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Plaintiffs Reach Settlement With One Cryptsy Defendant

Last Updated March 4, 2021 4:51 PM
Lester Coleman
Last Updated March 4, 2021 4:51 PM

Plaintiffs seeking to recover losses from Cryptsy, the defunct, Florida-based cryptocurrency exchange that claimed to have lost more than $5 million due to theft, have reached a settlement with one of the defendants, although the principal defendant remains at large, according to a court filing.

The plaintiffs reached a settlement in excess of $1 million from defendant Lorie Ann Nettles, depending on proceeds of asset liquidation, according to the filing in the United States District Court, Southern District of Florida. Principal defendant Paul Vernon is believed to have fled to China with approximately $5 million in cryptocurrencies and investor funds.

The plaintiffs, users of the Cryptsy online business for exchanging digital currencies including bitcoin and Litecoin, initiated a class action suit against the defendants in January. Cryptsy had denied account holders the ability to withdraw funds, and they eventually lost their funds.

The defendants purchased a $1.375 million home with funds stolen from the plaintiffs. The property was transferred to Nettles as part of a divorce settlement between Nettles and Vernon.

In April, the court appointed James Sallah as receiver over Cryptsy.

Defendant Agrees To Resolve Claims

In August, the receiver and Nettles reached an agreement to resolve claims against Nettles. The parties engaged Howard Tescher, a retired court judge, as mediator.

The court must first consider approve the settlement.

The settlement includes a diamond ring valued for over $104,000, the residential property, all funds recovered from the sale of cryptocurrency, all funds received from the sale of personal property, all funds received from the sale of an Infiniti QX60 with an appraised used value of approximately $28,000, and any other assets obtained by the receiver or lead counsel.

It leaves Nettles a small amount of assets to provide basic living necessities for herself and her children.

The filing noted that because Vernon has fled to China, it will be hard to locate any assets he possesses. Vernon’s assets are also likely to be in the form of virtual currencies, which are difficult to track. The parties recognize final resolution would require several years and require substantial expense.

Plaintiffs’ Attorney Pleased

“We were pleasantly surprised,” David Silver, an attorney for the plaintiffs, told CCN.com. “This is a good recovery from the spouse.”


He added:

The case against Mr. Vernon is still going on. We will get a judgment against Mr. Vernon as well. We already have a default judgment against him.


Silver said he expects more assets to be added to maximize returns to Cryptsy users. “We are still marshaling assets,” he said.

Silver said he doubts Vernon will return to the U.S. “Even if he did come back to the U.S., I’m even less confident he will return to the U.S. with any liquid or collectible assets,” he said. “The chances of collecting directly from Mr. Vernon are questionable at best.”

The filing noted Nettles denies wrongdoing but has agreed to enter the settlement to avoid further expense and inconvenience.

Nettles relinquished possession of the ring following the August mediation. Nettles can continue to occupy the property until the closing date of the property’s sale and will receive $250,000 from the proceeds of the sale.

Nettles has promised that she has not held assets on behalf of Vernon.

Also read: Investigation into bitcoin exchange Cryptsy issues subpoenas, CEO remains missing

How Claims Will Be Determined

The claims administrator will determine each claimant’s share of the net settlement.

Claimants who submit documentation to determine the quantity of cryptocurrency held by Cryptsy from November 1, 2015 to the present date hold a claim. The market value of the cryptocurrency will be based on the closing price of the currency as of November 1, 2015 or the date the currency was deposited at Cryptsy.

Claimants have the option of opting out of the agreement.

Distributions will be made after all claims have been processed.

The settlement allows for attorney fees of up to 33.33% of the settlement.

Receiver Seeks Cooperation

Sallah noted in May that he has not received any cooperation from Vernon. Sallah demanded an accounting of the missing funds from Vernon in a letter, but has received no response. He said he has gained some cooperation from former Cryptsy employees.

Sallah has also requested information from bitcoin businesses that conducted business with Cryptsy.

He subpoenaed Coinbase, which Cryptsy used to conduct business, and requested Coinbase freeze Cryptsy accounts, wallets or funds. Coinbase froze some remaining bitcoin(s) in Cryptsy wallets and sent Sallah a check for $24.66.

Coinbase produced some records concerning three Cryptsy wallets.

Sallah also subpoenaed Bittrex LLC, a digital currency exchange, and asked it to freeze any Cryptsy accounts and provide information about Cryptsy accounts. Bittrex froze a wallet with at least $100,000.

One of Sallah’s associates received an anonymous email in April claiming Cryptsy’s servers were located at Vault Networks Inc. in Miami. Sallah said he demanded Vault Networks confirm whether it has Cryptsy’s servers. In the meantime, he confirmed on his own that Vault Network has Cryptsy’s servers.

Vault Networks, in response to a court order, agreed to provide access to Cryptsy’s severs. Sallah said he will try to determine wallet information and will try to secure funds for investors’ benefit.

Sallah further found that Digital Ocean was the Internet service provider for the Cryptsy website. Sallah requested Digital Ocean add his name and appointment as a receiver with contact information on the Cryptsy website.

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