MIAMI, FL – Paul E. Vernon, 48, the founder and CEO of the now-defunct online cryptocurrency exchange Cryptsy, is facing a 17-count federal indictment alleging a brazen scheme to steal over a million dollars from his customers, then lie about it and destroy evidence to cover his tracks. The indictment, unsealed today in Miami, paints a picture of calculated theft and deception that left investors holding the bag.
According to the U.S. Attorney’s Office, Vernon, operating as Project Investors Inc. doing business as Cryptsy, systematically siphoned off funds from customer cryptocurrency wallets between May 2013 and May 2015. Instead of safeguarding the virtual currency deposited by investors, Vernon allegedly transferred the stolen funds to a personal cryptocurrency wallet and then directly into his bank account. He never informed his customers about the ongoing theft, leaving them unaware their investments were dwindling.
The scheme took a particularly cynical turn in July 2014 when Vernon falsely informed Cryptsy employees that the exchange had been hacked, claiming a loss of over five million dollars worth of bitcoins and other cryptocurrency. He continued operating the exchange for six months, actively soliciting new customers while knowingly concealing the alleged breach. In November 2015, Vernon abruptly fled to China and then publicly revealed the fabricated 2014 hack to customers. The move appears to have been an attempt to deflect blame and conceal his own theft.
But the deception didn’t stop there. In April 2016, after learning Cryptsy was in receivership, Vernon allegedly remotely hacked into the company’s servers, stole the customer database containing financial information, and deliberately destroyed it – a clear attempt to obstruct the investigation and conceal his illicit activities. Federal prosecutors allege this destruction of records was a key component of the scheme to defraud customers and evade justice.
The indictment further accuses Vernon of tax evasion for the years 2014 and 2015, claiming he filed false and fraudulent tax returns underreporting his income. Prosecutors say his actual taxable income during those years was “substantially more” than what he reported, indicating a deliberate attempt to avoid paying his fair share. The U.S. Attorney for the Southern District of Florida, Juan Antonio Gonzalez, alongside officials from the IRS-CI and FBI, announced the charges today.
The case, investigated by IRS-CI, the FBI’s Miami Field Office, and with assistance from the U.S. Secret Service, is being prosecuted by Assistant U.S. Attorney Brooke Watson, with asset forfeiture handled by Assistant U.S. Attorney Daren Grove. Vernon faces charges including wire fraud, money laundering, computer fraud, tampering with records, and destruction of records in a federal investigation. It’s crucial to remember that an indictment contains allegations, and Vernon is presumed innocent until proven guilty. Former Cryptsy customers who believe they were victimized are encouraged to file a complaint at www.IC3.gov, referencing “Cryptsy” in their submission.
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Key Facts
- Agency: U.S. Secret Service
- Category: Fraud & Financial Crimes
- Source: Official Press Release
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