CHICAGO (CN) – The website Coinabul.com made millions of dollars by offering to sell gold for bitcoins, but failing to ship the gold, according to a federal class action.
Lead plaintiff Yazan Hussein sued Coinabul and its CEO Jason Shore on July 25.
“Defendants run an online marketplace called ‘Coinabul’ where consumers may exchange ‘bitcoins’ – a new form of digital currency – for physical denominations of silver or gold. Unfortunately, rather then delivering the metals promised to their customers, defendants chose to capitalize on the lack of effective regulatory oversight in this burgeoning industry, and instead defrauded their customers out of millions of dollars worth of bitcoins,” the lawsuit states.
Bitcoin is a digital currency, not issued or regulated by any government, that can be traded or used to purchase goods or services anonymously.
Coinabul claimed to be the “World’s first Bitcoin-to-Gold resource available to the Bitcoin marketplace.” It is a Wyoming LLC, allegedly based in Cheyenne, but actually is operated from California, without being registered to do business there, according to the lawsuit. Shore lives in California.
“Unfortunately, while defendants continued to readily accept Bitcoin from consumers, defendants stopped shipping the promised gold or silver in return. As a result, defendants unlawfully misappropriated millions of dollars worth of their customers’ bitcoins,” according to the complaint.
Unlike credit card transactions, bitcoin transactions are anonymous. They are final, and cannot be reversed.
Coinabul stopped honoring its sales in June 2013, but continued accepting Bitcoins, even when it had no metal in its inventory, until April 2014, the complaint states.
Hussein claims he transferred 1,644.54 bitcoins to Coinabul last year, but did not receive the gold he ordered, even after he provided the company with his personal information, including his Social Security number, which Coinabul claimed it needed to comply with money laundering laws.
Two major Bitcoin exchanges collapsed in February this year, leading some commentators to speculate that the currency would not survive.
The price of the crypto-currency is highly volatile, and topped $1,000 in November 2013. It’s now at about $590.
Hussein seeks class certification, restitution, rescission, and damages for fraud unjust enrichment and breach of contract.
He is represented by Benjamin Thomassen with Edelson PC in Chicago.
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