Gladius Network Fraud (Pt. 8)
In June 2018, during the summer when Gladius Network had allegedly reached out to the SEC to let them know about their illicit conduct, Gladius Network filed a lawsuit against a company listed as ‘Krypton Blockchain Holdings Ltd., d/b/a Krypton Capital.
This lawsuit is what ultimately confirms the connection between Gery Shalon and Gladius Network.
Due to the relatively opaque nature of the lawsuit and the complete lack of coverage of its contents by nearly every publication in the crypto space, this lawsuit went largely under the radar in the general public.
There was a ‘Yahoo! Finance’ article that had mentioned the lawsuit, but the article did not contain any mentions of Gery Shalon or the other affiliated individuals.
However, it was clear in stating that Gladius Network LLC had initiated the lawsuit.
Fortunately, there is a link to the actual lawsuit, which can also be found below:
According to the suit:
“This is a civil action related to the Memorandum of Understanding (the “Memorandum”), entered into by and between Gladius.io and Krypton Blockchain Holdings Ltd. (“Defendant” or “Krypton”). Plaintiff seeks a declaratory judgment that the Memorandum is void and unenforceable.”
The first claim made in the lawsuit is that,
“Defendant led Plaintiff to falsely believe that the funds it received came from Defendant when they belonged to (and were in fact paid to Plaintiff directly by) one or more third parties, and did not inform Plaintiff that provision of such funds by these third parties, to whom Plaintiff would not have wished to sell a stake in its business, had been made as a prerequisite to their contemplated acquisition of a controlling interest in Krypton.”
The verbose language can essentially be reduced down to Gladius claiming that they had no idea who they were really dealing with when they entered into an agreement with Krypton Blockchain, but once they found out this information, they decided to null the agreement entirely.
Below are a few excerpts from the lawsuit where Gladius Network details the chronology of their relationship with Krypton Blockchain:
To summarize the relevant points above, Gladius Network states that:
Their founders, a bunch of college of students from the University of Maryland, came up with the idea behind Gladius Network (a cybersecurity-based cryptocurrency token).
After coming up with the idea, the founders decided that they would need strong advertising in order to attract additional investors.
At that point, the founders of Gladius Network then reached out to an individual named Nadav Dakner, the, “CEO of an Israeli marketing firm called InboundJunction.” The contact was established through their law firm, ‘Paul Hastings’. The lawsuit alleges that this connection was forged in September 2017.
After the connection between Gladius and Dakner was made, Gladius decided that they would hire Dakner to “facilitate investor interest in its business”. Moving forward, in November 2017, the lawsuit alleges that Gladius Network was then introduced to Krypton Capital.
The meeting was an apparent success, according to the lawsuit, which states, “Defendant’s [Krypton Capital] founder and controlling shareholder, Ilan Tzorya, proposed that the parties enter into a pair of transactions.”
There are a number of sources on the internet, as well as immutable facts that either create considerable question as to the veracity of the narrative presented above or outright disprove some of the details given.
Discrepancy #1 — Company Creation Time
The lawsuit incorrectly states, “The company, Gladius Network LLC, was incorporated in June 2017.”
Corporate governance records for Gladius Network LLC from opencorporates shows that the company (Gladius Network LLC) was actually created in July:
While not a major error, it is always worth noting patently incorrect information in a lawsuit.
Discrepancy #2 — Role of Nadav Dakner
The lawsuit states, “Through their counsel, Paul Hastings, Plaintiff was introduced to Nadav Daknker, CEO of an Israeli marketing firm called InboundJunction. In September 2017, Plaintiff hired Mr. Dakner to facilitate investor interest in its business…”
The firm states that Nadav Dakner was “hired”, but public statements issued by Dakner strongly imply that he was an investor rather than someone hired to fulfill a specific role.
According to Nadav Dakner’s investor profile on the website, angel.co, he played a substantially greater role in the making of Gladius Network than how he was portrayed in the lawsuit.
