Bitgrail Owner Ordered to Reimburse Hack Victims as Legal Battle Wraps Up
An Italian bankruptcy court has ordered Bitgrail owner Francesco Firano to return as many assets as possible to the victims of a hack that robbed the exchange of some $170 million worth of NANO tokens.
Almost a year after the Bitgrail exchange announced the theft of over 17 million NANO tokens by hackers, the Florence bankruptcy court has declared Francesco “The Bomber” Firano culpable for the security breach.
The court ruling, published on January 21, concluded that Firano and the Bitgrail exchange were to be declared bankrupt, and the victims of the hack should be reimbursed for their losses as fully as possible. So far, Italian authorities have seized over $1 million worth of Firano’s personal assets to contribute towards the refunds.
The judges ruled Firano had purposefully neglected to inform users that 2.5 million NANO tokens had been stolen by hackers exploiting a security flaw in the platform in July 2017. In October that year, another 7.5 million NANO were siphoned off in a similar way. On both occasions, Firano made no attempt to patch the problem to prevent further malicious attacks, beginning instead to prepare an exit plan ahead of announcing the exchange’s losses, according to a post by the Bitgrail Victims Group.
“In December 2017, Mr. Firano converted his exchange’s central wallet into a cold wallet and began intermittently closing the exchange to the public. In January 2018, Mr. Firano transferred ownership of Bitgrail from a sole proprietorship, Webcoin Solutions, to Bitgrail S.r.l., a limited liability company…[and] between February 2nd and February 5th, 2018 — days before Firano would make his public announcement about the 17 million NANO loss — Mr. Firano had deposited a total of 230 Bitcoin (approximately $ 1.8 million) in a personal account,” the post reads.
It was not until February 9 that Firano announced the loss publicly, attributing it to “unauthorized transactions.” By that point, all NANO withdrawals had been frozen for two weeks. The tokens lost were worth a total of about $170 million.
In a bid to avoid legal action, Firano offered a 20% refund to users on condition they sign a document absolving him from liability. When this failed to work, he conjured up another scheme, which involved reopening Bitgrail and issuing a new Bitgrail Shares utility token to be used for reimbursing users over a period of time. This also failed to prevent legal action.
This landmark case represents a vital new chapter in regulating centralized crypto exchanges and ensuring that investor protections are implemented to prevent such security breaches. As crypto hacking gets more sophisticated and widespread, it becomes increasingly important for custodians to be aware of their legal accountability and fiduciary responsibility to keep their users’ funds safe.