Landmark US Ruling: Former Security Engineer Jailed for Smart Contract Hacks

Shakeeb Ahmed, a former security engineer, has been sentenced to three years in prison for orchestrating hacks on two decentralized crypto exchanges, resulting in the theft of over $12 million worth of crypto. This marks the first-ever smart contract hacking conviction in the US, highlighting the growing urgency to address cyber threats in the rapidly evolving digital asset landscape. Ahmed's actions underscore the sophistication of cybercriminals and the need for enhanced security measures to safeguard the burgeoning crypto industry.

U.S. Courts Issue Landmark Ruling in Smart Contract Hacking Case: Former Security Engineer Sentenced to Prison

In a groundbreaking development for the cryptocurrency industry, the United States District Court for the Southern District of New York has handed down a three-year prison sentence to Shakeeb Ahmed, a former security engineer, for his role in orchestrating a series of hacks on two decentralized cryptocurrency exchanges (DEXs). This marks the first-ever conviction in the United States for smart contract hacking, a sophisticated form of cybercrime targeting the underlying code that governs decentralized blockchain applications.

Ahmed's hacks resulted in the theft of cryptocurrencies worth more than $12 million, including $9 million from the first attack and $3.6 million from the second. The initial attack, targeting an unnamed exchange, involved manipulating fake pricing data to generate inflated fees, which Ahmed subsequently withdrew in the form of cryptocurrency.

Following the first theft, Ahmed engaged in communication with the exchange, offering to return a portion of the stolen funds – approximately $10.5 million – if the exchange refrained from involving law enforcement. However, his demands were not met.

Undeterred, Ahmed targeted another DEX, Nirvana Finance, on July 28, 2022. Exploiting a vulnerability in Nirvana's smart contracts, he purchased crypto assets at a discounted price and resold them back to the platform at a higher price, resulting in significant financial losses for the exchange.

Despite Nirvana offering a substantial "bug bounty" of up to $600,000 for the return of the stolen funds, Ahmed demanded $1.4 million. This led to the collapse of the exchange, which had lost all its possessed funds due to Ahmed's attack.

The investigation into Ahmed's activities revealed that he employed sophisticated money laundering techniques to conceal the source and ownership of the stolen funds. These techniques included token swap transactions, transferring proceeds from the Solana (SOL) blockchain to the Ethereum (ETH) blockchain through "bridging," converting the funds to Monero, and utilizing overseas exchanges and cryptocurrency mixers such as Samourai Whirlpool.

Ahmed, a U.S. citizen, held a senior security engineer position at an international technology company at the time of the attacks. His expertise in reverse engineering smart contracts and conducting blockchain audits enabled him to execute the hacks with precision.

In addition to the prison sentence, Ahmed has been ordered to forfeit approximately $12.3 million, including a substantial amount of cryptocurrency, and pay the affected exchanges over $5 million in restitution.

U.S. Attorney Damian Williams, commenting on the landmark ruling, emphasized the commitment of the justice system in pursuing such cases and the consequences that await cybercriminals. "Today, Shakeeb Ahmed was sentenced to prison in the first-ever conviction for the hack of a smart contract and ordered to forfeit all of the stolen crypto. No matter how novel or sophisticated the hack, this Office and our law enforcement partners are committed to following the money and bringing hackers to justice. And as today's sentence shows, time in prison — and forfeiture of all the stolen crypto — is the inevitable consequence of such destructive hacks."

The landmark sentencing of Shakeeb Ahmed sends a clear message that smart contract hacking will not be tolerated and that perpetrators will face serious consequences. This verdict is a significant step towards safeguarding the integrity and security of the cryptocurrency industry and protecting investors from cybercrime.