Dutch prosecutors raise $2.5 million from Knaken crypto sale, creditors face large losses

Dutch prosecutors have sold cryptocurrency assets seized from Knaken, a collapsed crypto trading platform, generating $2.5 million (€2.2 million) for the company’s creditors. Court-appointed trustee Carl Hamm stated this amount currently represents the only funds in the bankruptcy estate, far short of the $12 million to $14 million customers are estimated to have deposited on the platform.

Collapse of Knaken and Bankruptcy Proceedings

Knaken, based in the Netherlands, enabled users to buy, trade, and hold cryptocurrencies via a dedicated app. The firm operated without a license required by Dutch market regulators and went offline in early June. On July 16, a Rotterdam court formally declared Knaken bankrupt following a request from prosecutors, who argued that the bankruptcy was in the public interest. The affiliated entity, Stichting Knaken Payments, was also included in the proceedings.

Some 30,000 customers were left unable to access their funds after Knaken’s shutdown. Hamm directly informed around 6,300 affected individuals, advising them to manage their expectations regarding the potential recovery of their investments.

Asset Shortfall and Customer Confusion

Hamm explained that a structural gap existed between what customers believed they held and Knaken’s actual crypto reserves. For every €100 a customer invested in Bitcoin, Knaken charged a €1 fee and purchased €99 worth of crypto on their behalf. The legal ownership of these holdings lay with Knaken, not the individual clients, meaning their accounts only represented a claim to the euro value, not the actual coins. Hamm highlighted that Knaken didn’t always maintain sufficient crypto to match customer balances, with operational costs and investments being pooled together.

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Knaken’s trustee indicated that “the sale proceeds are currently the only money in the estate,” and that customers should lower their expectations due to the significant shortfall between deposits and recoverable assets.

The handling of customer claims and asset sales has drawn criticism. A lawyer representing one affected client questioned whether prosecutors had the right to liquidate the seized crypto, comparing the situation to a bankrupt garage selling parked cars and returning nothing to the owners.

Prosecutors have stated that there were compelling reasons for the sale, though they have not disclosed specifics. Local media reported that authorities likely relied on legal provisions allowing the sale of seized goods in danger of losing value. Hamm said he understood the reasoning, noting that “the value of cryptocurrency is completely unpredictable.”

Past Security Issues and Owner’s Defense

Knaken faced significant challenges before its collapse. In 2020, hackers stole 23 BTC from the platform, which was then worth approximately $162,000 (€140,000). Despite these losses, Knaken’s owner Ronald J. continued to seek new customers and sponsored several Dutch football clubs, including Feyenoord, Sparta, Heracles, Heerenveen, and—for a short time—Ajax. One customer indicated that these high-profile partnerships increased his confidence in the platform.

During bankruptcy hearings, it emerged that Ronald J. transferred $2.7 million (€2.3 million) from Knaken to a company he controlled. The court noted this could represent a conflict of interest, while Ronald J. said the funds were allocated for marketing and maintained separate records to show there was no personal gain.

Ronald J. rejected the trustee’s reported investment shortfall, asserting that Knaken operated strictly as a broker, with each customer order executed via a liquidity provider. While he acknowledged a gap existed between investments and available assets, he disputed that money had gone uninvested, calling such suggestions “outright incorrect and damaging.”

Knaken did not report its difficulties to De Nederlandsche Bank, the country’s central bank. The bank confirmed that its oversight at the time only extended to matters of anti-money laundering and terrorist financing, not company solvency.

Mini dictionary: De Nederlandsche Bank is the Dutch central bank, responsible for the nation’s monetary policy and certain aspects of financial regulation, such as anti-money laundering compliance.