The saga of failed Bitcoin exchange Cryptsy (Project Investors, Inc.) has taken a turn for the absurd with the exchange now claiming it was hacked.
In a post on the Cryptsy blog, founder Paul “BigVern” Vernon claims that trojan malware was inserted into Cryptsy’s code by the developer of Lucky7Coin giving access to the company’s wallets, allowing the person to steal 13,000 Bitcoins and 300,000 Litecoins (another type of cryptocurrency) valued at today’s exchange rate of around $6 million.
Where the tale gets worse though is that the hack is alleged to have taken place some 18 months ago, and that instead of letting customers know what had happened, Vernon bizarrely decided instead to continue trading in a futile effort to work their way back to solvency, and claims to have not reported the theft to authorities as he didn’t know who to report it to (seriously).
The last part needs repeating: Cryptsy was insolvent and unable to meet liabilities, but instead continued to take deposits from new customers.
But alas, in what can only be called delusional, Vernon then claims that the only reason his plan to trade his way back to solvency didn’t work is because the media became aware of problems at the company and this publicity caused customers to lose confidence in the company and attempt to withdraw their Bitcoin holdings…. the very same Bitcoin’s that Cryptsy claims to have been stolen.
If the sordid tale isn’t bad enough, there’s still more: Vernon discusses options for the company going forward despite the fact that the company is insolvent, and while he says that filing for bankruptcy is one option (it should be the only option) other options include selling the site and letting the buyer pay back users (you can’t make this stuff up), returning to restricted trading, spreading the loss to all users and allowing trades to continue, or freezing user balances and only releasing them as they become available from the fees collected by trades on the site… because you know, millions of Bitcoin users are going to flock to trade with an insolvent company that won’t allow withdrawals because their funds have actually been stolen.
It’s hard on face value to believe that Cryptsy was hacked, as it has become the standard excuse for every dodgy Bitcoin exchange that has gone out of business in the last two years, and on top of this Cryptsy itself has been openly lying about its problems the entire time, with Vernon seemingly blaming everyone else for the exchange’s issues.
Even if it’s true, the actions of Cryptsy and Vernon himself since that time were not only immoral, they were likely illegal as well.
They kept taking money from users without the ability to return it: that’s not trading your way out of insolvency, that’s outright theft.
Cryptsy is already the subject of a class-action lawsuit from customers who have had their funds stolen by the company, but you can only hope that the Securities and Exchange Commission (SEC) along with other Federal agencies start investigating the company as well as there’s ample evidence of criminal wrongdoing.
Image credit: lydiashiningbrightly/Flickr/CC by 2.0
Duncan is a co-founder of VC funded media company B5Media and founder of news site The Inquisitr, and was a senior writer at TechCrunch in its earlier days.
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