Cryptsy Founder Paul Vernon Speaks Out About Millions in Lost Customer Funds

Earlier this year, Delray Beach-based Bitcoin exchange company Cryptsy abruptly shut down, locking hundreds of thousands of users out of the system and leaving them no way to withdraw their digital currencies. In January, Broward County attorney David Silver filed a class-action lawsuit against Cryptsy and its owner, Paul "Big Vern" Vernon, accusing him of stealing or losing at least $5 million in customer funds.

New Times chronicled the rise and fall of Cryptsy last week. But Vernon wasn't available for comment for the same reason Silver — and later a court-appointed receiver — had been unable to speak with the tech guru: Vernon had apparently fled to China. According to his ex-wife, he went there with a girlfriend he had been hiding for nearly a year.

A day after New Times' story was published, however, a person claiming to be Vernon sent us an email agreeing to answer some questions. He refused to send photo verification but used an old Yahoo email account that was formerly attributed to Vernon.

Many of Cryptsy's users felt betrayed when Vernon announced in January that someone had stolen millions of dollars' worth of Bitcoin and Litecoin in a hack in July 2014. Vernon failed to inform the users about what had happened and continued to make assurances that everything was OK for a full year and a half afterward. (Silver and others, it's worth noting, doubt the hacking tale; they contend Vernon took the money.)

Vernon now says he regrets not sounding the alarm earlier. 

"The plan was to use a portion of revenue to replenish the wallets. However, diminishing Bitcoin price and volume turned out to not go in our favor," he wrote to New Times. "At the time, I had two choices, disclose and shut down or try to continue running and reacquire user funds. Because we were doing well at the time, I attempted option #2."

Before the alleged hack, Vernon says, the company had first-year revenues of close to $3 million. During that time, from May 2013 to May 2014, he says he paid himself $1.1 million "via the regular payroll system, base salary + quarterly bonuses."

Vernon declined to answer a number of New Times' questions, including whether he would cooperate with the court-appointed receiver in the civil case, or if he ever used or diverted his users' funds for personal or family consumption. He also wouldn't say where he currently lives or if he plans to return to the U.S.

His full answers to other New Times questions are included below: 

New Times: Is the story you told about the July 2014 hack completely accurate? Was there anyone else who knew what happened besides you?

Paul Vernon: Yes. I was awoken the morning of the attack with alerts of moved funds from the safe wallets. The individual(s) who did it had been planning it for some time, as they had access into the system for awhile, possibly months. It was several wallets and not just bitcoin and litecoin. I shut down all wallets and immediately contacted the wallet manager "Mullick" and the systems admin to check to make sure it wasn't them. We then promptly met at the office to start investigating. It took us a couple weeks to determine what exactly happened.

If the company was having financial problems, how is it that you were able to make a $1.3 million cash purchase on the Delray home in March 2015?

In the first year of operation from May 2013 to May 2014 the company had revenues of close to $3m. During this period I was paid $1.1m via the regular payroll system, base salary + quarterly bonuses. The initial purchase and down payment for that home was in February 2014. I took a loan from the company for $600k to complete the purchase at a time when the company was still performing well.

You admitted in a divorce deposition in December 2015 that the money from the home came from Cryptsy. Care to elaborate?

I worked for Cryptsy, that's where the majority of my income derived from.

In several blog posts and interviews after the alleged hack, you continued to make assurances that things were OK. Did you feel bad doing this or did you actually think it would work itself out?

At the time, the company was still doing well enough to possibly recover. The plan was to use a portion of revenue to replenish the wallets. However, diminishing bitcoin price and volume turned out to not go in our favor.

In hindsight, do you regret not letting the users know what happened? Do you feel you betrayed them?

Of course. At the time I had two choices, disclose and shut down or try to continue running and reacquire user funds. Because we were doing well at the time, I attempted option #2.

Your wife Lorie has been added to the lawsuit as a defendant. Would you like to respond on her behalf or speak to the extent of her involvement with Cryptsy?

She is my ex-wife. She had no involvement with Cryptsy. I cannot respond on her behalf.

The lawyer who filed the lawsuit against you likened what you did to "robbing a bank." How do you respond?

He doesn't think the hack occurred, which is surprising to me since the ex-wallet manager is working with them and he knows all the details of what happened.

From 2013 to 2015, you converted Bitcoin to thousands of dollars a day on Coinbase. Where did those coins come from?

Cryptsy collected its revenue in Bitcoin, which in turn was converted into USD via Coinbase. This was the financial model we used.
KEEP MIAMI NEW TIMES FREE... Since we started Miami New Times, it has been defined as the free, independent voice of Miami, and we'd like to keep it that way. With local media under siege, it's more important than ever for us to rally support behind funding our local journalism. You can help by participating in our "I Support" program, allowing us to keep offering readers access to our incisive coverage of local news, food and culture with no paywalls.
Jessica Lipscomb is the former news editor of Miami New Times.