Atomic Wallet faces a proposed class action after more than $100 million-worth of cryptocurrency was stolen from thousands of users in a massive hack around June 3, 2023.
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The 19-page complaint says Atomic Wallet and CEO Konstantin Gladych knew of certain security vulnerabilities in the platform since “at least as early as 2022” yet failed to take necessary measures to protect user data and crypto assets. The suit states that an estimated 5,500 wallets have been affected by the Atomic Wallet hack, with some users losing their entire portfolios.
Per the case, third-party crypto research and security firm Least Authority, which was hired by Atomic Wallet to evaluate its system, advised in a report early last year that serious “existing security vulnerabilities” could be putting funds held on the platform at risk, yet the defendants “failed to implement reasonable safeguards.”
“As a result, the Atomic Wallet platform was hacked and the Plaintiffs’ funds stolen,” the complaint says, claiming the consumers’ crypto wallets were vulnerable due to the defendants’ failure to implement reasonable, industry-standard safety measures.
In particular, the lawsuit shares that Least Authority informed Atomic Wallet that current user funds were vulnerable to attacks that might lead to the funds being lost entirely, “specifically due to the current use and implementation of cryptography.” Further, the firm highlighted Atomic Wallet’s failure to adhere to best practices and standards when designing and developing its wallet system, not to mention the absence of “robust project documentation,” the case relays. Lastly, Least Authority noted Atomic Wallet’s incorrect use of Electron, a framework for building desktop apps, which created an “increased risk of potential security vulnerabilities and implementation errors,” the filing says.
“As a result of Defendants’ failures, over $100 Million in US Dollar equivalents were stolen from thousands of users who used the Atomic Wallet platform,” the suit summarizes.
Atomic Wallet represents that its platform is secure and promises users that their private access keys are “encrypted and never leave your device,” leaving them in full control of their funds, the case says. The platform also says that it does not use verification or know-your-customer protocols, meaning a user’s private key and backup phrases are critical for accessing their wallet. Per the suit, Atomic Wallet stresses that users should “[t]ake your passwords seriously” since whoever has the 12-word backup can access their funds.
However, Atomic Wallet “failed to take its own advice” as the June 2023 data breach saw the private keys of thousands of users compromised, resulting in more than $100 million in losses, the lawsuit says.
“The stolen funds appear at this point to be unrecoverable,” the filing notes.
According to the complaint, Atomic Wallet on June 4 “downplayed” the hack on its blog and official Twitter account, claiming that less than one percent of its active monthly users were impacted. Blockchain analysis company Elliptic Connect has traced the hack to Lazarus Group, a “well-known and state-sponsored hacking group out of North Korea” purportedly responsible for the theft of more than $2 billion in crypto assets through various schemes, the lawsuit says.
Since the hack, Atomic Wallet has taken down its download server, “likely out of concern that their software was breached and to prevent the spread of further compromises,” the suit continues.
The lawsuit looks to cover all persons or entities in the United States who, within the applicable statute of limitations period, bought, repurchased, invested and/or reinvested crypto assets on the Atomic Wallet platform and whose assets were stolen in June 2023.
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