Feds: Cryptsy Founder Stole More Than a Million Dollars in Users’ Cryptocurrency
January 28, 2022 | Back to News
Roughly six years after the founder of the now-defunct Bitcoin exchange company Cryptsy denied accusations that he had stolen millions of dollars in cryptocurrency that suddenly vanished from users’ wallets, an unsealed federal indictment has charged the former Delray Beach man with doing precisely that.
Paul “Big Vern” Vernon, 48, is charged with a slew of crimes tied to the disappearance of more than $5 million in Bitcoin and Litecoin, according to the 17-page indictment that was filed in August 2019 and unsealed Wednesday. Federal authorities say Vernon orchestrated a “sophisticated theft scheme” between 2013 and 2015, in which he stole more than a million dollars worth of users’ digital funds on the exchange, deposited them to his personal wallet, and then transferred the funds to his personal bank account, and later destroyed the evidence. He is also accused of evading federal income tax in 2014 and 2015.
All but one of the 17 charges against Vernon carry maximum prison sentences of 20 years, according to the indictment, which has been embedded at the end of this article.
Vernon, who was deemed a fugitive in 2019, did not respond to New Times‘ emailed request for comment.
New Times previously chronicled Crypsty’s downfall in “Cryptsy Founder Paul Vernon Disappeared, Along With Millions of His Customers’ Cash” published in June 2016, six months after the company abruptly shut down and left users without a way to withdraw their digital currencies. Vernon was tech-savvy, ambitious, and an early Bitcoin adopter. He had started a few companies — including a website-hosting company specializing in high-bandwidth pornography sites, and an early Netflix competitor that packaged and mailed DVDs — before launching Cryptsy, an exchange that allowed users to trade Bitcoin with a number of other altcoins, in May of 2013. By November 2013, Vernon told the Wall Street Journal his exchange was handling 33,000 trades per day.
But the following year, dozens of Cryptsy users began complaining about having trouble accessing their funds. A customer who had lost 140 Bitcoins in a security breach sued Vernon for fraudulent business practices. On July 29, 2014, Vernon told employees that the company had been hacked and millions in cryptocurrency had been stolen. When Vernon informed Cryptsy’s users about the hack more than a year later, many were left feeling bamboozled since it was around this time that Vernon had fled to China. According to his ex-wife, he went there with a girlfriend he had been hiding for nearly a year.
In a 2016 email interview with New Times, Vernon said he regretted not sounding the alarm earlier about the hack. At the time, he declined to say whether he had ever used or diverted his users’ funds for personal use.
“The plan was to use a portion of revenue to replenish the wallets. However, diminishing Bitcoin price and volume turned out to not go in our favor,” Vernon told New Times. “At the time, I had two choices, disclose and shut down or try to continue running and reacquire user funds. Because we were doing well at the time, I attempted option #2.”
According to the indictment, Vernon had “falsely and fraudulently” posted on the former Cryptsy blog that the company “strived for transparency and doing what is right.” He “caused cryptocurrency investors to trust the safety of Cryptsy for storing and trading their virtual currency.”
Though Vernon’s case might have undermined confidence in the unregulated and volatile world of cryptocurrency, Coral Springs-based attorney David Silver, who filed the first class-action lawsuit against Cryptsy in January of 2016, says the federal indictment against Vernon should provide relief to people who are invested in cryptocurrency.
Silver likens what Vernon did to “rob[bing] a bank.” He doubts Vernon’s story of the hack, and believes he stole the cryptocurrency for personal consumption, pointing to a $1.3 million cash purchase of a 6,000-square-foot Delray Beach home, less than a year after the purported hack, in May of 2015.
These days, Silver says there are several “legit” cryptocurrency exchanges, including Coinbase and Gemini, and emphasizes the importance of knowing exactly where you’re investing your money (“Every exchange talks about transparency,” he quips).
“Are there some fraudsters out there? Yes,” Silver tells New Times. “But eventually, the fraudsters get exposed.”