Italian Bankruptcy Court Rules BitGrail CEO is Directly Liable for Millions in Customers’ Losses
Originally published on: CCN
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January 29, 2019
BitGrail, a cryptocurrency exchange that was recently the subject of a second class-action lawsuit, has found no relief in an Italian bankruptcy court.
According to unverified documents published by a victims group, the Bankruptcy Division of the Court of Florence has ruled that Francesco “The Bomber” Firano is personally liable for losses incurred in the exchange’s early 2018 NANO hack.
The court had previously ordered the seizure of BitGrail’s crypto wallets. Now the funds within them have been moved to custodial accounts in order to be redistributed to clients who lost funds. Firano’s personal assets are mostly on the line as well. Authorities have reportedly seized over $1 million in assets from Firano so far, including his personal vehicle.
Crucial to the decision made by the court was its determination that multiple NANO hacks had actually occurred over the course of 2017. Instead of reporting losses to the public then, the exchange operator waited until February 2018 to tell anyone. According to the victims’ group:
The Court criticized Mr. Firano for not immediately taking steps to account for the losses. By waiting to make the shortfall public, Mr. Firano caused the public to suffer substantially larger losses. In July 2017, 2.5 million NANO was valued at approximately $250,000 (1/100th of the value it had in February 2018 when Mr. Firano went public).
As for the mechanics of the loss, the Court concluded that the exchange had failed to implement any meaningful safeguards to ensure the “idempotency” of NANO withdrawals […]
New Details Come to Light
Several new details of the BitGrail case came to light during the bankruptcy proceedings. For one thing, Firano tried to cash out prior to informing the public of his exchange’s losses. He attempted to sell as much as 230 BTC and get it into cash before the public was aware that the exchange was having any problems. This and other actions on his part are likely what make him personally liable in the court’s eyes.
The Court disclosed that the Italian Criminal Prosecutors, who have been investigating Mr. Firano in connection with his operation of Bitgrail, reported to the Bankruptcy Court that between February 2nd and February 5th, 2018 — days before Firano would make his public announcement about the 17 million NANO loss — Mr. Firano had deposited a total of 230 Bitcoin (approximately $ 1.8 million) in a personal account on a BTC-EUR cryptocurrency exchange called The Rock Trading. Mr. Firano had also attempted to make withdrawals from ATM machines linked to his Rock Trading account.
Firano made several attempts to get people to agree not to attempt legal action against BitGrail. One program by BitGrail offered withdrawals in exchange for signing waivers of liability. Few people agreed to these terms, and it appears that the bankruptcy court has overruled any such agreements.
According to an unverified legal document published by the Victim Group’s leadership:
[BitGrail] and Firano argued that they had taken all reasonable actions, and that the developers of the Nano Team ought to be held liable for the missing currency, since the cryptocurrencies had been taken by exploiting the vulnerabilities of the Nano code, so much so that the developers, following the complaint by Firano, had released an updated version fo the software to remedy such problems.
Focus Shifts to NANO
As CCN previously reported, the NANO team opted not to create a “rescue fork” which would put funds back where they belonged. Instead, the many users of BitGrail and Nano were stuck with the loss.
However, this argument didn’t resonate with the Italian court. The court’s position is that BitGrail, as a custodian, was responsible regardless of anything else. This makes them ultimately responsible.
The class action suit against Nano and BitGrail is ongoing, but now that BitGrail is officially bankrupt, it will change the dynamics of the case. The lawyers for the victims will have a claim as creditors on the assets of BitGrail. The focus of the case will now shift to Nano itself.
At the time of writing, the price of Nano is $0.86, down from a monthly high of $0.96. The future of Nano itself is very much in jeopardy. Part of the new case against Nano and BitGrail entails the operation of an unregistered security. A finding in that regard could put them in criminal court after civil court.