Cryptsy CEO Stole Millions From Exchange, Court Receiver Alleges
Cryptsy CEO Paul Vernon may have stolen as much as $3.3m from the digital currency exchange, according to new court documents.
Cryptsy CEO Paul Vernon may have stolen as much as $3.3m from the now-defunct digital currency exchange and destroyed evidence of his illicit actions.
That's according to new court documents from the ongoing class action lawsuit filed against the troubled industry exec. A report from court-appointed receiver James Sallah, published on 2nd August, details efforts to take control of assets tied to Cryptsy, most notably the digital currency holdings sought by the exchange's former customers.
The updates are the latest to follow Cryptsy's collapse in January, when after months of growing issues, Vernon blamed the closure on a previously undisclosed hack. At the time, Vernon claimed as much as $10m in customer liabilities. He later told CoinDesk that customers were misled in order to avoid a "panic".
Yet, court documents that surfaced at the time revealed that Cryptsy’s failure was predicted a month prior due to a lack of profit. That collapse ultimately sparked a class action lawsuit, and in April, a court approved an asset freeze that pushed the defunct exchange into receivership.
Now, that receiver is alleging millions of dollars worth of digital currency was taken from the exchange by Vernon over the course of its operation.
This amount included roughly $2.2m in bitcoin sold by way of Coinbase, and more than $600,000 in various digital currencies liquidated via other exchanges like Bittrex, BTER and CEX.io, the document states.
Vernon did not immediately respond to a request for comment.
Evidence destruction alleged
One of the more notable elements in the report is the allegation that, in April, either Vernon or someone acting on his behalf, moved to delete critical information from servers tied to the company.
Sallah went on to write that, as a result of the destruction of evidence, the primary method for identifying how much certain customers are owed is now gone, a development that is impeding the reimbursement process.
"[It's] not available for me to properly repay the victims and determine the full extent of Vernon’s misconduct," the document reads.
The situation presents a higher risk of fraudulent claims, Sallah indicated.
Further complicating matters is the apparent commingling of customer funds into larger wallets.
"Confirming account-holder information from the account holders themselves will be much more difficult, time-consuming and ripe for fraudulent claims, but my team and I are prepared for the challenge," he wrote.
Some Cryptsy funds obtained
Former customers hoping to recoup at least a portion of their account value may be in luck, however.
According to Sallah, he has been able to secure digital currency holdings previously controlled by Cryptsy, some of which were related to blockchain movements spotted by former customers.
In mid-April, funds previously held on Cryptsy were moved to Bittrex, and in the midst of these movements, Sallah was reportedly alerted to the situation. Ultimately, Sallah would go on to send a demand letter to Bittrex, requesting that those funds be secured.
All told, more than $700,000 denominated in 40 different digital currencies has been taken into possession, Sallah wrote. This was in addition to just under $25 from a Coinbase account previously under the control of Cryptsy.
The full receiver's report can be found below.
Image via Money & Tech
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