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Judge Reopens Cryptsy Customer Class Action Against Coinbase

A judge in the U.S. District Court for the Southern District of Florida has reopened a case involving cryptocurrency startup Coinbase and the now-defunct exchange service Cryptsy.

Cryptsy collapsed in early 2016 amid allegations of fraud and mismanagement and claims that it had been hacked and subsequently drained of its funds. That decline – preceded by months of growing complaints about withdrawals and access to customer money – sparked a class action lawsuit that ultimately led to an $8.2 million judgment against Cryptsy’s CEO, Paul Vernon.

In December 2016, a lawsuit was filed against Coinbase by the Cryptsy class-action investors, alleging that Coinbase should have prevented Vernon from funneling their money through the startup’s service.

Coinbase sough to argue that those customers are bound by the arbitration agreement Vernon signed, but US District Judge Kenneth Marra – who is overseeing the case in Florida – disagreed. Two other appellate courts subsequently sided against Coinbase, leading to Marra’s June 4 order to reopen.

The plaintiff’s motion to reopen the case indicated that Coinbase did not oppose the move.

“Prior to filing this Motion, the undersigned counsel conferred with Defendant’s counsel, and has been authorized to represent that Defendant does not oppose the relief sought herein,” the document states.

On June 1, both the plaintiffs’ and defendant’s counsel held a case management conference via phone and will submit a report and proposed schedule order before the end of the week.

Read the full motion to reopen the case here:

Reopen Motion by CoinDesk on Scribd

Justice image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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US Crypto Lawyer David Silver On Why He’s To Thank For Industry’s Increased Gov’t Scrutiny

Silver Miller law firm seems to be involved in almost every crypto-related lawsuit out there today, representing aggrieved users who have allegedly lost money to crypto industry giants Coinbase, Cryptsy, Nano, Kraken, BitConnect, Monkey Capital, Giga Watt, and Tezos, to name a few.

David C. Silver, a founding Partner of Silver Miller, spoke to Cointelegraph (CT) this week about his views on crypto regulation, the law’s role in the crypto sphere, and why he is not just a “Better Call Saul” kind of lawyer.

Who is David Silver?

In their class action lawsuit against Nano, Silver Miller presents themselves as a “strong advocate for aggrieved investors harmed by the misrepresentations and illegal actions of cryptocurrency exchanges and issuers,” but who exactly is David Silver and what is his impetus for taking on the crypto sphere, seemingly one lawsuit at a time?

In terms of his resume, Silver is a financial securities lawyer who worked at Squire Patton Boggs from 2004 to 2010 before founding Silver Miller along with Partner Jason S. Miller. Silver got involved in the crypto world in 2014 when he was in South Beach with a friend who was interested in Bitcoin (BTC):

“Someone who was into Bitcoin at the time took my cell phone, opened up a Coinbase account for me, and gave me 5 Bitcoins to prove a point. And at that time I was like: ‘This guy is going to jail, Bitcoin is a con.’”

He told CT that he still has those five BTC, but has not actually acquired any beyond this one-time gift.

Silver has been filing class action lawsuits in crypto ever since, while constantly keeping up with crypto news, quick to tweet his reaction to all possible crypto-related scams. He even commented on a CT article about the Savedroid fake exit scam, now known to be a PR stunt, with an offer to help along with his new promotional poster:

Despite the outfit in the photo, Silver noted to CT that he is really a “jeans and t-shirt guy”, adding:

“The guy in the suit is so not me.”

Due to the relatively prolific number of lawsuits, Silver acknowledges a negative perception of himself in some parts of the Twitter community, telling CT that “there are a lot of people who have called me an ambulance chaser, a ‘Better Call Saul.’” However, Silver responds to these claims by stating that he “didn’t get into the space for any other reason than [that] someone lost money,” noting:

“I help people to get money back who lost money. Every lawsuit I got filed follows that. My clients’ money is missing.”

Silver Miller’s first crypto lawsuit – the Cryptsy scam

The 2014 lawsuit against Cryptsy, according to Silver, was an important case historically, as it was the first time that a crypto investor sued a crypto exchange in the US.

The CEO of the now defunct Bitcoin exchange Cryptsy, Paul Vernon, was found guilty in July 2017 of stealing 11,325.0961 BTC (worth around $105 mln at press time) from Cryptsy customers in 2014 and was ordered to pay $8.2 mln (the amount the sum was worth at the time) in damages.

