Kraken Lawsuit
In recent months, though, Kraken has exposed its accountholders to numerous “flash crashes” and Distributed Denials of Service (DDoS) that engendered wild valuation swings in several cryptocurrency markets, including the market for Ether coin. Those events triggered forced liquidations of client margin accounts and caused tens of millions of dollars in damage to accountholders who were unable to halt their losses while Kraken’s web servers were overburdened to the point that it was virtually impossible for accountholders to login and/or interact with the system using the web front.
In a November 2017 Reddit exchange with users, Kraken's own Chief Executive Officer Jesse Powell admitted that there is “no defending the recent state of the platform” and that Kraken has given up “applying more Band-Aids” to its irretrievably broken system. Rather than shutting down its system or even notifying its users of the known flaws that pervaded its platform, though, Kraken pretended that everything was fine and continued charging its standard fees for services that even Kraken knew were substandard. In many instances, accountholders who complained of harm as a result of the slowdowns, shutdowns, security gaps, and system failures at Kraken were stonewalled by Kraken, which defended its refusal to compensate those injured clients in the face of what even Mr. Powell himself has described as an indefensibly-broken platform.
On behalf of nearly three dozen aggrieved customers who suffered losses of approximately Thirty-Eight Million Dollars ($38,000,000.00) as a result of Kraken’s acknowledged-but-unremedied malfeasance and substandard security protocols, we are currently prosecuting against Kraken a group claim before a private arbitral authority, where a former federal District Judge will rule on our clients' claims that they were harmed by Kraken's fraud, negligence, and false advertising. The matter is presently ongoing.
Coinbase Lawsuit
According to the lawsuit, Paul Vernon — the former CEO and principal operator of a cryptocurrency exchange and Money Services Business known worldwide as Cryptsy — converted approximately $8.2 million in Cryptsy customer assets over a three-year period and liquidated to his own benefit those stolen funds through accounts Mr. Vernon and Cryptsy maintained at Coinbase. 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. 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. Although the exact amount remains undetermined, the lawsuit estimates that the value of the digital funds laundered through Coinbase exceeds $8,200,000.00. Mr. Vernon is believed to have absconded with those funds when he abandoned Cryptsy and fled to China in late-2015.
As stated in the lawsuit, the class of victims pursuing relief includes: “All CRYPTSY account owners who: (1) deposited Bitcoins, alternative cryptocurrencies, or any other form of monies or currency at CRYPTSY, (2) had such currency liquidated by VERNON and CRYPTSY through COINBASE, and (3) have been denied access to their accounts and funds between May 22, 2014 and the present date.” The lawsuit asserts against Coinbase claims for aiding and abetting breach of fiduciary duty, aiding and abetting conversion, negligence, and unjust enrichment.
In June 2017, we defeated Coinbase’s efforts to have the lawsuit shifted to a private arbitration forum rather than the public forum that the U.S. courts provide. As Silver Miller Co-Founder David Silver was quoted saying at the time: “Coinbase does not want to be exposed in open court about what its business practices were in 2013-2015. Coinbase had a fiduciary duty to know its customers and report suspicious transactions. Simply stated, they chose not to do that. We look forward to litigating these claims.”
Tezos
Investors in Tezos seek their day in Court. Silver Miller -- the leading cryptocurrency investor law firm in the country, with actions currently pending against the Coinbase, Kraken, and Cryptsy exchanges -- has filed the first federal court lawsuit against troubled blockchain start-up Tezos and its founders Arthur and Kathleen Brietman. Everyone in the Initial Coin Offering (ICO) world knew there was going to be a day of reckoning regarding whether ICOs are securities. For Tezos -- whose July 2017 ICO raised investor assets now valued at more than $1.3 billion but who has experienced repeated delays in the yet-to-occur launch of its network amidst political in-fighting and the frustrated departure of key management figures -- that day has come.
As the SEC and CFTC have previously stated, securities regulators look beyond the form or label someone appends to his/her/its activities and instead consider the actual substance and purpose of the activity. As the old saying goes, “If it walks like a duck, and it quacks like a duck, it’s a duck.” When regulators follow the money trail and investors’ expectations, the Tezos ICO was and can only be considered a security.
Bitconnect
Following months of bad press and increased scrutiny from securities regulators, cryptocurrency lending and exchange platform BitConnect abruptly shut down its operations on the morning of January 17, 2018. Silver Miller (www.SilverMillerLaw.com) -- the leading cryptocurrency investor law firm in the country, with actions already pending against the Coinbase, Kraken, and Cryptsy exchanges as well as class action lawsuits against Initial Coin Offering (ICO) promoters Tezos and Monkey Capital -- has filed, on behalf of investors, a class action lawsuit in federal court against BitConnect and its U.S.-based Directors and promoters.
According to a release on BitConnect’s website, the company blamed the shutdown on “continued bad press” surrounding the platform, two “Cease and Desist” letters from securities regulators in Texas and North Carolina, and multiple DDoS attacks on the website. As alleged in the lawsuit, however, BitConnect’s cryptocurrency lending program bears all of the hallmarks of a Ponzi scheme that required customers to purchase BitConnect’s own native coin (BCC) in exchange for returns purported to be as large as 40% per month. Within moments of BitConnect’s notice, the price of BCC plummeted nearly 90% in value; and the token is believed to be effectively useless now. Moreover, securities regulators in growing numbers had concluded -- consistent with the claims asserted in several lawsuits filed by Silver Miller -- that BitConnect investments are unregistered “securities,” which are illegal to be offered for purchase.
In the wake of the news of BitConnect’s closure, every major cryptocurrency was reported to have fallen in value by anywhere from 15 to 28 percent within a 24-hour period -- a total estimated to be a collective $108 billion for the top ten cryptocurrencies in the world. Investors worldwide are worried about their crypto holdings and fear that additional losses are imminent. If you have invested in an ICO or lost money at an exchange, Silver Miller can help.!
