Summary
- Prosecutors in the Netherlands have successfully liquidated cryptocurrency from the defunct Knaken platform, generating $2.5 million (€2.2 million) for creditors.
- According to the trustee, customer investments ranged between $12 million and $14 million, with the sale proceeds being the sole funds available in the bankruptcy estate.
- A legal representative for one affected customer raised concerns about the legality of the sale.
The Dutch Public Prosecution Service has sold off cryptocurrency seized from the now-defunct Knaken platform, accumulating $2.5 million (€2.2 million) to aid in reimbursing creditors, as reported by court-appointed trustee Carl Hamm.
Knaken allowed users in the Netherlands to buy, trade, and store cryptocurrency via an app, but it operated without the necessary license from the country’s financial regulator. The platform ceased operations in early June, and a Rotterdam court declared it bankrupt on July 16 after prosecutors initiated proceedings to dissolve it in the public interest.
Trustee Hamm estimates that customers collectively deposited between $12 million and $14 million (€10 million to €12 million) and informed local broadcaster Rijnmond that the proceeds from the sale represent the only available funds in the bankruptcy estate. He has reached out to approximately 6,300 customers advising them to manage their expectations.
The discrepancy arises from the way transactions were structured. For instance, a customer investing €100 in Bitcoin would pay Knaken €1 in fees, and Knaken would use €99 to purchase Bitcoin on an exchange, thus retaining ownership of that position. Customers were shown an amount of crypto in their accounts but only held rights equivalent to euros, leading many to mistakenly believe they owned the actual coins. Hamm noted that Knaken did not seem to hold cryptocurrency that corresponded to customer balances; instead, investments and operational costs had been pooled together.
"Who owns the crypto?"
A lawyer representing an affected customer questioned the legitimacy of the prosecutors' decision to sell the cryptocurrency. He posed the rhetorical question, "Whose crypto was it?" likening the situation to a garage going bankrupt and having your car sold without your knowledge.
While prosecutors have not disclosed their rationale, they have stated that they acted within their rights, reportedly relying on a legal provision that allows for the sale of seized items that may depreciate in value. Hamm expressed his understanding of the decision, noting that "the value of cryptocurrency is completely unpredictable."
Issues for Knaken began in 2020 when 23 BTC were stolen in a hack, which owner Ronald J. claimed resulted in millions in losses; at that time, the stolen coins were valued at approximately $162,000 (€140,000). Despite the setback, he continued to attract customers and secured sponsorship deals with several football clubs, including Feyenoord, Sparta, Heracles, Heerenveen, and briefly Ajax. A customer identified as Henk told Rijnmond that the association with these clubs had provided him with some reassurance, calling the situation "really scandalous."
During the bankruptcy hearing, it was revealed that Ronald J. had transferred $2.7 million (€2.3 million) from Knaken to a company under his control, a move the court deemed a conflict of interest. He maintains that the transfer was for marketing purposes to keep operations distinct and provided Rijnmond with years of documentation showing no evidence of personal gain from the funds.
He disputes the trustee's investment estimates, insisting that Knaken functioned as a broker with all transactions recorded by a liquidity provider, and describes the claim that funds were left uninvested as "outright incorrect and damaging," while acknowledging that some uncovered funds did exist.
Knaken failed to report its financial troubles to De Nederlandsche Bank, although the central bank confirmed that its oversight encompassed money laundering and terrorist financing, while solvency issues fell outside its jurisdiction.