Silver had an interesting view of Paul Vernon and the crypto exchange’s criminal outcome. He told CT that he was “sad” that Vernon – “Big Vern” – turned out to be a “just a regular fraudster who had a nice looking website,” because, according to Silver, his ideas were actually “ahead of his time”:

“If he had only bet on himself, he would be one of the richest people in this country.”

Silver notes that the Cryptsy case was “how I started my wonderful world into accidentally being what Law360 called [me] this morning – and what I sent to my mother – the most prolific lawyer in cryptocurrency in the United States.”

Now, years later after the win against Cryptsy, Silver has become the face of so many crypto class action lawsuits that, as he told Cointelegraph, he has moved from “D-list famous” in the crypto sphere to maybe “C, or C+ to B-.”

The many woes of Coinbase

One of the companies that Silver Miller deals with the most is major crypto exchange and wallet service Coinbase. The law firm has multiple complaints against the company, covering accusations of Bitcoin Cash (BCH) insider trading, undelivered funds, platform breakdowns, and loss of account access, which they are currently investigating.

However, Silver notes that their current Coinbase class action lawsuit is an offshoot of the Cryptsy one, for it alleges that Coinbase was negligent in account monitoring. According to the claim, because of Coinbase’s negligence, Vernon was able to launder the stolen $8.2 mln through his Coinbase account, turn it into fiat, and flee the country.

Nonetheless, Silver points out that the Coinbase of 2014 and the Coinbase of today are different companies in his opinion:

“I think Brian Armstrong, who’s the CEO of Coinbase, is, for all level of appearances, trying to legitimize his company. I say, outside of this lawsuit, I have a lot of respect for what Brian Armstrong is doing. I think we would be best friends and see, we believe the same things in the crypto space. And we would be best friends but for this lawsuit.”

In a win for Silver Miller, a court ruled earlier this week that this Coinbase class action suit will be tried in a public courtroom, rather than in a private arbitration boardroom.

Nano and recovery forks

A more recent class action lawsuit filed by Silver Miller is against the developers of altcoin Nano, alleging that they sold unregistered securities as well as negligently misrepresented the reliability of crypto exchange BitGrail – which was hacked of $150 mln in Nano in February. The solution to reimbursing users’ affected by the Nano hack, according to the lawsuit, is a hard fork to return funds.

The question of when to implement a hard fork in the case of lost or stolen crypto funds is a touchy subject in the crypto community. Some say the time to use it is never, like the Ethereum Classic (ETC) crowd that rejected the hard fork that broke off as ETH, forcing the DAO hackers’ stolen funds back into the proper accounts.

Silver does not look at the hard fork question from the same stance as early crypto adopters and their penchant for maintaining the integrity of the Blockchain, no matter the cost. In his opinion, since the Nano developers are the ones who benefit by “not forking the code,” they are morally in the wrong:

“We live in United States of America, the greatest country on Earth as far as I’m concerned. I don’t want to live anywhere else. And when you live here and you receive the benefits of living here, you have to play by the rules of the place.”

So, according to Silver, if the Nano developers “have the ability to fix that – [they’re] going to fix it now.”

When asked for comment on the Nano class action suit, Peter Scoolidge, the attorney representing the Nano responded:

“We think that the case has no merit and we look forward to addressing it in court.”

The Kraken awakens

No other crypto exchanges or ICO operators responded to Cointelegraph’s requests for comment on the Silver Miller claims against them, except for crypto exchange Kraken. The exchange is currently facing a Silver Miller class action suit alleging “fraud, negligence, and false advertising.”

In response to CT’s email for comment, Kraken at first told CT that they were “not aware of any pending class action lawsuit.”

After the Cointelegraph reporter sent a link to Silver Miller’s webpage entitled “Kraken Class Action,” Kraken CEO Jesse Powell told CT that “a cease and desist will be sent to Silver Miller,” adding:

“Thank you for drawing this to our attention. There are no open class action lawsuits against Kraken […] There will always be lawyers engaged in barratry, and there will always be traders unwilling to be accountable for their own decisions.”

More rules, or just some clarity?

