CEO of Major Online Cryptocurrency Exchange Company Indicted for Defrauding Company’s Customers, Destroying Evidence, and Tax Evasion
Miami, Florida – A 17-count indictment was unsealed in federal court in Miami, Florida charging Paul E. Vernon, 48, the founder, operator, and Chief Executive Officer (CEO) of Project Investors Inc., doing business as Cryptsy, with criminal violations for his involvement in a sophisticated theft scheme involving his cryptocurrency exchange. The charges include tax evasion, wire fraud, money laundering, computer fraud, tampering with records, documents, and other objects, and destruction of records in a federal investigation.
According to the Indictment, Paul E. Vernon solicited and caused cryptocurrency investors to trust the safety of Cryptsy, an online cryptocurrency exchange company, for storing and trading their virtual currency. Vernon exercised control over cryptocurrencies deposited on the Cryptsy website. Between May 2013 through May 2015, Vernon used his control over Cryptsy’s accounts, known as wallets, to steal over one million dollars from Cryptsy’s cryptocurrency wallets. Once Vernon stole his customers' funds from Cryptsy’s wallets, he deposited the funds into a personal cryptocurrency wallet and then transferred the same funds into his personal bank account. At no time during this time period did Vernon disclose this theft of his customers’ funds from his customers’ Cryptsy wallets.
On about July 29, 2014, Vernon informed Cryptsy employees that Cryptsy had been hacked by an unidentified party, and that the hacker had stolen more than five million dollars’ worth of bitcoins and other cryptocurrency from Cryptsy. For six months following this disclosure to his employees, Vernon continued to operate Cryptsy, including soliciting new customers, without disclosing to his customers that the website's security had been compromised. In or around November of 2015, Vernon abruptly moved to China and, shortly thereafter, publicly reported to Cryptsy customers the 2014 hack of the Cryptsy wallets and loss of bitcoins and other cryptocurrency. In April 2016, after being notified that Cryptsy was in receivership, Vernon hacked into Cryptsy servers from a remote location, stole Cryptsy’s database containing customers’ funds, and destroyed the customer database to conceal his illicit activity.
The Indictment further alleges that Vernon attempted to evade his federal income tax obligations for 2014 and 2015. In each of 2014 and 2015, Vernon caused to be filed false and fraudulent U.S. individual income tax returns in which he underreported the tax due and owing to the United States. Based on his actual taxable income in 2014 and 2015, Vernon’s tax due and owing to the United States was substantially more in each of these years than the amounts reported to the United States.
Juan Antonio Gonzalez, U.S. Attorney for the Southern District of Florida, Matthew D. Line, Special Agent in Charge, Internal Revenue Service, Criminal Investigation (IRS-CI), Miami Field Office, and George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, made the announcement.
This case was investigated by the IRS-CI and FBI’s Miami Field Office, with assistance from the United States Secret Service’s Miami Field Office. Assistant U.S. Attorney Brooke Watson is prosecuting the case. Assistant U.S. Attorney Daren Grove is handling asset forfeiture.
Charges contained in an indictment are merely allegations, and the defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
If you were a Cryptsy.com customer and would like to file a complaint, please visit www.IC3.gov. Please reference “Cryptsy” in your complaint.
Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or at http://pacer.flsd.uscourts.gov, under case number 19-cr-20509.