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Class action lawsuit demands that Nano perform “recovery fork” for BitGrail funds

Posted: 9 April 2018 4:41 pm
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A court-ordered hard fork? That's a new one.

An American individual, Alex Brola, has filed a class action lawsuit (PDF) against Nano through the Steven Miller law firm, demanding that it perform a hard fork to "recover" the NANO lost in the BitGrail incident, which was worth $170 million at the time.

The slightly overwrought suit says Brola, "upon investment solicitations and specific instructions and representations of safety and security made by NANO representatives, opened a customer account at BitGrail, an Italian-based cryptocurrency exchange, for the primary purpose of investing in and exchanging a cryptocurrency called Nano.

"Simply stated, Defendants created the NANO currency, they directed NANO investors to place their assets at BitGrail; and when nearly all of the NANO purportedly safeguarded at BitGrail disappeared, Defendants disavowed any responsibility for the harm NANO investors suffered... Defendants suddenly sought to put more distance between themselves and BitGrail than even the Atlantic Ocean could provide."

The suit doesn't ask for direct financial restitution, but instead demands that the Nano developers hard fork the currency to undo the loss, similar to the hard fork that created the Ethereum and Ethereum Classic schism.

"Even though the most direct solution to the NANO investors' problem resides squarely within Defendants' hands, Defendants have refused to implement any such solution," the suit reads. "Specifically, Defendants can rewrite the NANO code and simply restore ownership to the Plaintiff and the Class. In crypto terms, Defendants can create a "rescue fork" to protect Plaintiff and the Class' property rights. Defendants, however, have refused to implement that strategy because it is not in their own best interests. The reason is simple: Defendants still own and control millions if not tens of millions of NANO and do not want to sacrifice any financial advantage they currently hold over the average NANO investor victimised by the NANO at BitGrail, which Defendants would do by "rescue forking" and returning the stolen digital assets."

A grey area.

It's safe to say that a court-mandated hard fork is something of a legal grey area. It probably wouldn't do much to reimburse the plaintiffs either because a rescue fork would likely tank the value and "reimburse" them with a not-so-valuable token.

It's also debatable whether the individual developers targeted by the suit have the authority to fork against the wishes of their community. The question of issuing court orders when there's no authority to issue them to has been a frequent problem for courts involved in cryptocurrency disputes.

The suit also alleges that Nano developers were issuing unlicensed securities, although Nano was arguably just open-source software being provided as is, without any kind of guarantee or implication. It was also initially distributed for free, so it's a stretch to say it was issued as a security.

There's also the question of whether a lawsuit is better directed at the Nano developers or at BitGrail itself. Both parties shifted blame to each other in the aftermath, but it's now widely believed that the fault was on BitGrail's end and that the exchange essentially failed to properly install the Nano software, which left it vulnerable to theft.

The suit says Nano developers chose to make Nano holders "suffer" for their trust rather than hard fork the network, but it seems the majority of Nano holders are directing their ire at BitGrail instead of Nano developers and are largely opposed to a recovery fork.

In fact, a large group of Nano users contacted the Steven Miller law firm, which is making a name for itself in cryptocurrency suits and is now handling this case, to find out whether they could take legal action against BitGrail.

BitGrail also announced a plan to help users recover lost funds, although by accepting the offer, one supposedly waives the right to take legal action against the exchange.

Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VEN, XLM, BTC and NANO.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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