Circle News: Lawsuit Filed for Not Freezing USDC in $280M Drift Hack

Key Insights:

• USDC stablecoin issuer Circle is facing a class action lawsuit.
• The company is combating allegations of poor handling of the $280 million Drift Protocol hack.
• The CRCL stock price dropped after the legal action came to light.

Circle Internet Group Inc. has been subject to legal scrutiny following a class-action lawsuit. In Circle News today, the case alleged that the company had not stopped illicit USDC transfers to the $280 million Drift Protocol exploit.

The lawsuit was brought in a federal court in Massachusetts on behalf of investors who had lost money in the April 1 crypto hack.

Circle News: USDC Issuer Faces Major Lawsuit

Gibbs Mura filed the suit with Murtagh McCollum serving as the plaintiff. The legal firm claims that Circle had both the technical capability and contractual mandate to freeze the stolen money, but failed within a crucial time frame.

According to Circle news updates, the lawsuit targets an eight-hour time frame during which the USDC issuer has the opportunity to freeze the assets. In this timeframe, the attackers transferred over $230 million in USDC from Solana to Ethereum via Circle’s CCTP. At the time, they made more than 100 transfers to execute the crypto hack.

Drift Protocol attributed this exploit to the state-affiliated actors of North Korea. The team claimed that the attackers had spent months compromising operations by masquerading as a quantitative trading company.

The attack capitalized on the fact that the breach used a “durable nonce.” This feature enables pre-signed transactions to be processed in the future, postponing the reaction time.

On-chain investigator ZachXBT publicly condemned Circle’s reaction. He claimed that the enterprise did not respond, even though it had multiple hours of U.S. business time. He doubted the consistency of the company, per Circle news updates. The crypto sleuth questioned:

Circle Executives Justify Their Move

In a separate Circle news, the company’s executives justified this position by citing legal restrictions. CEO Jeremy Allaire asserted that the firm only freezes USDC upon the instructions of authorities.

“If there are others that believe that Circle should just step away from what the law says and do its own, make its own decisions, I think it’s a very risky proposition,” he said.

Supporting this argument, Chief Strategy Officer Dante Disparte pointed out that decision-making on interventions is not arbitrary. “When Circle freezes USDC, it is not because we have decided, unilaterally or arbitrarily, that someone’s assets should be taken from them. It is because the law requires us to act,” he wrote.

A company representative said that Circle is a regulated company. They explained that it adheres to “sanctions, law enforcement orders, and court-mandated requirements.”

CRCL Stock Records Decline

Market sentiment surrounding Circle stock has also been affected by the fallout from the exploit. CRCL stock initially rose by 1.84% to close at $107.46 on Thursday. However, after the coverage of the Circle news on the lawsuit, the CRCL stock fell 1.42% after hours.

In addition, the declines extended to Friday’s trading session. The Circle share price hit a low of $102.70 in the intraday trading session on April 17. At press time, the Circle stock dropped 2.01% to $105.30.

Although this recent drop has followed, the stock has posted strong short-term returns, with gains of over 22% in the last week. CRCL is currently up 26% year-to-date but still shows a 27% nosedive in the 30-day timeframe.

Drift Protocol, meanwhile, has begun rolling out recovery efforts and announced a 150 million recovery plan with Tether. The platform also affirmed a strategic shift to stop using USDC and instead use USDT as a primary settlement asset after the incident.