Notable excerpts from his bio include:
“I also launched and managed an ICO that raised $20mm”
“I…did everything from setting up the infrastructure, to bringing investments, conducting wide scale marketing campaign and business development”
In addition, Dakner lists himself as the CMO of Gladius Network, which implies that h was one of the individuals responsible for running the ICO, as he stated, rather than being a contracted 3rd-party, which is what Gladius Network strongly implied in their lawsuit while detailing his activities.
Additionally, Dakner also lists that he was one of the seed investors in Gladius Network, which is yet another aspect of his involvement with the token that paints a drastically different picture of his involvement than how Gladius Network described.
Discrepancy #3 — Overall Timeline of Project Creation and Launch
The lawsuit states, “On November 6, 2017, Mr. Dakner introduced Plaintiff to Krypton.”
This statement is worthy of scrutiny for a few reasons.
First, the context of the situation should be strongly considered. Specifically, the lawsuit is alleging that the entire purpose of Gladius Network reaching out to Dakner was to connect to a larger pool of investors in order to raise greater funds for the project.
However, it appears that Gladius Network was already able to secure a substantial amount of investment (and interest) at that point in time.
This is evidenced by numerous facts, such as:
Their pre-sale had already concluded, as evidenced by social media posts (and evidence via the blockchain itself). In addition, public statements by Gladius indicate that they had already raised millions of dollars at the time that they were pursuing greater investor interest for their project. See below:
Furthermore, on the very same day that the tweet above was sent, Gladius Network also published a Medium blog post conveying the same information.
Notably, in that post, they state:
The statement above strongly undermines the idea that Gladius felt the need to forge contacts with an Israel-based venture capital firm in order to create greater investor interest and assist with marketing.
This is especially true when considering the business relationships that Gladius Network claims they forged in that very same blog post:
Frank Bonnet’s Involvement is Cause for Concern as Well
Furthermore, the involvement of Frank Bonnet in the project’s development also provides considerable cause for skepticism in evaluating the lawsuit filed by Gladius Network.
As stated in the first installment of this report, Frank Bonnet was listed as one of the members of Trilliant AG:
He is also a member of Gladius Network’s tech team.
Specifically, Frank Bonnet was essentially responsible for carrying out all facets of the Gladius token sale, such as:
Coding the Gladius token smart contract
The creation of all of Gladius’ smart contracts used for their crowdsale
Maintaining the GitHub repository that contains the solidity code for all of Gladius’ deployed smart contracts on the Ethereum blockchain.
Seeking out a ‘third-party’* smart contract auditing firm to evaluate the smart contract for any errors/flaws/exploits/vulnerabilities etc.
What makes the mention of Frank Bonnet relevant in the larger context of what’s going on is Trilliant AG’s implicit relationship with Krypton Capital through a company called, ‘Ibinex’.
This connection can be seen very explicitly by analyzing entities associated with the ICO, ‘CrowdWiz’.
Without digging too deeply into the minutiae of the agreements above, the screenshots from the lawsuit will remain without any further analysis for the time being.
Below, we’ll take a look at the primary qualm that Gladius Network alleges that they had with Krypton Capital:
The information above is dense and the claims are substantial — but there are numerous statements that were made that carry massive implications due to the fact that:
The argument made in the complaint is inconsistent, at best.
Some of the assertions made are provably false.
The lawsuit inadvertently exposes the involvement of Gery Shalon and Vladimir Smirnov.
The information in the lawsuit, at the very least, confirms that there was a working relationship between Gery (Gabriel) Shalon and Gladius Network LLC.
Gery (Gabriel) Shalon is intimately involved in the operations of Krypton Capital.
There are several more major conclusions that can be gleaned from this portion of the lawsuit, but the greater focus may be exploring the inconsistencies and falsehoods that were stated in the lawsuit.
On page 10, section 32, the lawsuit states:
“Plaintiff was also presented with additional information regarding the extent of the involvement of Defendant’s purported independent advisor, Gabriel Shalon, in Defendant’s business. Prior and up to the execution of the Memorandum by Plaintiff, Mr. Shalon, who had been fined by the United States government in connection with the hacking of a number of financial institutions, was represented to Plaintiff by Defendant as a third party advisor who had been temporarily hired by Defendant for his expertise in cyber security.”
