On February 8, 2022, IRA Financial was subject to a security breach that has resulted in the alleged loss of approximately $36 million in cryptocurrency assets. For many users, these assets constitute retirement savings that were invested with IRA Financial through the Gemini cryptocurrency exchange. IRA Financial has stated that it is monitoring the stolen cryptocurrency, which appears to passing through the Tornado “mixer” service in an attempt to launder it.

The attorneys at Revision Legal have helped a number of individuals recover stolen cryptocurrency, and we are watching this situation as it develops. If you are a victim of this hack/data theft, you may contact one of our cryptocurrency attorneys at 231-714-0100 for a free consultation.

How the Breach Occurred: Attack Vector and Custodial Responsibility

According to reporting on the breach, attackers were able to access IRA Financial’s account management system through Gemini’s API infrastructure. The attack appears to have exploited credentials or API keys associated with IRA Financial’s master account, giving the attackers the ability to drain individual customer accounts by executing unauthorized transfers. This type of attack — targeting the institutional layer rather than individual end users — is particularly damaging because it can affect thousands of customers simultaneously and because the compromised entity (IRA Financial) held broad administrative access to customer funds.

The breach raises important questions about custodial responsibility. When a customer deposits retirement savings with a self-directed IRA custodian that in turn holds those assets on a third-party exchange, there are at least two potential points of fiduciary failure: the IRA custodian’s internal security practices and the exchange’s API security architecture. Determining where the breach originated and which entity bears responsibility requires forensic analysis of both systems.

Legal Theories Available to Victims

Victims of the IRA Financial / Gemini breach may have claims under several legal theories depending on the facts as they develop:

• Negligence — Both IRA Financial as the IRA custodian and Gemini as the exchange owed a duty of care to safeguard customer assets. If either entity failed to implement reasonable security measures — such as multi-factor authentication, IP whitelisting for API access, or anomaly detection for unusual transfer patterns — a negligence claim may arise.
• Breach of fiduciary duty — As a custodian of retirement assets, IRA Financial may owe a fiduciary duty to its customers. Custodians of IRA assets are subject to IRS regulations requiring prudent investment and safekeeping of assets under 26 U.S.C. § 408.
• Breach of contract — Customer agreements with IRA Financial and Gemini may contain specific security representations or undertakings. If the entities failed to meet those contractual standards, affected customers may have breach of contract claims.
• Consumer protection violations — State consumer protection statutes, including Michigan’s Consumer Protection Act, prohibit unfair or deceptive trade practices. Representing a platform as secure when it is not may constitute a deceptive practice under these statutes.

Cryptocurrency Tracing and Asset Recovery

The fact that stolen cryptocurrency was routed through Tornado Cash — a so-called cryptocurrency “mixer” or “tumbler” — does not make recovery impossible, though it significantly complicates tracing efforts. Blockchain analytics firms such as Chainalysis and Elliptic specialize in tracing cryptocurrency transactions even through mixing services by analyzing transaction patterns, timing, and the clustering of wallet addresses. Law enforcement agencies, including the FBI and Secret Service, have dedicated cryptocurrency tracing units and have successfully traced and recovered cryptocurrency in high-profile cases even when mixers were used.

The US Treasury Department’s Office of Foreign Assets Control (OFAC) has sanctioned Tornado Cash, making it a federal crime for US persons to transact with the service. If the attackers are identified and located in the United States or in a country with an extradition treaty, criminal prosecution under the Computer Fraud and Abuse Act (18 U.S.C. § 1030) and federal wire fraud statutes is possible. Civil recovery against identified defendants may also be pursued through asset freeze orders and judgments that can be enforced against any assets the defendants hold — not limited to the stolen cryptocurrency itself.

Regulatory Implications for Crypto Custodians

Breaches of this scale draw regulatory scrutiny. The SEC has taken the position that certain crypto assets are securities, and custodians of securities-classified crypto assets may be subject to Regulation S-P, which requires registered investment advisers and broker-dealers to implement written policies and procedures to protect customer financial information. State regulators also have authority over money transmission and financial services. New York’s BitLicense regulations impose specific cybersecurity requirements on virtual currency businesses operating in New York. The Financial Crimes Enforcement Network (FinCEN) requires cryptocurrency exchanges to maintain anti-money laundering programs and report suspicious activity, which would include transactions through sanctioned mixing services.

What Victims Should Do Now

If you held assets with IRA Financial through Gemini and believe your account was affected by this breach, you should document your account statements and any communications from IRA Financial or Gemini about the breach, preserve all relevant email and written correspondence, and consult with an attorney experienced in cryptocurrency theft and recovery as soon as possible. Statutes of limitation for negligence and breach of contract claims begin running from the date of the breach or from the date you reasonably discovered the breach, so delay can forfeit otherwise valid claims.

Contact Revision Legal

The attorneys at Revision Legal have experience recovering stolen cryptocurrency and advising clients whose digital assets have been compromised through exchange hacks, custodial failures, and fraud. Contact us today at 231-714-0100 for a free consultation.