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Margin lenders in Poloniex cryptocurrency exchange lost around $13.5 million after a price crash in May, the exchange has revealed in a blog post.

On May 26, the price of CLAM had a flash crash, losing more than two thirds of its value in a day. This caused a number of margin loans to default, the exchange explained on its blog post. The result was a generalized loss of 1,800 SegWitCoin (BTC) in the Poloniex BTC margin lending pool.

The losses affected 0.4% of all Poloniex users. These lenders will see the reduction in their accounts once they log in to the platform. Consequently, the principal of all active BTC loans was reduced by 16.202%. The exchange also froze the accounts of all the defaulters and will only reactivate them once they repay their loans.

Poloniex attributed the losses to several reasons, the first of which was the low liquidity in the CLAM market. This “made it impossible for all of the automatic liquidations of CLAM margin positions to process as they normally would in a liquid market.”

The exchange further explained: “In addition, a significant amount of the total loan value was collateralized in CLAM, so both the borrowers’ positions and their collateral lost most of their value simultaneously. As a result, some borrowers were unable to repay their loans with the digital assets they held on Poloniex.”

Poloniex assured its margin lenders that it was pursuing the defaulted borrowers to ensure they repay what they owe. As soon as it recovers the funds, it will refund the lenders. It’s also exploring other ways to help offset the losses, it stated but declined from giving any further details.

Moving forward, Poloniex will implement some measures meant to protect its margin lenders from such losses, the exchange pledged. The first will be the removal of margin trading for markets that it considers to have insufficient liquidity. These are CLAM, Bitshares, Factom and MaidSafeCoin. These markets will be reinstated if their liquidity is deemed sufficient in the future.

The exchange will also put in additional risk monitoring measures to protect the margin lenders.

As Poloniex works to refund the lenders, its methods have come under question. According to David Silver, an attorney specializing in securities law, by socializing the losses, Poloniex was “begging for a lawsuit.” Silver told The Block that it was highly unlikely that any court would allow any crypto exchange to take such an action, whether or not it had included such a provision on its terms of service. The Block also revealed that its sources have indicated that BTC lenders at Poloniex intend to take legal action.

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