Dutch authorities have liquidated $2.5 million in cryptocurrency from the bankrupt Knaken platform to reimburse creditors, raising legal questions.
Summary
- The Dutch Public Prosecution Service has liquidated cryptocurrency from the bankrupt Knaken platform, raising $2.5 million (€2.2 million) for creditors.
- Estimates suggest customer investments in Knaken ranged from $12 million to $14 million, with the liquidation proceeds being the only available assets in the bankruptcy estate.
- Concerns have been raised regarding the legality of the sale by a legal representative of a customer.
The Dutch authorities have successfully liquidated cryptocurrency assets from the defunct Knaken platform, generating $2.5 million (€2.2 million) aimed at reimbursing its creditors, according to court-appointed trustee Carl Hamm.
Knaken, which allowed users to buy, trade, and store cryptocurrency through its app, operated without the necessary license and ceased operations in early June. A Rotterdam court declared it bankrupt on July 16 after prosecutors initiated dissolution proceedings.
Hamm reported that customers had collectively deposited between $12 million and $14 million (€10 million to €12 million) into the platform, noting that the funds from the sale are the only assets available in the bankruptcy estate. He has communicated with around 6,300 customers to adjust their expectations regarding potential reimbursements.
The confusion stems from Knaken's transaction structure. For example, a customer who invested €100 in Bitcoin would pay €1 in fees, with Knaken using the remaining €99 to purchase Bitcoin on an exchange, retaining ownership of the crypto. Customers were shown balances in their accounts, but they only held rights equivalent to euros, which led to misconceptions about actual ownership. Hamm pointed out that Knaken did not seem to hold the cryptocurrency that matched customer balances, as investments and operational costs were intermingled.
Legal Concerns
A lawyer representing one affected customer questioned the legitimacy of the liquidation, comparing it to a scenario where a garage sells a car without informing the owner. While prosecutors have not detailed their reasoning, they maintain that they acted within legal parameters, citing a provision that allows for the sale of depreciating seized assets. Hamm acknowledged the decision, emphasizing the unpredictable nature of cryptocurrency values.
Knaken's troubles began in 2020 when a hack resulted in the theft of 23 BTC, leading to millions in losses. Despite this setback, owner Ronald J. continued to attract customers and secured sponsorships with multiple football clubs. Affected customer Henk described the situation as "really scandalous," despite the reassuring presence of these partnerships.
During bankruptcy proceedings, it was revealed that Ronald J. had transferred $2.7 million (€2.3 million) from Knaken to a company he controlled, which the court viewed as a conflict of interest. He claimed the transfer was for marketing purposes and provided documentation to support his position, insisting he did not personally benefit from the funds.
Ronald J. also disputed the trustee's investment estimates, asserting that Knaken functioned as a broker with all transactions recorded by a liquidity provider. He described claims that funds were uninvested as "outright incorrect and damaging," while acknowledging some uncovered funds did exist. Furthermore, Knaken failed to report its financial difficulties to De Nederlandsche Bank, which confirmed its oversight was limited to money laundering and terrorist financing issues, leaving solvency concerns outside its jurisdiction.
