| VANCOUVER/TORONTO, March 5
VANCOUVER/TORONTO, March 5 Canadian police have
launched an investigation after online bitcoin bank Flexcoin,
which closed its virtual doors this week, said that it had lost
about $600,000 worth of the digital currency in a hacker attack.
The Edmonton, Alberta-based company reported the theft of
896 bitcoins on its website on Monday and said it "does not have
the resources (or) assets ... to come back from this loss." It
blamed the attack on hackers who had targeted its online wallet.
Bitcoins stored in Flexcoin's cold storage facility, which
is basically an offline bank, were not affected by the hack and
will be returned to customers, the company said.
The Edmonton Police Service (EPS) said on Wednesday they
were investigating the issue.
"I can confirm that detectives from the EPS Economic Crimes
Section and Technological Crimes Unit are following up with
Flexcoin, and the matter is currently under investigation," said
police spokesman Chad Orydzuk.
Flexcoin's demise comes close on the heels of the collapse
of Mt. Gox, once the world's dominant bitcoin exchange, which
filed for bankruptcy last week after it said it had lost some
Bitcoin is a digital currency that is bought and sold on a
peer-to-peer network, independent of any central bank or
government. Its value soared last year, and the total worth of
bitcoins minted is now about $7 billion.
Flexcoin had earlier on Wednesday complained that local
authorities were not taking the theft seriously, Tweeting: "My
attempts to file a police report were laughed at, I was advised
#bitcoin is a scam." But it later Tweeted that it had been in
touch with police and would provide more information on
While bitcoins are an unregulated currency, a hacker that
breaks into a computer to steal bitcoins can be charged with
unauthorized access to a computer and mischief to data.
Flexcoin users who lost bitcoins in the hack will likely
have little recourse to recoup their funds, though one option
may be a class action lawsuit like the one being considered
against Mt. Gox, said Stuart Hoegner, a Toronto-based lawyer and
general counsel for the Bitcoin Alliance of Canada.
"Short of a class action, people might find the burden of
pursuing litigation to be something that's not very attractive,"
Another option might be through any potential bankruptcy
proceedings for the company, though the outcome of either
possibility would likely depend on the state of Flexcoin's
books, said Hoegner.
Flexcoin was incorporated in Alberta in 2012 and registered
to a rented mailbox in the city of Edmonton, according to
provincial records. Its sole director and voting shareholder is
James Andrew Gray, who also gave the rented mailbox as his
The corporate data did not include a phone number or other
means of contacting Gray. He did not respond to queries sent to
the Flexcoin Twitter account and the Flexcoin email address or
efforts to reach him through social media.
An online forum posted on BitcoinTalk.org in March 2012 said
Gray bought Flexcoin from U.S. firm Yooter Interactive
Yooter posted a message on its website on Tuesday saying it
had not had any contact with Flexcoin or Gray since the deal
closed and had exited the bitcoin business entirely.
Flexcoin's website directed users who had lost funds to its
terms of service, which state that the company will take every
precaution to defend client bitcoins, but "is not responsible
for insuring any bitcoins stored in the Flexcoin system."
It further states: "You agree to not hold Flexcoin Inc, or
Flexcoin Inc's stakeholders, or Flexcoin Inc's shareholders
liable for any lost bitcoins."
THE WILD WEST
The very public downfalls of Mt. Gox and Flexcoin come as
bitcoin inches ever closer to the mainstream, with major online
retailers like Overstock.com and TigerDirect.com now accepting
the digital currency.
As more investors pile in, there's a strong case to be made
for regulating crypto-currencies and virtual banks, said
Jean-Paul Lam, associate professor of economics at the
University of Waterloo, who said that in Canada, the Office of
the Superintendent of Financial Institutions (OSFI) should step
"I think they will have to step in and try to regulate
either the exchange of bitcoins or put an end to the trading of
bitcoins," he said.
"The only solution to regulate the market is really to go in
and say if you want to be treated like a currency, like a bank,
then you're subject to the same regulations as the financial
institutions of the land."
Canada's government said last month it will toughen rules
targeting money laundering and terrorist financing to keep a
closer eye on the use of bitcoin and other virtual currencies.
(Additional reporting by Louise Egan and Randall Palmer in
Ottawa; Editing by Cynthia Osterman)