Cryptsy Crumble: The Timeline of Events

This little gem was jotted down over a year ago when the exit strategy of many exchanges seemed to follow a certain fraudulent pattern. Sadly, it seems to have withstand the test of time as it appears applicable to Cryptsy.

In the "coincidental" timing of the class action lawsuit demanding Cryptsy let loose of approximately 5 Million USD in virtual currency, it just so happens there's a perfectly good excuse for this and it's not Paul (“Big Vern”) Vernon's fault at all (of course not). 

He's stated that it had nothing to do with DDos attacks, and nothing to do with his divorce, but that ...

... wait for it ....

...there was a hack!

The mysterious heist that until recently had not been mentioned or even reported to authorities and it just so happens to be almost the exact amount needed to pay everyone back.

SHOCKER THERE!

Let's follow the alleged Happy Trail of the Cryptsy saga and the timeline of which these events unfolded up to this"claim".

The Cryptsy Crumble Timeline

The following timeline of facts were obtained from research, market data, published articles, court documents, and federal and state filings, however, only information that is available as public record has been printed.

MAY 20 2013

Cryptsy.com launches as a trade name and brand of Project Investors, Inc. on May 20th, 2013.

APRIL 2014

Cryptsy expands to 300,000 USD in daily trading across 90 digital currencies, including bitcoin, with 130,000 registered users.

JUNE 29 2014

Cryptsy supposedly suffers a wallet hack loss of 10,000 bitcoins and 300000 litecoins, but tells no one, files nothing, and keeps it a secret.

OCTOBER 2015

Cryptsy users flock to withdraw as Coinfire reports a federal investigation of which Cryptsy publicly denies.

OCTOBER 2015

Owners wife files for divorce and immediate seizure of Cryptsy assets.

NOVEMBER 2015

Cryptsy users have continued access issues. 

NOVEMBER 22, 2015

A supposed server failure at resulted in all exchange wallets being “paused.” 

NOVEMBER 22, 2015

Cryptsy website goes offline due to a supposed denial of service attack (DDos).

DECEMBER 2015

Cryptsy users cannot access accounts while Cryptsy posts technical problems and DDoS attacks. All amid rumors on Reddit of personal divorce issues causing the problem.

DECEMBER 16th, 2016

Vernon posted a tweet indicating wallets would be offline on Friday (Dec 18th)

DECEMBER 18th, 2016

As planned, wallets go offline.

JANUARY 2016 
Cryptsy users cannot access accounts. Cryptsy claims continued DDoS attacks. 

JANUARY 09 2016 
Cryptsy office is empty and lifeless in an apparent move-out. 

JANUARY 13 2016 
Class-action lawsuit is filed against Cryptsy seeking 5 Million is damages. 

JANUARY 14 2016 
Coincidental in both timing and excuse, Cryptsy blogs about 5 Million (in coin value) that was stolen in 2014 which "explains" the missing coins, the user inability to withdraw from them, and why the doors might be (are) closing.

FEBRUARY 2016 The class-action lawsuit is amended to indicate Vernon predicted Cryptsy's failure.

UPDATED MARCH 2016: After claiming the hacker who stole the bitcoins had fessed up and was to return the coins for a nice reward. Cryptsy states it was just another troll.

MARCH 2016
In a bizarre statement the Cryptsy team claims the hacker who stole the coins, or some other "good Samaritan" had come clean and will deliver the coins for a fee. Vernon supplies a signed contract that looks terribly Photoshop's.

On March 13th, the entire hacker story that didn't fly among users was denounced as "just another troll".

Now lets take a look at that diagram again...

Perfect fit? Maybe not, but close enough to fit the ongoing pattern of exit scam we continue to watch unfold in the digital currency industry.

Well anything is possible, but this might not be as easy to just "explain away" as it sounds. 

Existing Operating Capital

Bitcoin was at $582 on July 29th, 2014. That means according to Vernon, 5.82 Million USD was stolen on that date. They didn't "mention it" as to not cause alarm and they were making plenty enough to slowly pay it back, but then he goes on to say that "low prices" of bitcoin and other things of that nature slowed that process down.

Prices?

Let's see here, if the prices went "down" then you could afford to buy more bitcoin with less cash, yes? This makes no sense. It's a 1:1 thing here. You don't need to make any more money.

Let do the math here. Is it BS or does it hold water.

• July 29th, 2014 10,000 coins were valued at $5,820,000

A little stroll down memory lane shows us that bitcoin took a plummet. If we fast forward to December 29th, 2014 then we can see that bitcoin was at $312.44. So that same 10,000 would have only cost $3,124,400 to replace at that point in time.

• December 29th, 2014 10,000 coins were worth $3,124,400

That's a 2.7MM dollar savings! One should be so damn lucky! Almost 3MM can be swept under the carpet and these guys don't take advantage of this?

It has not returned $582 so that means Cryptsy has always been in a position to replace the coins for less money than the original 5.82MM. This doesn't make sense.

It makes little sense because (by their own admission) If you can make the decision to shrug off 5.83 million bucks and not tell anyone because you have enough operating profit to knock this out over time, then why in the hell wasn't a piddly amount like 3.12MM capitalized on??

The price drop equating to less profit makes no sense either because the price drops as well, meaning at the same rate as the income.

Misappropriated Funds

It get worse. If you think that's interesting. On two occasions, January 14th, 2015 and January 17th, 2015 they could have replaced these coins for well under 2MM at 1.7MM and 1,9MM respectively.

