in 2008.
Last week, all eyes were on First Republic Bank as it made a last-ditch effort to receive assistance from the private sector. This came after customers withdrew 0 billion from the bank last month, which led to concerns over the bank’s solvency. On Monday, May 1, the California Department of Financial Protection and Innovation (DFPI) announced that it had seized First Republic Bank and placed it under the control of the Federal Deposit Insurance Corporation (FDIC).
“The DFPI took action pursuant to California Financial Code section 592, subdivisions (b) and (c), specifically ‘conducting its business in an unsafe or unsound manner’ and being in a ‘condition that … is unsafe or unsound’ to transact banking business,” the California regulator detailed. In addition, the financial regulator announced that JPMorgan Chase, a banking giant, has been awarded the bid for First Republic Bank following its placement into receivership under the Federal Deposit Insurance Corporation (FDIC).
On Monday, JPMorgan Chase announced in a press release that it had taken over First Republic Bank. The bank highlighted its “significant strength and execution capabilities” and stated that it was committed to supporting the U.S. financial system. As part of the purchase, JPMorgan Chase has assumed responsibility for all deposits, including those that were uninsured. The move is expected to bring stability and assurance to customers who had deposits with First Republic Bank. JPMorgan Chase has also revealed that the bank will be operated by Marianne Lake and Jennifer Piepszak, two of its community banking executives.
Since the fall of Wamu, the collapse of First Republic Bank is now the second-largest bank failure in the United States. In terms of the size of insolvency, it is followed by the collapses of Silicon Valley Bank and Signature Bank. On Monday, JPMorgan Chase announced that it would be hosting a conference to discuss the transaction at 8:30 a.m. Eastern Time. The takeover by JPMorgan Chase is expected to bring about changes in the banking landscape, given that it is the largest bank in the United States.
What do you think the collapse of several major banks, including First Republic Bank, means for the future of the U.S. financial system? Share your thoughts in the comments section below.
California State Kills Main Crypto Bill, Why?
One of the pressures in the crypto market is regulation. Many countries’ regulators are consistent in supporting the control and monitoring of crypto assets. These regulators always create laws to manage the industry and protect investors’ funds.
California and New York are taking the lead in global crypto regulations. For instance, crypto companies in New York currently operate under a law mandating them to get a “BitLicense” before offering virtual asset services. The law has become operational in the State, although the current mayor Eric Adams is not supportive of the law.
But apart from these top players, other States such as Arizona and Wyoming are also coming up with diverse crypto regulations.
California Bill For Crypto Businesses And Exchange
Another bill, like the BitLicense law, emerged in California. The “Digital Financial Assets Bill” will mandate exchanges and businesses in the industry to get a license from California regulators.
This bill had earlier passed the assembly with a 71-0 vote. It also gave the senate and now awaits the Governor, Gavin Newsom, to sign it by September 30. Unfortunately, but surprisingly, Newsom vetoed the bill.
The decision has surprised the regulators, but the crypto community is thrilled about it. Newsom wrote to the California State Assembly, stating that he would veto the bill. According to him, the crypto oversight bill is unsuitable for the State.
The Governor believes that the crypto industry is gaining more popularity by the day. As such, there should be a transparent law protecting the citizens of the State. To achieve that, Newsom mentioned that his administration had researched the crypto industry to uncover protective approaches for investors.
Therefore, signing a bill without cognizance of his research will be wrong. Also, he pointed out that the federal mid-term election is in the pipeline and should be completed first.
According to Newsom, the bill will draw tens of millions from the State’s general fund. This amount will be required in the cost-benefit analysis of the bill and will be accounted for during the State’s budgeting process.
So, he suggests that the regulators wait for now and develop a flexible approach to strike a balance between innovation and protection.
The Digital Asset Community Rejoices
Every regulation in the crypto industry affects operations in one way or another. That’s why the community applauds Newsom’s actions to keep the bill.
Crypto market expected to blow green candles | Source: Crypto Total Market Cap on TradingView.com
The Blockchain Association Jake Chervinsky applauded the Governor’s guts and strength in standing up to the State Assembly. Also, Miles Jennings from a16z praised Newsom for his support of Web3 in California.
Featured image from Pixabay, chart from TradingView.com
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University of California Falls Prey to $1.15M Crypto Ransom Scam
It’s no secret that the crypto industry is rife with scams, hacks, and other nefarious activities, with the decentralized and private nature of many digital assets being conducive to these types of undertakings.
The latest group to fall victim to one of these scams is a school within the University of California system, who paid an online gang .14 million to gain access to files that were encrypted due to malware that spread throughout their computer system.
UC San Francisco Pays Cyber Gang .15 Million in Crypto
According to a recent report from BBC – who followed the conversation between the two parties thanks to an anonymous source – the Netwalker criminal gang extorted over million in Bitcoin from the University of California, San Francisco (UCSF) earlier this month.
