In July 2017, Attorney Marc A. Wites of The Wites Law Firm and the law firm Silver Miller commenced a class action lawsuit against cryptocurrency exchange Payward, Inc. d/b/a Kraken (“Kraken”) in the United States District Court for the Middle District of Florida on behalf of a group of aggrieved Kraken accountholders.
The claimants — each of whom maintained margin accounts at Kraken in which they held Ether, among other digital assets — lost significant sums of money in a May 7, 2017 “flash crash” that saw Kraken’s Ether market plummet nearly 75% in value . . . only to see the value restored to nearly its full value an hour later. During the one-hour crash, however, Kraken forcibly liquidated the claimants’ margin accounts without affording them any opportunity to meet a margin call or even log-in to their accounts, as Kraken’s software systems were inaccessible to the victims during the critical hour in which their accounts got liquidated.
Relying on a set of “take it or leave it” Terms of Service to which each accountholder had to agree when opening his account, Kraken insisted to the federal court that the victims not be allowed to pursue their claims in the public forum provided by the court and that the victims’ dispute instead be handled in a private arbitration forum chosen by Kraken.
Without waiving any of their substantive arguments, the claimants have agreed to shift to the arbitration forum their pursuit for justice, where they have been joined by nearly two dozen other victims of Kraken’s flawed security and faulty software systems. While Kraken advertises itself as being the “best Bitcoin exchange” and providing “sound and reliable” access and support every hour of every day of the year, the arbitration Statement of Claim alleges that Kraken’s services are not nearly as sound or reliable as advertised, are not available when needed most, and purportedly can be withdrawn by Kraken at any time without any notice whatsoever to the accountholders who serve as the lifeblood of Kraken’s business.
Moreover, the Statement of Claim demonstrates that whenever anything goes wrong at Kraken, Kraken takes no responsibility for those wrongs and instead puts the blame on its accountholders for trusting Kraken to provide the very services and security that Kraken promotes.
Kraken is expected to provide its formal response to the Statement of Claim sometime in November 2017. Kraken’s Terms of Service, however, purport to require that the arbitration hearing is a confidential proceeding conducted by a single arbitrator, not a jury of the victims’ peers. So, unlike a court case — where any member of the public can come to court and watch the jury trial and other court proceedings — Kraken’s Terms of Service seek to keep Kraken’s other customers, the government, and everyone else in world in the dark about what excuses Kraken will raise and what will actually happen when the trial of this matter occurs in the arbitration forum mandated by Kraken.
Attorney Marc Wites commented that “the Kraken class action represents the very type of case that should be in Court, where the class action rule places individual investors on the same level as large corporations by allowing them to band together.” Unfortunately, Congress has opposed a new rule of the Consumer Financial Protection Bureau which would have required, at least in the future, that such cases be in the open light of day in America’s courts, rather than behind the closed doors of individual arbitration cases”, said Wites.
Marc Wites of Wites Law Firm currently represents the victims in lawsuits against multiple cryptocurrency exchanges (Cryptsy; Coinbase; Kraken). If you have lost money at a cryptocurrency exchange or are concerned that the services advertised to get you to open an account were not matched by the services actually provided to you as an accountholder, contact Marc Wites or a no-cost, no-obligation consultation to discuss you legal rights.