Crypto meltdown: The missing CEO and the investor who lost $5m

In the latest developments around the failed Auckland-based cryptocurrency exchange Dasset, a customer claims its CEO Stephen Macaskill cost him $5m; Macaskill goes missing, leaving liquidators in a bind; MPs talk up self-regulation in a select committee report on crypto; a former director fronts on why he decamped to El Salvador; and the Reserve Bank confirms the ex-director’s role on a virtual currency panel.

The immediate outlook is looking worse for customers and creditors of Dasset, the Auckland-based cryptocurrency exchange placed in liquidation on August 15 with millions in customer funds unaccounted for.

Liquidators Russell Moore and David Ruscoe, both of Grant Thornton, have lost contact with Stephen Macaskill, the chief executive and sole director at the time of Dasset’s collapse. They claim he is the only person with access to all its systems.

“Following initial co-operation from the director, he has not responded to our various requests for information and assistance,” the liquidators said in an August 28 update.

Moore and Ruscoe said they had engaged experts to examine Dasset’s data but, “This process has been complicated as the sole director [Macaskill] appears to be the only person with access to user and asset information.”

Former director and investor Fran Strajnar said Macaskill had stopped taking calls. Various customers had been unable to reach him. Macaskill did not respond to Herald questions, including whether he was still in New Zealand.

In their first report, released six days earlier, the liquidators said at least $6.3 million in cryptocurrency was unaccounted for – the difference between what Dasset customers thought they had in their digital wallets and the digital currency actually on hand (around $600,000 worth). Staff were owed $16,700 in unpaid wages, IRD $203,700 and various unsecured creditors $53,700.

‘Audible gasp’

A shareholder who attended the August 8 meeting – at which all participants were on video – told the Herald it was called after concerns that Macaskill had allegedly not been upfront with his reports to the board (Macaskill has cited technical and banking difficulties).

It was feared there could be a $1m shortfall. “When Stephen said $4m, there was an audible gasp,” the shareholder said. He was further shocked when the liquidators said the figure was at least $6.3m.

Moore and Ruscoe said in their first report that it was uncertain whether any of the missing funds could be recovered. The pair had contacted the Serious Fraud Office, which told the Herald it was making inquiries, and the Financial Markets Authority, which has opened a formal investigation.

Dasset customer Leo D’Ambrosio, who works in the IT industry in Wellington and had $20,000 of cryptocurrency trapped in the exchange, told the Herald he hoped authorities would probe who knew what and when, and the levels of oversight. “I am sceptical about any one person being blamed for this.”

‘I’m in shock’ - customer blames CEO for $5m in losses

Several angry customers approached the Herald in the days leading up to Dasset’s liquidation, saying they had been unable to access their accounts for months, with the company and regulators unresponsive.

They included a mother of two who had her life savings of $40,000 worth of cryptocurrency trapped in the exchange, and a man who lost access to $47,000 after being blocked for more than five months from withdrawing the funds in NZ currency or transferring them to a digital wallet on another exchange.

But it seems one Dasset customer has taken a far larger hit than any others. After the liquidation, he told the Herald he was out of pocket by $5m, including a mix of cryptocurrency and cash from cryptocurrency sales. The $5m allegedly involves “on-exchange” trades and “over-the-counter” (OTC) trades made directly by Macaskill.

“It’s devastating. I’m still in shock. I’ve developed shingles. I can’t sleep,” the man said.

“I’m about to turn 60 and I was going to retire. I was relying on the money to make a final payment on my house.”

Now, retirement is not an option. This week, he is moving in with his in-laws so he can rent out his home.

He said he was a sophisticated investor who spent decades working in investment banking.

About $1m of his missing money involved on-exchange transactions while some $4m was in 15 OTC trades (a cryptocurrency trade that takes place between two parties without the use of an exchange). A former director said OTC trades were made outside Dasset.

Image / Getty Creative

The customer showed the Herald invoices for two of the trades, which Macaskill had sent on Dasset letterhead. Regardless, the customer said he regarded Macaskill and Dasset as synonymous.

He had not been concerned that Macaskill had organised the trades personally. He compared it to instances in investment banking “where you don’t bugger around with paperwork”. (A key difference with investment banking, however, is that crypto is an unregulated financial product.)

