Class Action Lawsuit Filed Against Cryptocurrency Exchange Kraken
This week a class-action lawsuit has been filed against the San Francisco-based trading platform Kraken. A group of customers have revealed that their holdings of 3,414 ETH was liquidated during an Ethereum market flash crash. According to the plaintiffs the cryptocurrency exchange suffered from a denial-of-service (DDoS) attack at the time having many Kraken users unable to […]
This week a class-action lawsuit has been filed against the San Francisco-based trading platform Kraken. A group of customers have revealed that their holdings of 3,414 ETH was liquidated during an Ethereum market flash crash. According to the plaintiffs the cryptocurrency exchange suffered from a denial-of-service (DDoS) attack at the time having many Kraken users unable to use the service.
Five Kraken Customers File Class Action Lawsuit Against the Exchange
Just recently Bitcoin.com reported on the GDAX exchange dealing with an ethereum flash crash that caused quite a bit of controversy. Following the crash, the Coinbase-owned GDAX exchange made amends with its customers by offering to absorb customer losses. However, less than two months ago on May 7th, there was another ethereum market flash crash that allegedly liquidated five customers ETH holdings at $96 USD per token. According to the five plaintiffs, Kraken should have halted trading while under attack. However, Kraken has stated if they had stopped market trading the “consequences for traders would have been even worse.”
At the time Kraken responded to ethereum traders about the margin liquidation incident on the subreddit Ethtrader after the crash and DDoS.
“We have completed our investigation into the May 7th DDoS attack, and the cascading margin liquidations on the ETH/USD order book,” explains the exchange. “Despite the coincidental overlap in timing of the events, we did not find any evidence of a coordinated attack or market manipulation.”
‘The DDoS Did Neither Cause nor Exacerbate Liquidations’
According to Kraken the DDoS did not cause or prolong the liquidations.
Once liquidations are triggered, they cannot be stopped. The best that can be hoped for is that liquidity is there to absorb the market orders. Kraken’s market price protection system attempts to protect those being liquidated by pausing at times to allow liquidity to fill in but there is no guarantee that others are willing and able to provide that liquidity.
“Traders are encouraged to use advanced order types such as stop-loss to set their own exits,” explains Kraken. “Unfortunately, we cannot compensate traders for the outcome of naturally occurring events in the market, nor losses due to unavoidable DDoS attacks.”
Redress for ‘Unlawful Conduct’
The class-action lawsuit seeks restitution for what the plaintiffs believe was “unlawful conduct” from the Payward Incorporated Kraken cryptocurrency exchange.
“For unconscionably freezing and liquidating the ether holdings of plaintiffs and the class in the midst of an event that exposed fatal flaws in Kraken’s business operations,” explains the lawsuit’s argument. The paperwork from the Silver Law Group details that ethereum markets dropped over 70 percent from approximately 3:30 pm PST until approximately 4:30 pm PST. “[Ethereum’s] value almost fully restored to its previous position after the one-hour business interruption,” the plaintiff’s case reads.
All-Time Highs and Flash Crash Parties
The story comes at a time where exchanges are seeing a massive surge of new users and heavy trading. Customers have complained about nearly every exchange having operational issues, and almost every exchange has warned their clients of these nuisances. During the first week of April, Poloniex traders complained about a Ripple market flash crash taking place with a similar outcome.
People have tried to speculate on who may be behind the quick crashes taking place on these altcoin markets, more specifically ethereum markets have flash crashed twice in less than two months with little evidence to be found. Moreover, although there have been losses some people have made a lot of money too. One trader scooped up 3809 ethers at $0.10 per ETH making a cool million in a matter of seconds. Others grabbed many ether tokens at various amounts under $40 as well. At the time multitudes of ethereum traders hoping to get lucky with another flash crash created hundreds of bids for ether tokens under $50.
What do you think about the class action lawsuit against Kraken? What do you think about all the flash crashes lately? Let us know in the comments below.
Images via Pixabay, Trustnodes.com, and The Silver Law Group lawsuit.
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