Angry customers of failed cryptocurrency Dasset are baffled why market regulators failed to respond to complaints about being blocked from accessing their funds.
“The crypto sector has taken an unknown but very large amount of money from New Zealanders, and there still appears to be very little effective regulation in place,” Punakaiki Fund director Lance Wiggs told the Herald.
“How many times will we see this same story play out before regulators step in and shut it all down?”
Wiggs and other crypto critics will have to pack a lunch.
For now, there are few tools at the disposal of New Zealand’s various market watchdogs if they do decide to go after a rogue player in crypto - which remains an unregulated financial product.
Following several crypto scandals in the US, the Reserve Bank (RBNZ) said in June that it would increase its monitoring of the industry.
However, the central bank stopped short of regulating crypto assets, instead opting for a wait-and-see approach.
The RBNZ said that after an 18-month monitoring period - ending Christmas 2024 - it would work with other regulators to see if crypto warranted closer scrutiny.
In the meantime, Wiggs says it’s easy to feel empathy with foot soldiers at the likes of the Financial Markets Authority (FMA), who he saw “struggling to grapple with the sector”.
And while we wait for full-blooded regulation, experts say the Dasset episode is another reason investors - especially amateurs or “retail investors” - should exercise extreme caution with crypto.
“Anyone with less than a million dollars to play with by trading in crypto is a gambler with no idea what risk is being taken,” Emeritus Professor of Economics at UCLA John Riley told the Herald.
Kiwi ex-pat Riley - a longtime crypto critic - now lives in California but managed to be on hand for Dasset’s final days as he returned to New Zealand to watch his daughter Ali Riley represent her country in the Fifa Women’s World Cup (Ali Riley is also the Football Ferns captain).
Users of Auckland-based Dasset say they complained to the FMA over June and July, but received nothing more than an auto-acknowledgement from the regulator.
Late yesterday, the Auckland-based cryptocurrency platform was placed in voluntary liquidation, following an August 7 shareholder vote.
Dasset’s many users have been unable to withdraw cryptocurrency in New Zealand dollars, or transfer cryptocurrency to wallets hosted by other services. Over June and July, there were multiple complaints of access to accounts being disabled altogether - meaning customers could not even see their balances.
While not subject to day-to-day regulatory scrutiny, Dasset still had to meet some minimum requirements.
The FMA states on its website that “New Zealand-based trading platforms must be registered on the financial service providers register (FSPR) and belong to a dispute resolution scheme”.
But according to the Ministry of Business, Innovation and Employment’s (MBIE) FSPR website, Dasset was deregistered in January this year, only to be re-registered in February. MBIE business registries manager Bolen Ng said the January deregistration was because Dasset had left the disputes regime (see below). It then rejoined and was re-registered.
And on or around July 25, according to emails sighted by the Herald, Dasset had its membership of the Insurance & Financial Services Ombudsman (Ifso) Scheme terminated. It was ejected from the dispute resolution scheme for failing to follow up on multiple Ifso requests to address customer complaints.
Charles Knight, who says he has cryptocurrency worth around $47,000 trapped in his Dasset account, told the Herald: “I think the FMA or other regulatory body should have stepped in once Dasset lost its status as a financial service provider in NZ yet continued to operate as one.”
Neither did there seem to be any immediate ramifications for Dasset losing its dispute resolution membership. (Ifso told the Herald it could not comment, given Dasset was no longer a participant; the FMA said it had nothing to add to Ifso’s comment. The Herald has asked the FMA if it has any updated comment, post-liquidation.) A spokesman for MBIE said the process of deregistering Dasset from the Financial Service Providers Register began on August 9 (as of today, the firm was still showing on the register).
And while Dasset said in a statement on its home page that it was “under the supervision of the Department of Internal Affairs” (DIA), a spokeswoman for the DIA said it only had power over Dasset in terms of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 and “does not regulate or respond to consumer complaints” of the type raised by Dasset customers locked out of their accounts and unable to get any response from the crypto exchange’s helpdesk.
Grant Thornton managing partner Russell Moore, and his colleague David Ruscoe were named Dasset liquidators late yesterday.
Although the request is largely academic, given most or all users had access to their account disabled while Dasset was still in regular trading, the pair asked customers not to make any more deposits. They have also warned they “will not allow any withdrawals until our investigation is complete”.
Moore told the Herald he could not comment further until the first liquidator’s report, which he expected to file on Monday “or sooner”.
Moore and Ruscoe are familiar names in the crypto community. The pair have also been handling the long-running liquidation of Christchurch-based crypto-exchange Cryptopia, where they were appointed shortly after a January 2019 hack. In June this year, they filed their ninth report, with many matters yet to be resolved - and millions recovered, almost exactly balanced by millions in costs over the years.
A number of Dasset customers have expressed the hope that although they have been unable to log on and see their balances for some time, the sanctity of the blockchain - the virtual ledger that underpins cryptocurrency, billed as transparent and tamper-proof by crypto boosters - means their bitcoin and other virtual currency is safe, and will ultimately be recovered by the liquidators.
With Cryptopia, the issue appeared to be that the exchange’s operators were not playing by the rules. Moore and Ruscoe said that while accounts were present to users as individual virtual wallets, behind-the-scenes funds were “co-mingled” - leading to a lengthy untangling process. Matters were complicated by the apparent hack (police have yet to determine what happened with the apparent breach), Game of Thrones-level infighting between the co-founders, and the theft of $250,000 in bitcoin by a Cryptopia staff member (who was convicted in March 2022, in one of the few solid developments in the investigation into the exchange’s collapse).
Dasset customers will be hoping the Auckland exchange’s liquidation proves more straightforward.
At this point, however, only limited information is available about the events in the build-up to the Dasset liquidation, where there are multiple factors in play - including the May bankruptcy of a key US-based partner and the loss of a New Zealand dollar banking partner.
On Monday night, Dasset’s founder, largest shareholder and sole director, Stephen Macaskill, texted the Herald to say his company had called in liquidators. He added: “Dasset has not had stable banking since January. The banks do not like the crypto industry.” He did not respond to follow-up questions. When the Herald visited the central Auckland apartment address he filed with the Companies Office in an August 7 update, the building manager said he had left three months ago.
“Dasset’s management says a significant reduction in asset values and trading levels impacted its ability to trade profitably. It was determined the appointment of liquidators was in the best interests of all stakeholders,” Moore and Ruscoe said in their initial statement on their appointment.
Commerce and Consumer Affairs Minister Duncan Webb told the Herald: “The current crypto-asset marketplace is not a regulated financial product. It’s highly speculative and volatile, and I would reiterate the advice of the Financial Markets Authority - that when it comes to crypto-assets, you should spend only what you can afford to lose.”
The Council of Financial Regulators - made up of the FMA, the Reserve Bank, MBIE and the Commerce Commission - is continuing to consider issues around crypto-assets and crypto-asset service providers and international developments, Webb said.
“I am confident they are monitoring this, and I expect recommendations from them on any measures that should be taken.”
Webb added: “Parliament’s finance and expenditure committee has also been looking at the risks of cryptocurrencies, and I look forward to seeing its report.”
The Herald understands the report could be released as early as next week - but with Parliament soon to rise, any major changes will be a matter for whoever forms the next government.
National Party Commerce spokesman Andrew Bayly said: “Clearly there needs to be more oversight and regulatory clarity. But we neither do we want Kiwis to miss out on the opportunities that cryptocurrency and associated technologies like blockchain can provide.”
Read more on Dasset, including customer stories and unpaid supplier and shareholder comments here.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
Reserve Bank says leaving banks to their own devices hasn't worked.