When asked about the future of crypto’s relationship to the law, Silver stressed that “regulation and innovation need to go hand-in-hand” to avoid a brain drain. In this sense, Silver does not necessarily believe that there should be more rules or regulations he says, but instead “more clarity.”

He added that said clarity should come from the federal level in a unified manner, instead of the current system of different rules and definitions being handed down from the US Securities and Exchange Commission (SEC), FinCEN, the Commodity Futures Trading Commission (CFTC), the Department of Justice (DOJ), and the Internal Revenue Service (IRS).

Increased gov’t involvement in crypto

In the years leading up to last fall’s boom of interest in crypto, Silver says that he used to be heckled at every conference he spoke at, but that now, “rather than being booed off the stage and being told that everything was a utility token, I was wrong, that I was killing innovation, and that I was this horrible person,” people are actually listening.

Silver attributes both the higher price of Bitcoin along with his firm’s lawsuits as the direct causes of the recent heightened government scrutiny of the crypto sphere. While he acknowledges that some may think that’s his “ego speaking more than the facts,” he states that he would “disagree with that”, declaring:

“If I had never filed the lawsuits, none of this would have ever happened.

I mean, all the government actions are basically saying David Silver, Silver Miller, and their lawsuits were right, and all these people who thought they were smarter and anarchists that we’re going to get away with fraud and selling money, and doing unregistered sales of securities, they were doing something wrong.”

In a follow up email to CT, Silver described how he feels about the government and other lawyers’ change in their position on crypto – “vindicated.”

The future of crypto – more lawsuits

In terms of the future of the crypto space, Silver calls himself “a believer in blockchain technology” and mentions the Winklevoss twins and their idea that Bitcoin could replace gold as an asset class. Silver then noted that he is “not smart enough to tell you use-cases for cryptocurrencies.”

In regards to his personal role in the future of crypto, Silver says he enjoys the public speaking that no longer gets him booed off stage. He said his role in the crypto sphere, and the multitude of his current crypto class action lawsuits, is to continue to hold crypto companies accountable for all actions in this relatively new and unknown non-traditional financial space:

“There’s nothing wrong with me poking damage, showing them love by holding them accountable.”

When asked if Silver Miller will keep up the steady stream of crypto-related class action lawsuits going forward, the answer is “yes”, with the addition that Silver is “not trying to chase companies who do it right”:

“I haven’t sued Gemini, I haven’t sued Coinbase for platform issues. You know, just because someone does get sued for one thing, doesn’t mean they’re not the legitimate company and that Brian Armstrong and I can’t be best friends.”

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U.S. Court Rules Money Laundering-Related Case Against Coinbase Must Have Public Trial

A U.S. federal court has ruled that law firm Silver Miller’s money laundering-related class action lawsuit against crypto exchange and wallet Coinbase must be held in open court as opposed to a private arbitration boardroom, Silver Miller attorney David Silver told Cointelegraph in an email today, April 23.

The Eleventh Circuit Court of Appeals ruled today that the class action against Coinbase, brought by Silver Miller and co-counsel the Wites Law Firm, will be held in open court. The case in question alleges that Coinbase assisted in laundering around $8.2 mln of stolen Bitcoin (BTC) – valued at over $100 mln today. In July, 2017, the CEO of the now bankrupt crypto exchange Cryptsy, Paul Vernon, had been found guilty of stealing his users’ cryptocurrency and as ordered to pay $8.2 mln in damages, a case Silver Miller law firm was also involved in.

As Vernon used his Coinbase account to convert the stolen funds into fiat between 2014 and 2016 before fleeing the country, the current Silver Miller class action lawsuit against Coinbase alleges negligence in account oversight:

“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 co-founder David Silver, who was part of the original Cryptsy lawsuit, told Cointelegraph that he has long “preached that accountability, transparency, and verification are needed in the crypto exchange space”:

“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.”

Miller added that the law firm is “pleased” that the case will be a public trial:

“Coinbase’s ascension to the top of the crypto exchange heap has not come without missteps in its business practices along the way.  We look forward to having Coinbase answer for its role in the millions of dollars in harm suffered by our clients.”

Coinbase is currently the subject of multiple disputes from users, including a complaint filed in March of this year that alleges that the exchange benefited from insider trading when it added Bitcoin Cash (BCH) to its exchange and wallet services. On the merchant side, Coinbase has recently received backlash online from its reported decision to suspend the account of the WikiLeaks Shop, the official merchandise arm of the whistle-blowing Wikileaks organization.

