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Court Takes Control of Digital Currency Exchange Cryptsy

(@mpmcsweeney) | Published on April 4, 2016 at 20:09 BST
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A Florida court has frozen the assets of the digital currency exchange Cryptsy and placed it under receivership, months after it collapsed amid claims that it had been the target of a hack.

The court-appointed monitor, James Sallah, was selected after a request by the plaintiffs in a class action law suit filed against the exchange in January.

That lawsuit stemmed from problems with customer fund withdrawals that had worsened for months before withdrawals and trading activities were suspended entirely. Prior to its shutdown, Cryptsy said that it had outstanding customer liabilities of nearly $10m in bitcoin.

According to court documents obtained by CoinDesk, Sallah was given administrative control over the assets and management of Project Investors, the operator of Cryptsy.

Approval of the receivership request followed a 28th March hearing at which the legal representatives of Lorie Ann Nettles, the wife of CEO Paul Vernon and one of the defendants named in the case, did not object to the receivership request.

The order states:

“The powers of the officers, directors, employees, and agents of Cryptsy are hereby suspended. Such persons and entities shall have no authority with respect to Cryptsy’s operations or assets, except to the extent as may hereafter be expressly granted by the Receiver. The Receiver shall assume and control the operations of Cryptsy and shall pursue and preserve all of its claims.”

Notably, Vernon has not been served in the case nor has he responded to it in court. Vernon, who did not immediately respond to a request for comment, told CoinDesk in January that he was traveling in China.

The exchange is currently offline, with a notice stating that it is in under maintenance.

Under receivership

The order grants the receiver power to take control of “all cryptocurrencies, monies, funds, property, and other assets” and to oversee any claims against the exchange. The order prohibits anyone with control of Cryptsy assets from selling or transferring them.

Sallah is also empowered to subpoena information related to the company, and the defendants named in the case are ordered to provide accounting details dating back to January 2013.

Further, Sallah will submit a report on the company’s viability and his recommendations for its future within thirty days. In December, CEO Vernon told a Florida divorce court that he expected Project Investors to fail as a result of “a downturn in profits”.

Sallah also has the power to direct the business activities – or closure – of Cryptsy, depending what happens in the weeks ahead. Past examples of corporate receivership in the bitcoin space include Butterfly Labs, which was placed in temporary receivership in late 2014 following a request by the Federal Trade Commission. Butterfly Labs settled claims against it earlier this year.

Attorney David Silver, representing one of the two law firms involved with the suit, told CoinDesk that the court approval starts a new phase in which an accounting of the exchange will be performed.

“This is just a slow moving process that unfortunately our clients were involved with, and like any investigation we have to get all our facts in a row, we have to cross our T’s and dot our I’s to make sure we’re doing this in a process that’s court approved,” he said. “This is one step in that approval process.”

The full court order can be found below:

2016-4-4 -- De 33 - Order Appointing James Sallah as Receiver-Corporate Monitor for Cryptsy

Image via Shutterstock

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