Phantom Wallet Exploited, Resulting in the Theft of Over $500,000 in Digital Assets

A group of investors led by attorney Liam Murphy has filed a lawsuit against Phantom Technologies and OKX, alleging that severe security flaws in Phantom's popular crypto wallet led to the theft of over $500000 in digital assets and triggered the collapse of Murphy's digital asset project, Wiener Doge.

A group of investors led by attorney Liam Murphy has filed a lawsuit against Phantom Technologies and cryptocurrency exchange OKX, alleging that severe security flaws in Phantom’s wallet facilitated the theft of over $500,000 in digital assets and triggered the collapse of Murphy’s digital asset project, Wiener Doge.

The lawsuit, filed in the Southern District of New York on Thursday, claims that Phantom falsely advertised its wallet as "secure" while knowingly storing users' decrypted private keys in browser memory. This design allowed hackers to steal funds without needing to bypass two-factor authentication or any security checks.

On January 20, cybercriminals exploited a vulnerability in Phantom’s browser extension, which stored private keys unsecurely, according to the filing. The attacker then managed to gain access to Murphy’s crypto holdings, valued at over $500,000, and liquidated the holdings, causing a 99% drop in the value of Wiener Doge.

The Solana-based meme coin, which had a peak value of over $3 billion, fell from $3.1 per token to less than $0.01, the lawsuit states. The hacker used Phantom’s built-in “Swapper” tool to convert the stolen tokens to Solana.

"Phantom did not merely fail to anticipate cyberattacks—it knew exactly how users were being compromised and made a calculated decision to remain silent," the filing claims.

"Phantom's leaders knew that the browser wallet stored users' decrypted keys in active memory. They knew that novice users were routinely targeted by malware, phishing scripts, and rogue extensions. They knew that many victims were losing significant funds."

The complaint goes on to list seven major claims against Phantom, including operating as an unregistered trading platform, negligence in cybersecurity protection, false advertising, and aiding money laundering through OKX.

The lawsuit also alleges that Phantom and OKX officials responded slowly and inadequately to victims' pleas for help, aiming to protect their own reputations and minimize legal liability.

The lawsuit follows a turbulent period for Phantom, which faced backlash from the crypto community over its handling of the hacks.

Earlier this year, Phantom announced the closure of its browser wallet service to focus on developing its own blockchain and token, aiming to offer a more user-friendly and secure Web3 experience.