The Dutch prosecution has sold encrypted assets seized from the bankruptcy encryption platform Knaken and recovered approximately $2.5 million (approximately 2.2 million euros). The insolvency representative, Carl Hamm, stated that the funds were currently the only funds in the liquidation of the property that could be used to pay creditors, but that the total amount previously invested by the client was estimated at between $12 million and $14 million.

Platform stopped and went bankrupt.

Knaken has provided encryption services to Dutch users, who can complete transactions and store them through application. The platform was not licensed by local market regulators and ceased operations in early June. On 16 July, the Rotterdam Court ruled that the prosecution was insolvent on application.

Hamm stated that he had sent letters to some 6300 clients reminding them to lower recovery expectations. According to him, only the proceeds from the sale of the currently liquidated property were far from sufficient to cover the amounts declared by the customer.

Disconnect between client balances and actual assets

Hamm explained that the funding gap was not an occasional problem, but rather a structural result of the way the platform operated. In the case of a user input of 100 euros for the purchase of bitcoin, 1 euro will be charged as a fee by the platform and the remaining 99 euros will be used to build positions on the exchange.

He states that this position belongs legally to Knaken and not to the client himself. Although a certain amount of encrypted assets is shown to be held in the customer accounts, they actually have more of a right of request in the euro equivalent than a direct ownership of the specific currency. Many users have always believed that these are their own assets.

Hamm also stated that Knaken did not appear to hold an encrypted asset matching the customer account balance, and that investment funds had been used intermingled with operating expenses, resulting in a significant shortfall in the final recoverable assets.

The legality of the sale is questioned

The lawyer for one of the affected clients questioned whether the prosecution had the authority to sell the seized encrypted assets. He stated to the local media that the key question was who those currencies belonged to. If the platform is simply a substitute for safekeeping, the manner in which it is handled may be more controversial.

The prosecution stated that the decision to sell was well founded but did not disclose the details. According to the local media, the prosecution may have invoked the requirement that “depreciable seized property may be sold earlier”. Hamm stated that he understood the decision because the price of encrypted assets was more volatile.

The cumulative problem of theft in 2020

Knaken's business problems date back to 2020. At that time, the platform lost 23 bitcoins in a hacking incident, at a price of approximately $162,000. Ronald J., the owner of the platform, claimed that the total damage caused by the theft amounted to millions of dollars.

Despite this, Knaken has since continued to attract clients and has signed sponsorship agreements with Fiernod, Rotterdam Sparta, Hercules, Helenen and Ajax for brief cooperation. One client indicated that it was the collaboration of the football clubs that had created his trust in the platform.

In the bankruptcy hearing, the court also referred to Ronald J. who had transferred approximately $2.7 million from Knaken to another company under his control and described the transaction as a form of conflict of interest. Ronald J. argued that the arrangement was used for market promotion in order to separate functions and deny that it allowed him to profit from it.

Additional information:Ronald J. did not accept the insolvency representative's estimate of the size of the customer's input, stating that Knaken operated as a broker and that all orders were recorded in the source of liquidity, and denied that large amounts of customer funds were not invested. He acknowledged, however, that the Platform did have a funding gap that was not covered.