Earlier this week, four users of the well-known Bitcoin (BTC) trading platform Bitcoinica filed a complaint in a San Francisco court asking for $460,457.70 from the company. The plaintiffs allege that Bitcoinica, which had been hacked twice earlier this year, neglected the safety of its users’ money and cheated them out of withdrawal requests that it said it would honor.
Bitcoins, units of virtual currency which are cryptographically signed and transferred without the influence of banks or government oversight, experienced a boom about a year ago (in June 2011 one BTC was equivalent to $15), but crashed to less than $3 only 5 months later when slews of Bitcoin-stealing malware and hacks of Bitcoin "banks" unsettled the market. The nascent currency bounced back, however, and the price of Bitcoins surged this past July, rising above $9 for the first time in a year.
As The Verge reports, the creator of Bitcoinica, Zhou Tong, promised users a full refund of their money shortly after Bitcoinica’s first big security breach in March 2012. Tong, who claimed to be 17 in 2011, says he sold Bitcoinica to an investment firm represented by Tihan Seale in late 2011, but remained as CEO and lead developer at the company after the sale. (Update: while this article originally stated that Tong sold the company after the first security breach to another company called Intersango, both Intersango and Tong claim that this was not the case.) Bitcoinica was then hacked a second time, and Bitcoinica was taken offline and promised users a refund of 50 percent of their money.
"In a public announcement following said breaches, Bitcoinica assured its users, among other things, that: the overwhelming majority of its Bitcoin deposits were not stolen; monies were stolen from Bitcoinica, not from its users; and that all withdrawal requests would continue to be honored,” the complaint stated. So far, Bitcoinica users have only been able to recover half of their funds.
For the four plaintiffs, this partial refund was not enough. The complaint filed in San Francisco sued defendants Bitcoinica LP, Bitcoinica Consultancy Ltd., Intersango Ltd., Does 1-60 (as the plaintiffs claim they don’t know the identities of every player behind the alleged neglect and breach of contract), and three known affiliates of Bitcoinica, one of whom resides in San Francisco County.
Beyond simply mismanaging their money, the plaintiffs suggest Bitcoinica operators had more nefarious motives as well: "Plaintiffs are informed and believe, and thereon allege, that each of Defendants knowingly and willfully conspired and agreed upon themselves to hinder, delay and deprive Plaintiffs of their rights with respect to the monies at issue."
This is only the second case involving Bitcoins to be filed in an American court; the first involved a Bitcoin exchange company suing mobile payment provider Dwolla. But the two cases show an increased willingness on the part of Bitcoin users to take their complaints to court despite being traditionally averse to government intervention.
The plaintiffs are asking for recompense in "the loss of use of said monies while the present action is pending, changes in the value of said monies due to fluctuating exchange rates,; etc., all in amounts to be proven at trial.” And with the price of Bitcoins going up, the plaintiffs might hope that this complaint does go to trial, despite the San Francisco court’s questionable jurisdiction over the UK-based Bitcoin trading company.
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