Blum Rocked by Co-Founder’s Arrest in Russia

The fraud charges are related to other ventures like The Token Fund and Tokenbox. While Blum clarified that Smerkis is no longer involved in the project, his arrest caused a lot of community concerns over the project’s anticipated BLUM token airdrop. Meanwhile, in Hong Kong, police dismantled a $15 million cross-border crypto laundering ring involving more than 500 bank accounts and 12 arrests. In the US, Tornado Cash developer Roman Storm is pushing back against federal charges by arguing prosecutors withheld crucial FinCEN evidence that suggests non-custodial mixers like Tornado Cash do not qualify as money transmitters. Vladimir Smerkis Arrested in Moscow Vladimir Smerkis, the co-founder of the Telegram-based crypto project Blum, was arrested in Moscow on suspicion of large-scale fraud. The Zamoskvoretsky District Court approved a request to detain Smerkis while investigations continue. The charges fall under Article 159 of the Russian Criminal Code, which could carry a prison sentence of 2 to 12 years. Russian state media outlet TASS reported the news on May 18, though it’s still unclear whether formal charges have been filed. Smerkis previously led Binance’s operations in Russia, and is allegedly linked to investor losses totaling around $15 million from his earlier ventures, The Token Fund and Tokenbox, which were both launched in 2017. According to Russian news outlet Mash , these projects are the focus of the fraud investigation, not Blum. In response, Blum publicly confirmed on X that Smerkis stepped down from his position as chief marketing officer and is no longer involved with the project in any way. Despite the controversy, Blum stated that it is still committed to its development roadmap and that day-to-day operations will continue as usual. The project integrates a decentralized exchange directly into Telegram Mini Apps, which makes it possible for users to trade crypto, earn rewards, and participate in token airdrops However, Smerkis’ arrest cast doubt over the fate of Blum’s anticipated BLUM token airdrop. Community members are very concerned that the project may no longer follow through with its token distribution. Blum previously hinted at a Q3 token listing, and users were accumulating Blum points in the project’s Drop Game in hopes of converting them into BLUM tokens during the upcoming token generation event. Thanks to the silence from the project’s team on the matter, frustration is growing in the community. “Blum owes its users a clarification on the planned airdrop,” one user stated on X, while crypto influencer RK Gupta agreed with the sentiment by saying, “No airdrop. No updates. Just silence. Was it all for nothing?” Crypto Laundering Ring Busted in Hong Kong In Hong Kong, police have dismantled a major cross-border money laundering operation that funneled HK$118 million, or approximately $15 million, through cryptocurrency and over 500 stooge bank accounts. The bust took place on May 15, and it led to the arrest of 12 individuals — nine men and three women — across Hong Kong and mainland China. According to local media reports , including the Hong Kong Commercial Daily, the criminal network allegedly recruited others to open bank accounts that were used to collect illicit funds from fraud cases. These funds were then converted into crypto at local exchange shops as part of the laundering process. The syndicate operated out of a rented apartment in Mong Kok, where they planned and executed their activities. Surveillance on the day of the arrests caught two syndicate members in the act: one visiting a bank, the other using an ATM, before both proceeded to convert the cash into cryptocurrency at a shop in Tsim Sha Tsui. Authorities intervened before the laundering could be completed, and seized around HK$770,000 ($98,540) in cash. The remaining suspects, aged between 20 and 41, were apprehended shortly after. Some items confiscated by authorities In total, police confiscated approximately HK$1.05 million ($134,370) in cash, over 560 ATM cards, numerous mobile phones, banking documents, and records of crypto transactions. Senior Inspector Tse Ka-lun of the Commercial Crime Bureau said that many of the stooge accounts that were used in the scheme belonged to friends or family of those involved. This incident is part of the growing problem in Hong Kong, where fraud-related crimes increased by 12% year-on-year in 2024. Authorities have made more than 10,000 arrests connected to fraud this year already, with almost three-quarters involving people who held bank accounts used for laundering. (Source: IC3 ) The crackdown is taking place at a time when Hong Kong is actively refining its cryptocurrency regulatory landscape. The Securities and Futures Commission introduced new rules in April requiring crypto exchanges offering staking services to comply with stricter oversight. In February, the regulator also launched a roadmap to enhance market access, improve compliance, broaden product offerings, bolster crypto infrastructure, and foster stronger industry partnerships. Roman Storm Fights Back In the US, attorneys for the developer of the crypto mixing protocol Tornado Cash, Roman Storm, filed a motion urging the court to reconsider its previous decision not to dismiss the case against him. The motion was submitted to Judge Katherine Polk Failla, and argues that the prosecution withheld exculpatory evidence involving communications with the Financial Crimes Enforcement Network (FinCEN) that date back to 2023. Roman Storm According to Storm’s legal team, the documents in question show that FinCEN does not consider non-custodial crypto mixers like Tornado Cash to fall under the legal definition of a “money transmitting business.” This is a crucial distinction that undermines the basis for many of the charges. Storm’s attorneys claimed that the government knew this since at least 2023 and yet still proceeded with cases against Tornado Cash and the developers of Samourai Wallet. They allege this is a case of either the government misleading the court or playing “fast and loose” with the facts during its initial arguments against motions to dismiss and compel discovery. Part of the letter that was sent to Judge Failla In a May 16 letter , Storm’s defense pointed to disclosures made in the Samourai Wallet case, which also included FinCEN documents and similar legal arguments. Prosecutors, however, denied any wrongdoing by stating that the FinCEN communications were submitted during the legal discovery process in the court’s required timeframe. The motion now adds to growing scrutiny of the legal strategy being used by US authorities to prosecute developers of non-custodial crypto privacy tools. Roman Storm’s trial is moving forward even after Federal Judge Robert Pitman ruled in April that the US Treasury’s Office of Foreign Assets Control (OFAC) cannot reimpose sanctions on Tornado Cash. Although prosecutors modified the charges against Storm, the continued pursuit of the case raised some important questions about the government’s interpretation of FinCEN’s own guidance and its approach to crypto regulation.

Source: Coinpaper