Documents Reveal Divorce Dispute May Be at Heart of Cryptsy Issues

Months before the digital currency exchange Cryptsy declared its insolvency and claimed it was the target of a debilitating hack and theft, CEO Paul Vernon's estranged wife claimed in a court filing that she was afraid her husband would flee the country with funds taken from businesses he owns, including Cryptsy.

Court documents obtained by CoinDesk offer new details about an ongoing legal battle between Vernon and his wife, Lorie Ann Nettles, who filed for divorce last fall.

The motion for injunctive relief sought a court order freezing the assets of Cryptsy and other entities owned by Vernon and preventing any sale or transfer of marital assets. The filing, submitted to the 15th Judicial Circuit of Florida on 28th October, also placed a travel restriction on Vernon pending the completion of the proceedings.

At the time of the filing, Nettles accused Vernon of "intentionally and willfully dissipating" those assets.

The filing alleges that Vernon was maintaining an extramarital relationship and providing support to the unnamed individual, who is said to be a Chinese national.

The court document states:

Information about the case came to light amid a growing controversy surrounding the exchange, which for months has restricted access to customer funds. Last month, two Florida law firms filed a class action lawsuit against the exchange. 

Cryptsy, which offers markets for alternative digital currencies, announced soon after that it had been robbed in 2014 and had outstanding customer liabilities of roughly 10,000 BTC.

Nettles went on to claim that "a majority, if not most", of the marital assets were being held in the form of digital currency – a fact the filing argues necessitated the asset freeze.

"Because a majority, if not most, of the marital assets under the husband’s exclusive control are virtual currencies, it is imperative that the court move quickly to prevent asset flight and prevent the need for expensive and complex asset tracing should the husband take any further action to dissipate these assets," the filing states.

Nettles also alleges that Vernon was, at the time, planning to depart the US for China "to start a new life", and that if he were to leave, "it will be very easy for him to take with him all of his virtual currency assets and evade the reach of this court".

Notably, Vernon told CoinDesk last month that he was traveling in China.

The filing goes on to state:

Vernon did not immediately respond to a request for comment.

Since announcing that it was insolvent, the exchange has allowed withdrawals for some of the altcoins it lists, though cryptocurrencies like bitcoin and litecoin remain unavailable for users.

According to a notice posted to the main Cryptsy page, trading and deposits remain inactive at press time.

On 4th February, Vernon posted an update to the Cryptsy blog advising customers to submit withdrawal requests as more altcoin wallets become active.

"I apologize for the delay in updates – we've continued to open more wallets for withdrawal and I will post a full list of what is open shortly," he wrote, adding:

For more information, read the full court documents below:

Urgent Motion for Injunctive Relief

Image via Shutterstock