There are countless issues with the phrase above, which this report will attempt to dissect below.
The lawsuit substantially understates Gery Shalon’s criminal involvement.
Specifically, it is stated, “Prior and up to the execution of the Memorandum by Plaintiff, Mr. Shalon, who had been fined by the U.S. in connection with the hacking of a number of financial institutions…”
As noted in the previous report, Gery Shalon was specifically accused by the U.S. Department of Justice of numerous, large-scale international financial crimes that, individually, carried sentences that should have effectively imprisoned him for a lifetime.
Below are some of the details included in the DOJ’s press release:
Orchestrating the largest attack on a financial institution in U.S. history.
In addition to orchestrating the largest theft of financial data from a U.S. financial institution, Gery Shalon was also accused of orchestrating a number of other large-scale financial breaches.
“Shalon orchestrated computer network hacks and cyberattacks in furtherance of other major criminal schemes, including unlawful internet casinos and illicit payment processors which Shalon operated with Orenstein.”
Statements directly from the United States Attorney General, Loretta Lynch (Obama administration) were included in the Department of Justice announcement. Typically, the U.S. Attorney General will not comment directly on a case unless the relevant crimes were of such a magnitude that they potentially impacted all U.S. citizens.
USAG (SDNY) Preet Bharara described the apprehension of Gery Shalon and his co-defendants by proclaiming, “We have exposed a cybercriminal enterprise that for years successfully and secretly hacked into the networks of a dozen companies, allegedly stealing personal information of over 100 million people, including over 80 million customers from one financial instutiton alone.” Additionally, Bharara states, “Shalon, Aaron and their co-conspirators allegedly robbed victim companies, often for months at a time, stealing the contact information of tens of millions of customers.”
Gery Shalon was additional accused (along with co-conspirators) of orchestrating a “multimillion-dollar stock manipulation…[scheme] to manipualte the price and trading volume of dozens of publicly traded microcap stocks”. It was also stated that, “Shalon and his co-conspirators generated tens of millions of dollars in unlawful proceeds from the securities market manipulation schemes”
“From at least in or about 2007 up to and including in or about July 2015, Shalon, Orenstein, and their co-conspirators operated unlawful internet casinos in the United States and elsewhere through hundreds of employees in multiple countries…Shalon, Orenstein and their co-conspirators generated hundreds of millions of dollars in unlaw income.”
“Shalon, Aaron, Oreinstein and their co-conspirators operated their criminal schemes, and laundered their criminal proceeds, through at least 75 shell companies and bank and brokerage accounts around the world…Defendants controlled thse companies and accounts using aliases, and by fraudulently using approximately 200 purported identification documents, including over 30 false passports that purported to be issued by the United States and at least 16 other countries.”
In total, Gery Shalon was indicted on 23 counts ranging from ‘Conspiracy to Commit Wire Fraud’ to ‘Money Laundering Conspircy’ in connection with Online Gambling sites, securities market manipulation schemes and a money transmitting business.
These charges came with a potential maximum of 200+ years in federal prison.
Therefore, it is fair to state that the Gladius Network’s characterization of Gery Shalon’s actions by simply stating he had been ‘fined by the United States government in connectioon with the hacking of a number of financial institutions’, signifcantly understates the true criminal nature of Gery Shalon’s activities.
Perhaps even more damning is the acknowledgment that Gery Shalon was involved in **some level**of crime, because it would be virtually impossible to look into Gery Shalon’s criminal background (or his background, in general), without quickly stumbling upon the substantial criminal activity that he has been engaged in over the last decade.
It is also worth mentioning that the news of Gery’s role in orchestrating wide ranging financial terrorism was released by the U.S. Department of Justice on November 10th, 2015 — just two years before Gladius Network had allegedly engaged Krypton Capital to enter into negotiations.
The lawsuit goes on to state that Gery Shalon was, “Represented to Plaintiff by Defendant as a third party advisor who had been temporarily hired by Defendant for his expertise in cyber security.”