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Coinbase-Cryptsy Lawsuit Will Head to Jury Trial

Coinbase has lost another appeal in a lawsuit brought by former customers of the defunct cryptocurrency exchange Cryptsy, and the case will now proceed to a jury trial.

An appeals court in Georgia on Monday affirmed a lower court’s denial of Coinbase’s appeal of the case, which blames the company for failing to stop Cryptsy’s chief executive from allegedly absconding with his customers’ money.

In the case, plaintiff Brandon Leidel, who was a Cryptsy customer, claims that Coinbase should have actively helped prevent Cryptsy CEO Paul Vernon from laundering the funds through a Coinbase wallet.

Vernon allegedly used Coinbase to launder millions of dollars he is accused of stealing from his customers prior to Cryptsy’s collapse, as previously reported.

Coinbase tried to negotiate the case in arbitration by pointing at user agreements Vernon signed when he first began using the wallet. However, a judge ruled last year that Cryptsy’s customers are not bound by the same agreements that Vernon was, and therefore are not required to arbitrate the case.

Coinbase appealed this decision, but the appeal was denied by a district court.

The Eleventh Circuit Court of Appeals affirmed that decision Monday, writing that “Leidel does not seek to enforce the terms of the User Agreements, nor does he allege any tort rooted in an allegation that Defendant breached or facilitated a breach of any obligation uniquely imposed by those agreements.” The decision went on to say:

“In other words, Leidel’s claims are viable, if at all, without reference to the User Agreements, as the duties Defendant allegedly breached were not imposed by those agreements.”

As a result, the court has opened the door for a jury trial in the class action lawsuit, which can now proceed to discovery.

In a statement, David Silver, a lawyer representing the plaintiffs, said “we are pleased, though not surprised, the appellate court affirmed the trial court’s decision to keep this dispute in the public view … We look forward to having Coinbase answer for its role in the millions of dollars in harm suffered by our clients; and we look forward to resolving these claims in court.”

Coinbase did not immediately respond to a request for comment.

Gavel image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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US: Class Action Filed Against Nano Developers, Demands ‘Recovery Fork’ Of Lost Funds

A new class action lawsuit has been filed in the United States District Court Eastern District of New York on behalf of investors in Nano (XRB, formerly Raiblocks), according to a class action complaint signed April 5.

The lawsuit is being filed by an American individual, Alex Brola, through Silver Miller law firm, and alleges that Nano’s core team both violated US securities laws by selling unregistered securities as well as negligently misrepresented the reliability of crypto exchange BitGrail, from which around 17 mln Nano ($187 mln at the time) were stolen in mid-February.

The lawsuit asks that Nano be ordered by court to “rescue fork” the investors’ missing NANO “into a new cryptocurrency in a manner that would fairly compensate the class of victims.”

In the aftermath of BitGrail’s Feb. 9 announcement on their website that the 17 mln Nano had been hacked from the exchange, Nano developers and BitGrail’s owner and operator Francesco “The Bomber” Firano reportedly entered into a conflict over whether or not Firano had asked for the ledger to be edited to “cover his losses.”

Nano then accused Firano of “misleading the Nano Core Team and the community” on their official blog.

Although Nano investor Alex Brola is the named plaintiff in the lawsuit, having reportedly bought $50,000 worth of Nano on Dec. 10, 2017, the complaint claims there are “at least hundreds if not thousands of putative Class members” that Silver Miller plans to contact during the discovery period.

Silver Miller writes in the class action notice that they are a “strong advocate for aggrieved investors harmed by the misrepresentations and illegal actions of cryptocurrency exchanges and issuers.” The law firm is currently working on class actions against crypto exchanges and services Coinbase, Kraken, BitConnect, Cryptsy, and Initial Coin Offering (ICO) promoters Monkey Capital, Giga Watt, and Tezos.

Tezos has been the subject of multiple lawsuits over the question of its compliance with SEC regulations. The Tezos class action lawsuit filed last fall by Silver Miller alleges that Tezos violated securities laws during their ICO,  which raised $232 mln, making it the world’s second largest ICO to date in terms of most funds raised.