Coinbase sued by Cryptsy victims for assisting bitcoin theft

paul-vernon

Coinbase Inc. has been dragged into the ongoing drama surrounding failed bitcoin exchange Cryptsy (Project Investors, Inc.) over allegations that Coinbase helped steal money from the exchange.

Silver Law Group and Wites & Kapetan, P.A., on behalf of Cryptsy victims, filed a class action lawsuit against Coinbase prior to Christmas alleging that company should have known Cryptsy funds held at the exchange were laundered ill-gotten gains.

Problems at Cryptsy first emerged in October 2015. Founder Paul “Big Vern” Vernon claimed in January 2016 that the exchange had been hacked and that it would try to trade its way out of insolvency. The hacking story was subsequently disproved in March this year when it was disclosed that Vernon had testified under oath during his divorce proceedings that the exchange had been in financial trouble for a significant amount of time.

Those same documents noted that Vernon made an all-cash purchase of a $1,374,881 waterfront mansion in Palm Beach County, Florida, in May 2015, at the same time Cryptsy was apparently in financial trouble. By April, a court-appointed receiver took over the running of the company and all assets were frozen.

The class action lawsuit against Coinbase claims the company was negligent as it failed in its regulatory requirements to undertake due diligence on Vernon’s activities – in particular, the $8.2 million of Cryptsy funds Vernon is alleged to have placed in a Coinbase account held in his name.

“As alleged in the lawsuit, Mr. Vernon told Coinbase that the $8.2 million represented either a portion of the revenues Cryptsy had generated from its business or represented Bitcoin that Mr. Vernon himself personally owned,” Silver Law Group said in a statement sent to SiliconANGLE. “Despite Mr. Vernon’s assertions of business revenue and personal ownership, Coinbase — as a Money Services Business regulated under the FinCEN division of the U.S. Treasury Department — was required to reasonably verify those facts. The lawsuit asserts that Mr. Vernon’s claims were untrue, and Coinbase failed to satisfy its regulatory requirements or perform any reasonable investigation into the suspicious activity in Mr. Vernon’s and Cryptsy’s Coinbase accounts.”

Compensation is being requested for victims of Cryptsy for Coinbase aiding and abetting breach of fiduciary duty, aiding and abetting conversion, negligence and unjust enrichment.

Image credit: Chris DeRose/screenshot