Phantom Technologies, the company behind the popular Phantom crypto wallet, is now the target of a high-profile lawsuit after a group of investors claimed a critical vulnerability in the wallet’s design led to a $500,000 hack.
The legal action, led by attorney Liam Murphy, was filed in the Southern District of New York and also names crypto exchange OKX as a co-defendant.
The plaintiffs assert that Phantom falsely promoted its wallet as secure while allegedly harboring a severe flaw that enabled hackers to gain unauthorized access to users’ digital assets.
At the heart of the case is Murphy’s now-defunct meme coin project, Wiener Doge, which the lawsuit claims collapsed directly due to the hack and the resulting financial losses.
Design Flaw in Private Key Storage Allegedly Enabled Remote Wallet Exploits
According to the complaint filed, the exploit stemmed from a design flaw in Phantom’s browser extension, which allegedly stored users’ decrypted private keys in browser memory.
The insecure method of key storage, the plaintiffs argue, created a serious vulnerability that cybercriminals exploited on January 20.
The attackers were reportedly able to bypass normal security protocols, such as two-factor authentication, by accessing private keys directly and initiating unauthorized transactions.
Within minutes, Murphy’s wallet, which held more than half a million dollars in various crypto assets, was drained.
The breach is being cited as evidence of Phantom’s negligence in protecting user funds through adequate cybersecurity practices.
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Hack Leads to the Collapse of Wiener Doge Crypto Project
The fallout from the exploit was swift and catastrophic for Wiener Doge, a Solana-based meme token led by Murphy that had reached a market cap of $3 million at its peak.
The hacker allegedly used Phantom’s built-in “Swapper” feature to convert the stolen funds into Solana, which in turn triggered a market-wide sell-off of the token.
As liquidity drained and investor confidence collapsed, the price of Wiener Doge plummeted from $3.10 to less than one cent, representing a 99% loss in value.
The sudden crash not only wiped out Murphy’s personal holdings but also devastated the broader investor base, forcing the project into collapse just days after the attack.
Lawsuit Alleges Negligence and Lax Oversight by Phantom and OKX
The lawsuit accuses Phantom Technologies of gross negligence for deploying software with such a critical vulnerability while advertising it as secure.
The legal filing also targets OKX, asserting that the exchange facilitated the attacker’s liquidation of the stolen funds without adequate Know Your Customer (KYC) or anti-money laundering (AML) procedures.
Murphy and the other plaintiffs are demanding financial restitution for the stolen assets and additional damages for the broader collapse of their crypto project.
The case brings to the forefront concerns about legal accountability in the DeFi space, where even minor software flaws can result in severe financial consequences for users and developers alike.
Broader Implications in a Climate of Ongoing Crypto Regulatory Scrutiny
This lawsuit emerges amidst a growing list of legal battles and cybersecurity incidents in the crypto industry. While Phantom faces allegations of inadequate security, other firms are navigating regulatory turbulence.
Coinbase recently secured a win as Kentucky dropped its staking-related enforcement action, although other states continue to pursue cases.
In Nigeria, the government reaffirmed its openness to crypto companies even as it pursues an $80 billion lawsuit against Binance, underscoring a complex regulatory environment.
Meanwhile, the U.S. SEC dropped its long-standing case against Token Metrics CEO Ian Balina, further highlighting the legal volatility surrounding crypto.
Together, these developments emphasize the urgent need for stronger safeguards, clearer regulations, and accountability across the rapidly evolving digital asset ecosystem.
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