“Rescue Fork”: Class Action Complaint Lodged Against Nano Developers

Journalist:
April 9, 2018

The lead plaintiff, who is also suing Texas-based Nano the company, wants the developers to create a “rescue fork” to recover funds that were lost in a hack.

The lawsuit seeks damages and equitable relief from the USD 170 million in Nano’s XRB token that was stolen in February in a hack on BitGrail, the Italy-based platform on which Nano recommended investors place their assets, according to the complaint. The plaintiff is also accusing Nano of not registering its XRB token with regulators as a security.

The lawsuit was filed on April 6 in the US District Court Eastern District of New York against the following defendants: Nano (formerly Raiblocks), Colin Lemahieu (creator and lead developer), Mica Busch (developer), Zach Shapiro (iOS developer) and Troy Retzer (public relations). The plaintiff, Alex Brola, is from Arizona. He originally invested $50,000, which had ballooned to more than $237,000 at the time of the hack. Brola is being represented by The Braunstein Law Firm and Silver Miller.

Back Story

The crux of the complaint surrounds not only the XRB hack but Nano’s relationship with the exchange on which the security breach occurred, BitGrail. The complaint alleges that Nano promoted the security reliability of the BitGrail platform for trading XRB, and traders took their word. As you can see in the below exchange between an investor and Nano iOS developer Shapiro, while investors grew suspicious, the Nano team was none the wiser of what was truly going on behind closed doors at BitGrail.

Courtesy: Silver Miller Law

The plaintiffs allege that after leading investors to the Italian exchange to trade their digital coin and on the heels of the USD 170 million hack, Nano developers took no responsibility.  Meanwhile, the XRB/BTC trading pair was the most widely used on BitGrail and reflected 80% of the exchange’s total trading volume.

“Defendants suddenly sought to put more distance between themselves and BitGrail than even the Atlantic Ocean could provide,” the complaint reads.

What Plaintiffs Want

The plaintiffs say the solution to the XRB problem “resides squarely within defendants’ hands.” They point to what’s known as a “rescue fork,” involving the developers rewriting the XRB code “to return stolen assets,” as per the complaint. Forking XRB would create new tokens that would then be distributed to the investors who lost funds in the heist.

The plaintiff alleges that the defendants don’t want to do this because it wouldn’t be in their best financial interest considering they own a large percentage (“millions if not tens of millions”) of the XRB coin. As a result, the plaintiff is asking for a court-ordered fork of the XRB coin. Washington, DC-based attorney Stephen Palley tweeted –

It’s not the maiden fork-related lawsuit that’s been filed, with US-based Coinbase being accused of sharing insider information tied to the support of Bitcoin Cash, bitcoin’s 2017 hard fork.

According to the lawsuit, there’s a feud between Nano and BitGrail, BitGrail has suspended withdrawals from the XRB wallet.

Nano has been distancing themselves from BitGrail, saying they didn’t believe the exchange had been on the up-and-up on their solvency all along. Nano executives said in a blog post: “We have no reason to believe the loss was due to an issue in the Nano protocol. The problems appear to be related to BitGrail’s software.”

Featured image from Shutterstock.

Gerelyn Terzo @cryptogerelyn

Gerelyn is Assistant Editor at CCN. Based in the U.S., she has also covered institutional investing on Wall Street but caught the bitcoin bug soon after. She resides 13 miles outside of New York, close enough but also far enough away to escape it all. Follower her on Twitter (@cryptogerelyn) or email gerelyn.terzo@ccn.com.