Crypto company Compound sends users US$90 million in error, threatens in demand for its return

The CEO took to Twitter to ask for it back, saying he'd doxx those who didn't return it.
The CEO took to Twitter to ask for it back, saying he'd doxx those who didn't return it. Photo credit: Getty Images

What would you do if someone accidentally deposited millions of dollars in cryptocurrency in your account and then threatened you over it, even if there was no legal requirement for you to return it?

Some users of decentralised finance (DeFi) company Compound have faced exactly that dilemma after a bug in an update to software started paying arbitrary amounts of digital cash into accounts.

The amount sent in error totalled around US$89 million (NZ$128 million), forcing founder and CEO Robert Leshner to beg and then threaten for it back. One user was handed nearly US$29 million (NZ$41.8 million).

Compound is a lender of digital currencies with users depositing into lending pools for borrowers. Interest is then paid on the assets they supply in COMP, Compound's own ethereum blockchain based token.

When the error was discovered Leshner took to Twitter asking for the amounts to be returned, indicating those impacted could keep 10 percent of the fee for being ethical.

But things then took a dark turn when he threatened to doxx - ie share personal, identifiable information - about the recipients online.

"Otherwise, it's being reported as income to the IRS, and most of you are doxxed."

Leshner later walked his threats back, acknowledging threatening his users might not be the best way to get a response.

"I'm trying to do anything I can to help the community get some of its COMP back, and this was a bone-headed tweet / approach. That's on me," he wrote.

"Luckily, the community is much bigger, and smarter, than just me. I appreciate your ridicule and support."

Shehan Chandrasekera, a Certified Public Accountant and head of tax strategy at a cryptocurrency firm, told CNBC that no-one was obliged to return the funds.

One of the reasons for that is there is a lack of regulatory safeguards around cryptocurrencies and trading, unlike with more traditional financial institutions.

And while that inherent riskiness of no regulation can bring massive rewards - the 10,000 bitcoin paid for two pizzas in 2010, worth just US$41 at the time are now worth US$487 million - when there are mistakes or hacking it can be harder to reclaim lost cash.

New Zealand announced earlier this year it was creating a bank deposit guarantee scheme that would mean all amounts of money up to NZ$100,000 would be protected should the bank collapse. Those same safeguards aren't available for cryptocurrencies.

In this case, users who decided to keep the amount would simply need to pay the appropriate tax on the money, Chandrasekera, said.

Thankfully for Leshner, quite a few users have voluntarily returned the COMP sent to them, with the CEO publicly thanking them on social media.