In 2017, Paul Vernon, CEO of now-bankrupt cryptocurrency exchange Cryptsy, was found guilty of stealing over 11,000 of his customers BTC coins in 2014. He claimed that the loss was due to the exchange being hacked, but that claim was quickly refuted especially given the fact that he ran away to hide in Asia. At the time the amount surpassed $10 million, and Vernon was ordered to pay back $8.2 million to investors.
There were allegations that Vernon laundered the cryptocurrency through the Coinbase exchange, resulting in Silver Miller—a law firm known to target crypto companies—to file a lawsuit against the exchange. Coinbase had hoped to have the case heard in private arbitration, but the law firm turned down the idea. Now, the federal appeals court has ruled that the case will be heard in front of the public.
Silver Miller filed the class-action suit with its co-counsel, the Wites Law Firm. The suit alleged that Vernon was able to convert the stolen crypto through his Coinbase accounts between 2014 and 2016, and that Coinbase was responsible for culpable negligence in not providing more stringent account oversight. According to the lawsuit, “Plaintiffs seek damages based upon the unlawful conduct of COINBASE in failing to properly monitor customer accounts that held investors’ money and ignoring its duty to investigate suspicious activities under U.S. anti-money laundering rules.”
Silver Miller was part of the original lawsuit against Cryptsy and Vernon. The firm’s co-founder, David Silver, wanted cryptocurrency exchanges to have greater accountability and transparency in their actions, saying, “This ruling brings the plaintiffs one step closer to finding out just what type of Know Your Customer protocols and Anti-Money-Laundering protections Coinbase employed and whether Coinbase complied with state and federal statutes in that regard. Coinbase has delayed and tried to keep discovery hidden from the public long enough. That stops now.”
Coinbase has had a rough go of things lately. It was accused of insider trading following the announcement that it would accept Bitcoin Cash in late 2017, resulting in a lawsuit being filed earlier this year. It just recently announced that it was doing away with its Coinbase Merchant Tools platform in favor of Coinbase Commerce, a move that puts the onus on merchants to collect cryptocurrency payments instead of relying on Coinbase for the transactions. The move has brought significant blowback, with many companies threatening to drop Coinbase completely.