Recent court documents have been published requesting the courts permission to sell digital assets seized from Cryptsy at market on traditional cryptocurrency exchanges.
The recent document made public by JAMES D. SALLAH (court-appointed receiver for Cryptsy investors) has outlined the recovered digital assets and the balances secured. It is alleged that Paul Vernon aka BigVern has shutdown Crypsty services and fled to China; 5 Million dollars of customer funds have been missing or unaccounted for several months.
It also outline a number of interesting details about the case..
Assets under Bittrex control were frozen and eventually released to the receiver
On the 10th of April 2016 activities were noticed within Bittrex accounts known to belong to Crypty and were brought to the attention of Bittrex and the receiver.
One day later on the 11th of April the Receiver server Bittrex with a demand letter and subpoena requesting that Bittrex freeze any accounts under Cryptsy control or accounts derived from Cryptsy. Bittrex complied with the order and accounts were frozen, after enough proof was provided the funds from these account were eventually released to the receiver.
Cryptsy Account's/Master database destroyed
The master database containing details of Cryptsy account holders and the balances attributed to their accounts among other things has been destroyed. According to the court document on the 4th of April 2016 hours after a court order was served (via email) to Paul Vernon somebody with Vernons credentials logged into the Cryptsy server remotely and destroyed the database.
This action makes for a very interesting problem when looking to re-distribute proceeds of the liquidated assets and leave the receiver in an awkward position which will not allow him to reallocate users balances of specific coins to based on their ownership.
It is yet to be seen but given the lack of information obtainable to the receiver Cryptsy account holders will need to provide sufficient proof that they are in fact a Cryptsy account holders by means of previously saved account statements, reports, emails or sworn declarations
Liquidation of assets
The receiver has outlined the coins secured and has asked the court for exception which would allow him best effort discretion over the date and time to sell the coins on the crypto currency exchanges that would provide the best liquidity and the best overall return for account holders. the exception would mean that he would not be required to have three disinterested appraisers appraise the items sold; the he would not be required to return at least 2/3 of the appraised value and that no prior advertisement of the sale would be required.
The receiver has classed the assets obtained into two categories.
High liquidation value - Sell at market
The assets in the category have been deemed to have enough liquidity in the open market to allow for sale via traditional crypto currency exchanges. He has recommended that the sale of these asset be preformed on an exchange at a time that he deems best to retain as much value for the account holders.
Assets and balances deemed to have a 'High Liquidity Value'
Low-Medium Liquidation value - Private Auction
The assets in the category have been determined to have low liquidity and as such an attempt to sell at market would result in very low retained value for the account holders. He has recommended that the assets in this category be put up for private auction in hopes that the retained value would be significantly higher than selling them at market.
Assets and balances deemed to have a 'Low-Medium Liquidity Value'
Court Document
For those looking to dig into further details please find the link to the document below:
Receivers-Motion-for-Authorizing-to-Liquidate-Certain-Cryptocurrencies-Secured-by-the-Receiver.pdf
TL;DR
Crypto currencies secured from servers seized from former crypto currency exchange 'Cryptsy' will be sold either via private auction or at market on the most liquid exchange to return value to Cryptsy account holders. Due to the remote destruction of the master database containing customer details the receiver currently has no means of identifying customers and the account balances that they possessed at Cryptsy when its services were shut down. At present they will rely on the account holders proving their position to seek compensation for the losses.
I recommend reading the document linked above for further information on what happens behind the scene after a collapse occurs.