DATE	PRICE (XBT)	REPLACEMENT COST	SAVINGS
1/14/2015	177.2795	$    1,772,795.00	$     4,049,239.00
1/17/2015	199.625	$    1,996,250.00	$     3,825,784.00

That's over 4MM in savings at one point and to make matters even more perplexing, they had 14 opportunities to do this under 2.2MM.

DATE	#	PRICE (XBT)	REPLACEMENT COST	SAVINGS
1/14/2015	1	177.2795	$    1,772,795.00	$     4,049,239.00
1/17/2015	2	199.625	$    1,996,250.00	$     3,825,784.00
1/16/2015	3	207.2243	$    2,072,243.00	$     3,749,791.00
8/24/2015	4	209.1322	$    2,091,322.00	$     3,730,712.00
1/18/2015	5	209.932	$    2,099,320.00	$     3,722,714.00
1/15/2015	6	210.4636	$    2,104,636.00	$     3,717,398.00
1/20/2015	7	210.4817	$    2,104,817.00	$     3,717,217.00
1/19/2015	8	213.9783	$    2,139,783.00	$     3,682,251.00
2/5/2015	9	216.7714	$    2,167,714.00	$     3,654,320.00
1/31/2015	10	216.9137	$    2,169,137.00	$     3,652,897.00
4/14/2015	11	218.2741	$    2,182,741.00	$     3,639,293.00
4/26/2015	12	218.815	$    2,188,150.00	$     3,633,884.00
8/18/2015	13	219.0045	$    2,190,045.00	$     3,631,989.00
2/11/2015	14	219.4922	$    2,194,922.00	$     3,627,112.00

From there the opportunities are staggering. There were 297 opportunities under 3 million. 

RANGE		DAYS OPPORTUNITY WAS AVAILABLE	KEY
Between 1 Million and 2 Million		2
Between 2 Million and 3 Million		294
Between 3 Million and 4 Million		139
Between 4 Million and 5 Million		71
5 Million and Break Even		17
Over 5 Million (Loss)		11

It only made sense not to do anything on 10 separate occasions. This is the only time that not working towards the coin replacement is remotely understandable.

DATE	#	PRICE (XBT)	REPLACEMENT COST	DEBT
8/6/2014	1	583.0355	$              5,830,355.00	(8,321.00)
8/5/2014	2	583.1125	$              5,831,125.00	(9,091.00)
8/3/2014	3	585.5078	$              5,855,078.00	(33,044.00)
8/4/2014	4	586.7639	$              5,867,639.00	(45,605.00)
8/2/2014	5	587.2878	$              5,872,878.00	(50,844.00)
8/7/2014	6	587.3971	$              5,873,971.00	(51,937.00)
8/9/2014	7	588.095	$              5,880,950.00	(58,916.00)
8/10/2014	8	589.45	$              5,894,500.00	(72,466.00)
8/8/2014	9	590.5324	$              5,905,324.00	(83,290.00)
8/1/2014	10	595.0845	$              5,950,845.00	(128,811.00)

There were actually 534 days total (roughly a year and a half) that Cryptsy had an opportunity to replace a good portion of the funds at a very reduced rate. 

What Did They Do?

What is it exactly that Cryptsy did do to rectify the situation?

Not much. Do the math. They still owe user about the same amount they did to begin with despite the golden opportunities and continued income. They could not have been in a more perfect position to slide out of this issue rather painlessly. It doesn't make allot of sense now does it?

Nobody outside of the organization knows exactly and we reached out to Cryptsy for comment but they opted against making one so we can only put two and two together based on the facts. Howver, this isn't exactly rocket science.

It's points to negligent mismanagement of funds or internal fraudulent activity. That's all there is to it. If you have an account with Cryptsy or follow the service at all then you've almost had to purposely ignore anything going on as there have been major improvements, announcements, features, improvements, and they've raised additional money (or at least tried to). All things that cost money, which outside of this issue, Cryptsy has shown no shortage of.

The Divorce Filing

There actually was a divorce saga in there somewhere, but setting the divorce or any contributions to the implosion aside, there are some things to pull out of the document that are notable such as the "considerable assets" and "millions in virtual currency" mentioned indicating that Cryptsy certainly had income. 

The divorce filing may well have had an impact on the last few months, but the core issue goes back to 2014 and long before the paperwork was ever filed (October 2015). Any impact this had on recent events are not particularly relevant, however we cover this a bit more in-depth in the report.

Despite relevance, what the divorce filings did disclose were a few insider points of interest. In addition to the above, one being that employees of the company were actively "looking" for other employment. Another states that Vernon was planning a run for the border, an exit strategy that would land him in China. Potentially with millions in virtual currency in tow.

Considering the offices of Cryptsy were abruptly abandoned overnight leaving little trace of its existence, this information certainly appears plausible.

The Verdict

If certainly doesn't look very good for Cryptsy. Even if everything they say is true, you can't persuade math to lie and it not only tells a story of misappropriation, it makes perfect sense and supports the statements made by Cryptsy themselves.

If Vernon really is in China, there may not be a homecoming anytime soon. He may well be hanging out with Josh Garza getting ready to call up Mark Karpeles for a threesome.

After all, besides bitcoin, the one thing all three of them have in common is screwing people ... allegedly of course.

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Story by dinbits
image by dinbits staff

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