What can investors in hacked bitcoin firm do next?


Investors who had more than a third of the value of their accounts on bitcoin exchange Bitfinex wiped out when the site "socialized" its losses from a hack may be able to pursue the company through the courts, legal experts have told CNBC.

Last week, nearly 120,000 bitcoins were stolen from Hong-Kong based exchange Bitfinex when it was hacked. The company later decided to spread these losses among all investors on the platform, including investors who never used the digital currency, and took 36.067 percent from each account.

The exchange allows users to trade in several different forms of crytocurrency, as well as deposit U.S. dollars into their account.

Chris Ratcliffe | Bloomberg | Getty Images

Lawyers Jef Klazen and Randall Arthur, from law firm Kobre & Kim, said Bitfinex customers may have legal recourse against the exchange, but it depended on their situation and contractual agreements.

"Customers who received the haircut might be able to assert some type of misappropriation claim against Bitfinex for having their accounts reduced in order to soften the blow to the customers whose accounts were hacked and suffered the losses," they told CNBC via email.

"Other potential claims that might be available to customers are negligence or other tort claims arising from Bitfinex's handling of their accounts, such as an alleged lack of adequate security features, and possible breach of contract claims."

Joseph Schweitzer is an investor on Bitfinex whose account received the 36 percent haircut. He said he was frustrated, as he wasn't invested in bitocoin but another digital currency, ether, which currently trades at $11.96 and has a market cap of $991 million. Bitcoin meanwhile is worth around $589 and has a market cap of $9.3 billion.

"I'm not invested in bitcoin, but another token that was not exploited here. The idea of [Bitfinex] dipping into USD, and digital asset wallets that were 100 percent unaffected, and without user approval selling 36 percent of those funds is likely criminal," he told CNBC via email.

At the time of the hack, Bitfinex froze all trading in order to settle accounts and decide how to spread the loss. It also issued a token to each investor recording the dollar amount of their loss, which it will redeem at an undisclosed point in the future.

To make matters worse for investors like Schweitzer, ether was trading at an eight-month low when Bitfinex froze trading.

"The result is that the most [Bitfinex] would ever plan to pay back would be the USD value of these assets at their 8-month low, from which it's already bounced back well over 10 percent," Schweitzer said.

"Even worse, their IOU [token] is tradable, but not by U.S. users. This will assuredly be a dump upon the open of trading, and Americans will feel the fallout yet again."

Bitfinex's website states U.S. residents may sell their token to another customer on the exchange, but cannot buy them, while non-U.S. residents can sell and buy tokens without restriction.

According to Klazen and Arthur, bitcoin and blockchain is currently not regulated in Hong Kong, but this situation is likely to change.

"The Hong Kong government has recognised that in the future it might be necessary to regulate the use of blockchain technology and that many issues may need to be addressed as the technology develops," they said.

"Ultimately, what will be most valuable to virtual currency investors is the creation and implementation of the most robust possible security measures to protect virtual currency investments against the type of theft that occurred against Bitfinex."

Bitfinex did not respond to requests for comment from CNBC.

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