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Cryptsy Customers vs Coinbase Case Reopened

A court case stemming from a class action lawsuit brought against Coinbase by Cryptsy customers has been reopened by Judge Marra in the US District Court of the Southern District of Florida. Cryptsy was a popular cryptocurrency exchange that closed down and went bankrupt in early 2016.

Supposedly, Cryptsy was hacked in July 2014 resulting in the loss of BTC 13,000 (Bitcoin) and LTC 300,000 (Litecoin), worth USD 7.5 million and USD 2.1 million respectively at the time of the hack. The CEO of Cryptsy, Paul Vernon, said he did not disclose information about the hack when it happened to avoid panic. He also said he wanted to try and repay losses from the hack with exchange profits.

Due to declining cryptocurrency prices and slowing market activity combined with an article by Coin Fire alleging that Cryptsy was under investigation by US authorities, Cryptsy’s illusion of stability came crashing down and the exchange was forced to close. Vernon never revealed the truth about the 2014 hack until the exchange was already closed.

Cryptsy customers successfully filed a class action lawsuit: Judge Kenneth Marra of the US District Court ordered Paul Vernon to pay USD 8.2 million to customers, in addition to the BTC 11,325 stolen at the time of the hack in 2014.

This was a default judgement since Paul Vernon never showed up in court, having fled the country to avoid arrest. His ex-wife said he moved to China with his girlfriend, but that was a couple of years ago and his whereabouts remain unknown.

Now, Cryptsy customers from the same class action lawsuit are seeking damages against Coinbase, since Vernon converted USD 8.3 million worth of Bitcoin into cash via Coinbase over a period of years. At the time, Vernon claimed this was from profits, but suspicions were raised due to the similar amount of money stolen in the alleged hack.

Coinbase claims that it is not liable for damages since Vernon signed a user agreement saying he would not use stolen funds, part of the broader user agreement that every Coinbase registrant must sign before using the exchange.

According to the motion filed on 4 June 2018 to reopen this case, Coinbase doesn’t oppose compensating victims at this point, especially since the USD 8.3 million of Bitcoins cashed out is now worth about USD 83 million.

To give Coinbase the benefit of the doubt, Cryptsy was a popular and reputable cryptocurrency exchange for years before it closed up, so it is unlikely Coinbase had any idea that Paul Vernon was siphoning off stolen funds. Regardless, based on the wording in the motion, it seems Coinbase is ready to settle up and close this case once and for all, especially since two appellate courts sided against Coinbase prior to the official reopening of the case.

 

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