A Florida law firm is pressing charges against digital currency exchange Cryptsy, accusing the company of fraudulent business practices and negligent security measures. In court documents filed in the 15th Judicial Court of Florida yesterday, Silver Law Firm stated that Cryptsy violated the state’s Deceptive and Unfair Trade Practices Act by failing to provide critical information regarding security risks and customer fund management protocols.
Plaintiff and Cryptsy customer Skye Bonow, according to the filing, lost 140 BTC in January due to a security breach stemming from the undisclosed issues. Cryptsy has dismissed the charges in an official statement as unwarranted and driven by ulterior motives.
The court action against Cryptsy represents yet another legal battle in the digital currency space. Companies like Mt Gox, Butterfly Labs, CoinTerra and KnCMiner, among others, have all been targeted by civil or criminal suits in the past year. Silver Law is litigating a separate case against the operators of Bitcoin Savings & Trust, a bitcoin investment startup that was later shut down by US authorities when it was revealed to be a ponzi scheme.
Counsel David Silver accused Cryptsy of failing to uphold its obligations to its customers by not correctly managing their funds, saying: “This is like the client walking into a bank on a Monday morning with a statement from the bank saying he has 150 BTC, and asking to withdraw that bitcoin, and the bank saying that someone took that money this morning and we have no responsibility for it.”
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The court documents state that, under Florida law, consumer-facing businesses are responsible for both providing meaningful protections if they handle funds and being transparent about any potential risks or dangers involved with using a service.
According to the suit, Cryptsy withheld information about security risks, how funds were stored and problems arising from internal development. Cryptsy was also accused of not providing details to customers about third parties that were involved with the exchange service.
The document continues: “As a result of Defendants’ deceptive trade practices, Plaintiff was deceived into transferring bitcoin to Defendants, deceived into believing that Plaintiff’s assets were safe; and deceived into maintaining assets with Defendants when Plaintiff would have otherwise been able to protect and preserve his assets – thus causing significant economic damage to Plaintiff.”
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The suit also alleges that Cryptsy intentionally misled customers by not providing this information and misrepresenting certain elements of the company. This, according to Silver, convinced customers like Bonow to use a service that they did not fully understand.
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