A court in Rotterdamn, Netherlands has declared Dutch crypto exchange and brokerage firm Knaken bankrupt this week. In the unfolding exchange collapse scandal, user funds worth EUR 7 million (roughly $8 billion) are deemed missing. For now, Knaken and its associated foundation are facing criminal investigation in Netherlands with the national financial crime investigation service leading the probe.
The Rotterdam-based company founded by entrepreneur Ronald Jonkers in 2017, is reportedly short on funds to repay its users, as per court findings. The platform’s customers have also been found largely unaware of information to help them identify their legal choices.
Key details of Knaken’s rise and fall
Knaken operated as a retail-focused cryptocurrency platform with primary focus on catering to Dutch investors. It offered an array of services including fiat-to-crypto trading, custodial wallet management, andautomated crypto tax reporting.
In 2021, Knaken had regictered with the Dutch Central Bank (DNB), but it was not a full financial license. It essentially made the platform comply with anti money laundering rules.
There is lack of information on if Knaken’s corporate finances were ever audited. So it remains unclear what were its custody practices and safeguards like. The platform also missed a mention in the Authority for the Financial Markets’ (AFM) register of authorized crypto-asset service providers.
Before EU’s July 1 deadline for crypto firms to comply with its comprehensive MiCA laws, Knaken suspiciously went offline in June, as per local reports. Around 30,000 users have remained locked out of the app since — with no access to their funds.
On the basis of preliminary investigation, the Dutch Public Prosecution Service opened a criminal investigation into the missing user funds and filed a bankruptcy petition as well. The court has now ordered that the management of Knaken will have no control of the shut down proceedings.
C.F.W.A. Hamm, a Dutch insolvency lawyer and partner at the Rotterdam-based law firm HerikLegal, is now the court-appointed authority to oversee Knaken Cryptohandel B.V. and Stichting Knaken Payments — entities affliliated to the exchange.
As per reports, Knaken has argued against the court declaring it bankrupt. It proposed an independent verification and fund distribution protocol — which was rejected by the court in favour of appointing Hamm as the trusteee.
Hamm will now work under a supervising judge to protect the 30,000 investors from losing their funds. He will inventory all the remaining comapny assets, cross-reference user claims, and comb company records for internal irregularities and frauds.
The trustee will also have to secure and sell whatever is left of the company property and draft a proposal on how to distribute those funds fairly based on legal priority.
Knaken could never acquire the MiCA license.
More developments in the case are awaited for now. Company founder Jonkers is reportedly cooperating with the ongoing investigation.
Revisiting some collapse catastrophes
When a crypto platform collapses, the road to recovery usually spans several years. The investor community has witnessed the grueling legal battles and the pounding financial impact such instances can have for prolonged periods.
The collapses of FTX and Mt. Gox are among top examples that outline the aftermath of these incidents.
In 2022, the FTX exchange fell due to internal mismanagement, with around $8 billion in customer funds displaced. The FTX Recovery Trust is still in the process of carrying out compensation distribution to the impacted users. Back then BTC was $16,000 — so even customers who got 100 percent reimbursements, ended up facing major losses on their BTC investments. FTX foudner Sam Bankman-Fried is presently serving a 25-year federal prison sentence in Lompoc, California.
In 2014, Tokyo, Japan-based Mt. Gox collapsed after hackers managed to breached a multi-year security loophole on the platform and drained 850,000 Bitcoins worth $450 million at the time. Under a trustee’s oversight, the reimbirsement process for Mt.Gox is still ongoing — 12 years after the incident.
