What to know:
- Knaken crypto exchange declared bankrupt after investigators found a €7 million shortfall in customer funds.
- Rotterdam Court ruled customers were unaware because platform access restricted account balances.
- The court rejected Knaken’s request for an orderly wind-down, citing insufficient assets to repay creditors.
Knaken, a Dutch cryptocurrency exchange, has filed for bankruptcy after a court in Rotterdam declared that the firm could not repay an enormous amount of funds to its customers. This comes after an investigation by the prosecutors found that about €7 million worth of customers’ funds were missing.
The court says that the prosecutors received a warning regarding the very worrying situation at the exchange in late June. It was discovered from the investigation that Knaken was experiencing a lack of client funds, but did not inform the clients of the problem.
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Knaken Bankruptcy Approved by Dutch Court
According to the Rotterdam Court, the clients could not have had any idea about the shortage of funds due to the fact that access to the trading platform was restricted. Therefore, clients couldn’t see their balance and the condition of the company.
According to Knaken, bankruptcy would not be the optimal choice, and he urged the court to let the firm wind up its affairs in an orderly manner. It also suggested that the firm should distribute its remaining resources amongst its customers rather than opting for bankruptcy.
Nevertheless, the court dismissed those arguments. The court felt that there were insufficient assets in the exchange to satisfy all creditors, and the best course of action was to declare bankruptcy.
Knaken Grew Quickly During the Crypto Boom
Knaken was formed in 2017 in Rotterdam, describing itself as an easy-to-use cryptocurrency broker for individual customers. The platform operated various types of cryptocurrencies, and its customer base kept growing amid the fast-growing crypto industry.
While Knaken was growing, the number of employees increased to 45 people, and the company made huge investments in marketing activities. Knaken also entered into sponsorship deals with some Eredivisie football teams from the Netherlands.
Customer Fund Concerns Take Center Stage
This bankruptcy will mark an about-turn for the formerly thriving exchange platform. Given the prosecutor’s claims that around €7 million worth of money belonging to the customers of the company is unaccounted for, it is expected that all attention will be focused on the bankruptcy proceedings and investigation into the matter.
This example is only one among many cases where cryptocurrency companies experienced difficulties with their finances because of the lack of proper asset protection.
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