Given Gery Shalon’s well-publicized criminal past, it is objectively absurd for Gladius Network to argue that they were uncomfortable with allegedly finding out that Gery Shalon was one of the primary operators of Krypton Capital, yet they had no qualms with him working with Krypton Capital in the capacity of a “advisor” for ‘cybersecurity’, when his publicly verifiable cybersecurity experience stems from significant international crime.
As to the extent of Gery Shalon’s public expertise in blockchain, the only information on record in terms of his involvement in the blockchain space was provided by the Department of Justice in the press release announcing the unsealing of Shalon’s indictment when they stated:
“Shalon also owned and controlled an illegal U.S.-based Bitcoin exchange known as Coin.mx.”
“[Shalon] owned and controlled Coin.mx, an illegal U.S.-based Bitcoin exchange that operated in violation of federal anti-money laundering laws.”
Gladius Network additionally claimed in the lawsuit that, “In February 2018, Plaintiff requested that the parties engage in negotiations for a walk-away agreement, given their failure to date to reach a contractual agreement regarding the terms of the contemplated Final Status Agreements. Defendant readily agreed to engage in such negotiations.”
“Those discussions, begun in February 2018, quickly deteriorated.”
However, as early as November 11th, 2017, Gladius Network was announcing that it had already come to a solidified agreement with Krypton Capital.
The press release shown above was linked directly from Gladius Network’s Twitter account, which made the same announcement:
Conveniently, the press release above was launched by Gladius Network during their ‘public presale’ phase, so this news undoubtedly increased the offering’s prospects in the eyes of many investors as well.
As explained above, Gery Shalon’s criminal history is extensive.
However, a yet unexplained character is Vladimir Smirnov. Apart from independent reporting by financial watchdog ‘FinTelegram’ (specifically an author named Tamir), there is hardly any information in the public discourse about the nature of this individual.
Thus, while this report will provide links to the specific content that covers the alleged identity of Vladimir Smirnov, it must be stated that the information about this individual, in particular, was not able to independently validated by this report’s author(s).
Therefore, any information that is not explicitly included in this report (or subsequent ones) should be considered information that the author(s) decided to omit or simply looked over.
Statements above notwithstanding, however, none of these caveats are meant to imply that the information reported by FinTelegram are false. It is possible that the writers responsible for publishing certain information about Vladislav Smirnov that could not be located by this report’s author(s) in the public record is indeed, true.
In either case, here are the relevant links:
What is useful here is the fact that there are certain pieces of information that can definitely be corroborated, based on information provided in the lawsuit that lines up with other reported facts by sources such as FinTelegram and others (in addition to cross references with numerous other sources + checking corporate governance information).
On a basic level, it can be confirmed that the individual being referred to in the Gladius Network as ‘Vladimir Smirnov’, is a Russian citizen.
Moreover, the conclusion that this individual is one that is connected/attached to Gery Shalon as a partner or accomplice of some sort is also an established fact.
In addition, there are substantial public reports that attest to the fact that Vladimir Smirnov is involved in substantial criminal activity as well, which is also a claim that the lawsuit makes.
Specifically, the lawsuit states the following:
Information information that can be gleaned from above:
Vladimir Smirnov was/is intimately tied with Krypton Capital (and thus, Ilan Tzorya, by extension).
Vladimir Smirnov and Gery Shalon were working in partnership/conjunction with one another.
Vladimir Smirnov owns ‘Oldypak Capital LP’.
In relation to the last bullet point above, stating that Vladimir Smirnov is the owner of ‘Oldypak Capital LP’, that information is corroborated by ‘opencorporates’ (see below):
In addition, it is worth observing that there have been several changes to the structure of the company’s directors and listed shareholders from 2016–2019 (there was no public record activity from the business between 2013–2016).
Specifics of all the numerous changes in company structure can be found here: https://beta.companieshouse.gov.uk/company/SL012761/filing-history
Since the records for this company are available on the internet, the author(s) of this report decided to download each (as well as host them online in case the website its hosted on is compromised) for further viewing and archival purposes.
This section of the report will review each, extracting any notable information that can be gleaned.