If you follow cryptocurrency news, then you may have tuned out the continuing saga of massive hacks of crypto exchanges. Estimates of the total hacking losses of crypto exchanges in 2018 are conservatively pegged in excess of $1 billion. Since there are no insurance plans of national compensation programs, investors are the ultimate victims, having relied on the security precautions of their chosen exchange. Most stories stop at this point, but sadly, the real story continues on behind the scenes, which can get ugly very quickly with accusations flying back and forth from all impacted parties.
In the case of Nano (trade symbol “XRB”), a crypto startup with a novel block-lattice architecture, and its $170 million hacking loss at the Bitgrail exchange on the 8th of February this year, lawsuits are now the name of the game. A second class-action lawsuit has been filed in California, this time on behalf of U.S. investors, using varying sources of attack that could set precedents in the industry going forward. Legal saber rattling has been going on for months with all sides pointing fingers at everyone else. Attempts to reach some type of settlement have also failed.
What are the details of this case? Nano, formerly “RaiBlocks” and traded as “XRB”, sold its tokens from between January 2015 and March 2018, often using the liquidity provided by Bitgrail, an Italian crypto exchange. Today, 70% of trading volume of XRB is on the Binance exchange. On February 8, 80% of the Nano tokens in Bitgrail disappeared. The Italian government has seized the balance, awaiting settlement of all issues. The amount lost has varied from $150 to $195 million, but $170 million seems to be the accepted average. The market cap of Nano today is $130 million.
Nano developers quickly blamed Bitgrail for its poor security protocols. Bitgrail countered that Nano’s code was suspect and was the real reason that hackers were successful. Accusations of conflicting timestamp technology and insecure hot wallets have filled legal filings, but the new class action seems aimed at using SEC arguments that Nano was never a registered security, and therefore investors were duped unfairly. The complaint reads:
Defendants directed the investing public to purchase XRB through BitGrail by providing specific investment instructions and assurances that the cryptocurrency exchange was secure and could be trusted to safeguard investment assets.
Plaintiffs, the investors that have lost real money, are suing Nano and Bitgrail for losses, compensatory damages, and a host of other damage categories, and this action does not include international investors. According to one report:
Its outcome will depend heavily on how the courts view Nano’s standing with the SEC and its decision to never become a registered security. Its unknown what level of damages would come out of a decision favorable to plaintiffs. Losses total more than $170 million in the BitGrail hack, but that figure may only play nominally into a decision.
In the meantime, Nano developers are doing their best to put distance between themselves and Bitgrail. They had been absolved in a previous case where the complaint was withdrawn, but this second filing appears more substantial. The founder of Bitgrail, Francesco Firano, has also tried to reach an agreement, going so far as to offer a new token with an ownership interest in his exchange, but no one is budging from their present positions. The wheels of justice may have to grind out a solution in this case. Stay tuned.