The Case of Symphony, Volantis and the Missing Bitcoins
(Source: forbes.com)

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(Original link: forbes.com)

Opinions expressed by Forbes Contributors are their own. Crypto & Blockchain I am the Blockchain Czarina. I bring you the world of blockchain. Share to facebook Share to linkedin Getty There is a dispute underway that involves fraud, greed and the disappearance of millions of dollars of both fiat currency and bitcoin. It is a cautionary tale for anyone who believes that investing in bitcoin is like investing in any other commodity. Since this is an ongoing case, there has not been a final decision as to liability, but I’ve had a chance to review the public filings. Here is my take. The parties are Symphony, an Irish investment company that specializes in trading crypto currencies and J. Barry Thompson, the managing director of Volantis Escrow Platform LLC, a global escrow and trade facilitation platform that focuses on bitcoin escrow services. In March 2018, the parties were brought together by a professional introducer who matches bitcoin buyers and sellers and, after some back and forth, they resolved to work together. Over the next 5 months, Symphony CEO Graham Keating and Thompson considered various purchases, but none were pursued. Then in July, Thompson told Keating about an opportunity to purchase several thousand bitcoin from a seller that was planning to use Volantis as the escrow agent. Symphony and Volantis entered into an Escrow Services Agreement. (The Agreement states that Volantis Escrow Platform LLC is a limited liability company organized under the laws of the State of Delaware. However, there is no record of that company being registered in Delaware.) The parties negotiated the structure of the proposed transaction pursuant to which Symphony would purchase 6,600 bitcoin from Volantis over an 11-day period, in tranches of 500-1,000 bitcoins each. Symphony would transfer funds to Volantis which would be held in escrow and released simultaneously upon the delivery to Symphony of the bitcoin. But that is not what happened. On July 24, Symphony transferred € 3,600,000 to Volantis. Three days later, Thompson confirmed that the sale price of the first tranche of 500 bitcoins would be € 3,303,500, and Keating authorized Thompson to begin the transaction. But the transaction never closed. Symphony did not receive any bitcoin, nor was its money returned. What happened to the bitcoin and the money? Thompson asserts that he engaged a (second) escrow agent called KRFB Global Group LLC to purchase 500 bitcoins, and says that KRFB has the money—and the bitcoins. He further asserts that on July 27, he sent $4,024,914 (which represents 92 percent of the funds that Symphony provided to Volantis) to KRFB with the expectation that KRFB would release 500 bitcoins to his control. Over the course of many emails and texts in the ensuing days and weeks, Thompson told Keating that the bitcoin was in a multi-signature wallet for which he had a key, and that the bitcoin was forthcoming. But Symphony never received the bitcoin, and Symphony’s money was never returned. Symphony subsequently learned that two additional international bitcoin trading firms had lodged complaints against Volantis in the form of an arbitration and a demand for return of funds, both asserting similar fact patterns. Symphony filed suit against Thompson in federal court in Allentown, PA, and on September 14 won a temporary restraining order prohibiting Thompson and his entities from transferring or dissipating certain assets. Symphony subsequently filed a preliminary injunction against Thompson for further protection against the dissipation of assets, which was denied. Volantis has brought legal action against KRFB in California (in which no defendants have appeared). In his defense, Thompson testified that Volantis was not acting as an escrow agent, but rather a facilitator of the transaction. He further testified that the Agreement gave him the authority to use a second escrow agent (KRFB) and, that KRFB (and not he) is liable for Keating’s loss. He also stated that Keating assumed the risk in a deal of this nature. Symphony denied all of this, and denied knowing anything about a second escrow agent. What can we learn from this? First, since bitcoin (and other cryptocurrencies) operate on a decentralized network, if you are going to transact business with cryptocurrencies using an intermediary, such an escrow agent, you need a foolproof system for securing your funds (and your bitcoin), or you could fall victim to theft and fraud. Here, Symphony engaged an escrow agent (Volantis) and even signed an agreement, but that was not enough because the company still lost its money. How do we create a foolproof process to safeguard the interests of parties who transact with cryptocurrencies? We start with a code of conduct for escrow agents and couple that with standardized language for escrow agreements. Regulations like the Revised Uniform Fiduciary Access to Digital Assets Act help to provide fiduciaries (like executors and attorneys-in-fact) with ...

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