Phantom Wallet Hit by $3.1M Lawsuit Over Alleged Role in $500K Memecoin Exploit

A group of investors have sued the non-custodial crypto wallet provider, Phantom Technologies, over the theft of $500,000 worth of crypto assets. The lawsuit alleged that the exploit resulted from a security flaw in the Phantom wallet.

$500K Theft Exposes Security Flaw

The lawsuit was filed on April 14 by crypto lawyer Thomas Liam Murphy and 13 others in the Southern District of New York. In the complaint, the crypto law firm Murphy’s Law claimed that Phantom’s negligence and deceptive practices exposed users to security vulnerabilities that resulted in the theft.

According to court documents, the attacker hacked Murphy’s computer and extracted his wallet’s private key from Phantom’s unencrypted browser extension memory. The filing alleged that Phantom knew about this security flaw but neither fixed it nor disclosed it to users.

Once the attackers gained access, they quickly drained the funds in Murphy’s three interconnected Phantom wallets without bypassing two-factor authentication. They were able to steal $500,000 worth of Weiner Doge (WEINER) tokens, a Solana-based memecoin created by Murphy.

Subsequently, the attacker used the “Swapper” feature available on the Phantom wallet to convert the stolen WEINER memecoins into SOL using OKX’s smart contract. 

The filing also named OKX as a co-defendant in the case, citing the exchange’s history of violating anti-money laundering compliance. The plaintiffs noted that the platform’s integration with OKX’s smart contract enabled the attacker to quickly liquidate the stolen funds.

Phantom to Pay $3.1M in Damages 

The filing further alleged that the mass liquidation of WEINER tokens destroyed the project’s value. After the attacker swapped WEINER tokens worth approximately $500,000 for only $37,537 SOL, the token’s price plummeted.

According to data from GeckoTerminal, the memecoin had reached a peak market cap of $3.1 million. However, following the attack, the token’s price dropped from $3.1 to $0.01. 

Per the filing, the plaintiffs are demanding $3.1 million in compensation, alleging that Phantom violated the Commodity Exchange Act. They stated that Phantom functioned as an unregistered trading platform while claiming to be a decentralized wallet. 

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