Shortly after the malware had infected the university’s computer system, the IT department was directed to a page on the dark web the resembled a standard customer service page.
Netwalker's website. Image courtesy of BBC News
They then engaged the criminals in a conversation on the site, who instructed that they pay million in crypto to have access to their files and computers restored. Otherwise, they threatened, the files would all be wiped clean.
The University offered to pay 0,000, but the hackers claimed that this is not enough considering that the university makes “billions per year” and demanded they pay .5 million in crypto.
The university eventually offered a total of ,140,895, which was accepted by the hackers.
The next day, 116.4 Bitcoin was transferred into the gang’s crypto wallets.
These actions run counter to recommendations from most law enforcement agencies across the globe, who argue against making contact or sending payment to any of these digital ransom rings.
Despite this, the university claims that it was imperative to send the crypto due to the locked files being valuable to “serving the public good.”
“The data that was encrypted is important to some of the academic work we pursue as a university serving the public good. We therefore made the difficult decision to pay some portion of the ransom, approximately .14 million, to the individuals behind the malware attack…”
Here’s Why Law Enforcement Argues Against Sending Crypto to Ransom Hackers
Ransom schemes are becoming commonplace, and law enforcement officials remain ardent in their stance against victims sending Bitcoin or any other crypto to these criminals.
Jan Op Gen Oorth – a Europol agent – stated that paying the ransom just encourages more of it to take place.
“Victims should not pay the ransom, as this finances criminals and encourages them to continue their illegal activities.”
Because crypto-assets like Bitcoin can easily be sent through a “mixer” that makes it incredibly difficult to track, it is unlikely that victims who pay these organizations will ever be able to recover the stolen funds.
Featured image from Shutterstock.
California Man Sues AT&T Over Loss of $1.8M and Crypto Accounts
n California man sues AT&T claiming that its employees helped to steal over .8 million in total, including cryptocurrenciesn
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California City Confirms It Was Hit by Bitcoin Ransomware Attack
According to its city manager, Steve Schwabauer, Lodi City, California, was hit by a ransomware attack earlier this year. Those behind it demanded a Bitcoin ransom of 75 BTC be paid for computer systems to be returned to normal.
Schwabauer confirmed that city staff received an email resembling an invoice. Contained within were files to encrypt computer systems relating to various city services.
City Manager Confirms Lodi Will Update Digital Security Following Bitcoin Ransomware
The Lodi City Manager has said that the issues that plagued the city’s computer systems in April and May of this year were caused by a Bitcoin ransomware attack. According to a report in cyber security publication Government Technology, the city’s phone lines and financial data systems were targeted.
Those behind the attack sent malicious software to city staff under the guise of an email that appeared to have an invoice attached. Once the worker clicked the attachment, the software spread through the city’s entire computer system. It encrypted files relating to the phone system meaning, amongst others, the non-emergency number for the Lodi Police Department, as well as the City Hall, finance division, and emergency outage line for Public Works telephone systems all went down.
Schwabauer has confirmed that the attack was indeed an attempt to extort payment in Bitcoin from the city:
“The ransom demanded 75 Bitcoins (approximately 0,000 at the time of the inquiry) be paid to restore our systems. We did not pay the ransom. Instead, we rebuilt our systems from our back-ups.”
With the help of cyber security experts, the city was able to confirm that no public information was compromised in the Bitcoin ransomware attack. Schwabauer claims that the late revelation of the ransomware attack was at the behest of legal counsel. He stated:
“We did not come forward with this information because we were following the advice of legal counsel. To say anything more would be a violation of attorney-client privilege.”
The city has now confirmed that workers discovered the malicious software on April 1. A first attempt to fix the issues caused appeared successful but the systems were later compromised a second time, this time impacting the Lodi Police Department’s network.
Schwabauer admits that such ransomware attacks were not high on his radar as city manager. However, the city has since requested an additional 0,000 to improve its defences against potential future Bitcoin ransomware attacks.
Ransomware attacks have been around since before Bitcoin. However, they have proliferated in recent years and more often than not, request some form of cryptocurrency as payment. Since public blockchain-based currencies do not rely on centralised institutions that could block transactions, some believe digital currency makes a good vehicle for moving funds associated with such online crimes. However, with ever-improving blockchain forensics, law enforcement is getting more adept at pursuing and recovering funds from such illicit activities.
Related Reading: Ryuk Ransomware Targets Businesses with Bitcoin Demands, Links to North Korea?
Featured Images from Shutterstock.
The post California City Confirms It Was Hit by Bitcoin Ransomware Attack appeared first on NewsBTC.
North Americas Largest Solar Bitcoin Mining Farm Coming to California
n Plouton says it has chosen california to host a giant bitcoin mining facilityn
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