The continuing saga of BitGrail and Nano reaches a verdict in Italian court

What happens when a crypto exchange has weak security protocols, the tokens of an ICO startup go missing, a heist of $170 million takes place, and then everyone starts pointing fingers and blaming everyone else for the transgression? Matters like these usually end up in a court of law. The news today from a bankruptcy court in Italy is that Francesco Firano, the owner and founder of BitGrail, an Italian crypto exchange that was hacked, was ordered by the judge to return the stolen assets to his customers.

Italian authorities have already seized roughly $1 million worth of Mr. Firano’s personal assets, as well as millions of dollars residing in existing accounts at BitGrail. No figure on the latter seizure was disclosed, but we suspect that the total amounts on hand are nowhere near the alleged $170 million of Nano tokens (XRB) that disappeared at questionable points in time. Trustees appointed by the Court are now managing the seized assets. Distributions to investors may be tied up for years.

Everyone but the actual hackers have been embroiled ever since, each blaming the other and doing whatever it takes to recover its funds through the court system. We reported back in the first week of January:

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 $116 million.

The court ruling explained:

The court concluded that both BitGrail and Mr. Firano, personally, be declared bankrupt, authorizing seizures of many of Mr. Firano’s personal assets. It was the BitGrail exchange that [because of a software flaw] actually requested to the node multiple times to allow the funds to leave the wallet and not the Nano network that allowed the multiple withdrawals. Furthermore, the exchange also reportedly stored all of its Nano cryptocurrency holdings in a “hot wallet,” which compromised its security.

According to the court ruling, 2.5 million Nano tokens disappeared in July of 2017, along with another 7.5 million tokens in October. Firano subsequently installed a “cold wallet” storage system and did not announce the loss until February 8, 2018. From that point on, there have been protracted negotiations between all parties to develop an acceptable plan for making investors whole, but all attempts failed. U.S. investors decided to file a class action suit in the U.S. against the developers of Nano and BitGrail, the essence of our story three weeks back.

Have Nano developers been absolved of guilt by the actions of a judge in Italy? Not necessarily so. Assets belonging to BitGrail and Firano have been seized, but the U.S. suit alleges, among other things, that “Nano and key members of its core team violated federal securities laws and directed investors to open accounts and place funds in little known, and severely troubled Italian cryptocurrency exchange BitGrail.” If found to be negligent, Nano and its developers may have to wrestle with not only token losses, but also a host of other compensatory damages, as well.

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