Coinbase Refuses to Reimburse Plaintiff for Stolen Bitcoin, Alleges Negligence Suit

Sewell, New Jersey, physician Sydney Tyson maintained a Coinbase account for nearly 10 years, spending roughly $75,000 to accumulate bitcoin and other cryptocurrencies that increased in value to well over $200,000 until his account was hacked July 18, alleged Tyson’s fraud complaint Tuesday (docket 1:23-cv-22066) against Coinbase in U.S. District Court for New Jersey in Camden. The complaint also names “unknown party” John Doe 1 as a co-defendant, alleging he operates under the fictitious name Paul Reed and “has engaged in cybercrime and fraud.”

When Tyson opened his Coinbase account, “he was asked to verify his identity by providing his driver’s license, which he did, and he then created a unique username and password to secure the account,” said the complaint: “Nonetheless, the efforts described supra did not stop the account from being hacked.”

Tyson began receiving a series of “strange” emails from Coinbase July 19, indicating that someone was accessing his account from an IP address located in Kirkland, Washington, “and further asking whether he was trying to contact Coinbase,” said the complaint. Tyson spent days trying unsuccessfully to persuade Coinbase to shut down the account and protect it from hackers, it said.

A July 23 Coinbase email informed Tyson that an unknown actor had transferred $298,500 worth of bitcoin from his account to a digital wallet in two separate transactions, said the complaint. Tyson “never authorized the transfer” of any bitcoin to that “particular wallet,” nor had he permitted anyone “to execute such transfer on his behalf,” it said.

Coinbase “has refused to reverse the illicit transactions,” and has refused to reimburse Tyson for his losses, said the complaint. Cryptocurrencies such as bitcoin use blockchain technology, “which is characterized by a permanent transaction record,” it said. That record is “readily transparent to all users” but identifies those users only by the addresses of their digital wallets, it said.

Tyson is working with a cryptocurrency expert “to track the movement of the stolen cryptocurrency,” said his complaint. As is typically the case with cryptocurrency thefts, bad actors, identified in the complaint as co-defendants John/Jane Does 2-10, have transferred Tyson’s stolen cryptocurrency “to multiple accounts in an effort to obscure the rightful ownership of these assets,” it said.

The complaint alleges common law fraud, unjust enrichment and violations of the Computer Fraud and Abuse Act against the John/Jane Doe co-defendants, plus negligence against Coinbase. It alleges that Coinbase’s “security protocols” were compromised by the John/Jane Doe defendants, and that the unlawful conduct was enabled by “the careless, negligent and reckless conduct” of one or more Coinbase agents or employees. Tyson “is entitled to restitution and such further relief as the court may deem just and proper,” it said.