Former Holograph employee gets 5 years over $14M HLG token theft

A Paris criminal court has sentenced a former Holograph Foundation employee to five years in prison over the illegal creation and theft of 1 billion HLG tokens worth approximately $14 million in 2024.

According to AFP, the November 6 ruling requires the Ukrainian defendant, who lived in France, to serve two years in prison, with the remaining three years suspended under probation. The court convicted him of organized fraud, money laundering, criminal conspiracy, and illegally interfering with an automated data processing system.

The court imposed a €600,000 fine on the former employee, identified in French court coverage as Vitaly K. Two other defendants received prison sentences and financial penalties for helping move the stolen cryptocurrency through exchange accounts.

Holograph employee manipulated token minting permissions

The case centered on activities between May and August 2024, when the defendants operated from Paris and Roquebrune-Cap-Martin in southern France. Prosecutors said the main defendant exploited his former position at Holograph Foundation to change the conditions under which the platform could create new tokens.

By modifying those permissions, he generated 1 billion HLG tokens without authorization and transferred them into a cryptocurrency wallet under his control. Prosecutors valued the tokens at approximately $14 million, equivalent to €12.5 million at the time.

The operation did not end with the unauthorized minting. Working with two accomplices, the former employee distributed the cryptocurrency across several exchange accounts, moving the assets away from the wallet that initially received them.

The theft followed a June 13, 2024, security breach involving Holograph’s operator contract, which handles functions connected to the protocol’s tokens. Holograph later disclosed that a former contractor had used administrative access to insert malicious instructions into the system before carrying out the exploit.

French authorities arrested Holograph hack suspects in 2024

The investigation began shortly after Holograph discovered the unauthorized token creation. The company said it had patched the initial exploit and contacted cryptocurrency exchanges to restrict accounts connected to the stolen assets.

In August 2024, crypto.news reported the arrest of suspects following an investigation involving French and Italian authorities. Holograph credited France’s cybercrime investigators, the Brigade de Répression du Banditisme, Europol, Italian authorities, and Cayman Islands police with supporting the investigation.

The company’s investigation, conducted with blockchain security firm Halborn, identified a former contractor as the suspected attacker. Its findings described how administrative access allowed the attacker to place unauthorized instructions into the protocol’s smart contracts.

Authorities subsequently transferred the main defendant from Italy to France, where he remained in custody from September 2024. His two accomplices appeared at the Paris trial without being held in detention.

At sentencing, one accomplice received two years in prison, including 14 months suspended, alongside an €80,000 fine. The other received a two-year suspended sentence and a €40,000 fine. Prosecutors had sought five-year prison terms and an €800,000 fine for the principal defendant.

Court rejects Holograph Foundation’s token price loss claim

Although the court convicted all three defendants, it rejected Holograph Foundation’s attempt to recover compensation for the decline in HLG’s market value. The foundation argued that the fraudulent token creation contributed to the cryptocurrency’s falling price and sought financial compensation for that damage.

The judges found insufficient evidence to establish a direct connection between the fraud and the losses attributed to the token’s depreciation. According to the court president, HLG had already experienced considerable price declines before the events under examination, leaving no reliable basis for calculating that part of the claimed damage.

HLG traded near $0.03 in May 2024 before falling to approximately $0.001 by late December. During the June exploit, the token appeared among the major hacks recorded that month, with the unauthorized mint valued at approximately $14.4 million in contemporary security reporting.

The court nevertheless ordered the three defendants to jointly pay Holograph Foundation €1.15 million for direct financial losses and another €106,800 for other damages. The compensation covered losses the judges accepted, excluding the foundation’s separate claim concerning the token’s declining market price.

Holograph Foundation faces possible liquidation

During the proceedings, Holograph Foundation’s lawyer told the court that the company had effectively stopped operating because of the incident and was preparing for liquidation. The foundation had sought further compensation connected to the loss of market value, but the court declined that request.

Robin Binsard, one of the main defendant’s lawyers, welcomed the rejection of the disputed compensation claim, describing it as a “fantasy.” He said the sentence was considerably lower than the prosecution had requested and could allow his client to regain his freedom in the coming months.

The defense’s comments followed the court’s decision to impose a partially suspended prison term and a smaller fine than prosecutors had sought. The judgment left the foundation entitled to the direct damages awarded by the court, while denying its request for compensation based on HLG’s market depreciation.