Class Action Lawsuit Against Cryptsy Now Targets Coinbase

When $8.2 million in customer funds went missing from Cryptsy user accounts in 2014-15, a class action lawsuit was almost immediately launched against the cryptocurrency exchange and wallet service.

Also Read: IRS Demands Coinbase Records in Surprise Tax Probe

Coinbase Accounts Allegedly Held Stolen Funds

The law group which spearheaded that suit now has one of the largest bitcoin exchanges in its sights.

Silver Law Group and Wites & Kapetan, P.A. filed a nationwide class action lawsuit in federal court against San Francisco-based Money Services Business and cryptocurrency exchange Coinbase Inc. — one of the best recognized brands in the cryptocurrency space — contending the exchange should have known Cryptsy funds held at the exchange were laundered ill-gotten gains.

Paul Vernon, former CEO and principal operator of Cryptsy, allegedly liquidated $8.2 million in customer assets to his own benefit through accounts at Coinbase.

The lawsuit alleges Coinbase knew that the $8.2 million were Cryptsy revenues which Mr. Vernon himself personally owned, and that Coinbase did not fulfil its regulatory requirements to do its due diligence and investigate Mr. Vernon’s activity and his Coinbase accounts.

The lawsuit states more than $8,200,000.00 were laundered through Coinbase and Mr. Vernon is believed to have fled with the money to China in late 2015.

Class Action Now Targets Coinbase

The class action lawsuit  in the United States District Court for the Southern District of Florida (Case No. 9:16-cv-81992) seeks indemnification for all Cryptsy account owners who deposited funds with the exchange, only to lose them to Mr. Vernon’s liquidation of said funds through Coinbase. These users then lost access to their accounts and funds between May 22, 2014 and the present.

The lawsuit alleges Coinbase aided and abetted money launder and unjust enrichment by breaching its fiduciary duties.

The Receiver/Corporate Monitor the Court appointed to oversee Cryptsy’s assets after Mr. Vernon’s disappearance to China, James D Sallah, Esq., was assigned the responsibility of protecting and retrieving assets belonging to Cryptsy or its customers. Mr. Sallah has now joined the lawsuit, according to the law group’s press release.

Vernon Failed to Notify Clients of Losses

Delray Beach, Florida-based bitcoin and altcoin exchange Cryptsy unexpectedly shut down in January 2016. Hundreds of users lost millions in cryptocurrency. A class action lawsuit was filed against the company and Mr. Vernon, accusing the operator of stealing or losing at least $5 million in customer funds.

Vernon fled to China where his ex-wife said he had an extra-marital girlfriend.

Mr. Vernon announced the hack publicly a full year-and-a-half after millions of dollars worth of bitcoin and litecoin had been hacked in July 2014. “The plan was to use a portion of revenue to replenish the wallets. However, diminishing bitcoin price and volume turned out to not go in our favor,” he wrote to New Times. “At the time, I had two choices, disclose and shut down or try to continue running and reacquire user funds. Because we were doing well at the time, I attempted option #2.”

The class action lawsuit maintains there was no hack. It claims Mr. Vernon ran off with the money, and that Coinbase should have known.

Coinbase made headlines last week when the IRS sought two years worth of consumer data pertaining to bitcoin accounts held on the exchange. Coinbase promised to fight the IRS’ sweeping John Doe Summons in court.

What are your thoughts on the Cryptsy debacle? Did you lose any funds? Let us know in the comments below.

Images via Shutterstock, Cryptsy, Coinbase

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