The customer showed the Herald an email in which Macaskill said there had been delays transferring funds to an offshore exchange, with swings in cryptocurrency valuations in the meantime causing him to book large losses. The customer was seeking evidence that the OTC trades were actually executed. Macaskill did not respond to requests for comment.

The customer was not concerned that Dasset had a partnership with Seattle-based Bittrex, even though the US exchange filed for Chapter 11 bankruptcy on May 5 this year.

And despite his $5m loss, the customer remained a strong believer in cryptocurrency.

If all the trades had been done by the book, and he had proper access to his account, he would be 30 per cent up, he said.

Banking services pulled

In a text message to the Herald the day before Dasset’s liquidation was announced, Macaskill said: “Dasset has not had stable banking since January. The banks do not like the crypto industry.” He did not respond to follow-up queries.

Dasset’s banking was provided by Crown Capital.

“Crown ended its relationship with Dasset for a number of reasons – chief amongst them is that the banking industry and by extension our own banking partners are not comfortable with servicing these types of businesses,” managing partner Marvin Yee told the Herald.

He added: “I can confirm that we have no knowledge of missing funds during the time Dasset was a client of ours. I don’t want to comment on rumours or other people’s experiences with Dasset. However, I can say that Crown – and others, it would appear – found them very hard to get hold of by phone.”

Several customers the Herald spoke to were relatively sympathetic about Dasset being unable to find a new NZ currency banking provider. But this was eclipsed by their frustration over why they were not able to log on to see their balances and, if necessary, transfer their holdings to another crypto exchange.

Former director fronts on move to El Salvador

Former Dasset director Fran Strajnar told the Herald he had been also unable to contact Macaskill since the liquidation (Strajnar had a 2 per cent personal stake, as well as being a major shareholder in crypto investment firm Techemy, which had a 38 per cent holding in Dasset, making it the second largest shareholder after Macaskill with his 40 per cent stake).

Strajnar spoke from El Salvador, where he moved in May – the same month he resigned from Dasset’s board. He said he has no plans to return to NZ. He had been attracted to El Salvador because of its embrace of cryptocurrency.

The Central American state’s leader, President Nayib Bukele – who at one point dubbed himself “the world’s coolest dictator” in his X (Twitter) bio – made Bitcoin its national currency in 2021.

Sovereign bonds and the economy were booming, Strajnar said, referring the Herald to a bullish note on El Salvador from JP Morgan, as tweeted by Bukele. “Crime is way down and people feel freed – safer than New Zealand.” The Financial Times had a more downbeat take in an April 7, 2023, report: “The prices of its bonds began to tumble in mid-2021, after Bukele did normal dictator-like things, like firing judges and brutal crackdowns.”

The paper noted that, in a turnaround, El Salvador had led Citi’s emerging market sovereign bond index. But it said the comeback was not due to Bukele’s crypto move but a post-pandemic rebound, increased tax compliance and subsidy cuts.

El Salvador has been in the news for the mass arrest of tens of thousands of gang members, raising concerns about President Nayib Bukele's "increasingly autocratic police state". Bukele, who made Bitcoin legal tender in his country in June 2021, once called himself "the world's coolest dictator". Photo / Getty Images

An April 9 New York Times report said that, while crime had fallen with Bukele’s mass arrest of gang members, “that achievement, critics say, has come at an incalculable price: mass arrests that swept up thousands of innocent people, the erosion of civil liberties and the country’s descent into an increasingly autocratic police state”.

Strajnar said he was keen to work with the liquidators, FMA and other authorities from his new home, but so far there had been only perfunctory contact.

He stressed that his shift to El Salvador had nothing to do with issues at Dasset, of which he was unaware when he left. He resigned from the board because he would not have time for his director’s role after his move. He said that, as well as Techemy capital and his personal Dasset stake being wiped out, he had $230,000 invested with Dasset, putting him in the same boat as angry customers.

Reserve Bank reviews crypto panel membership

Strajnar’s adventures in El Salvador could potentially influence where New Zealand’s central bank heads with cryptocurrency.

Last July, Strajnar was named to the Reserve Bank’s Central Bank Digital Currency (CBDC) Forum. The panel was set up last year to investigate whether New Zealand should adopt a virtual currency, which would operate alongside the fiat currency we use today.

“The purpose of the forum is to provide an opportunity for the Reserve Bank to engage key stakeholders and gather input on various user needs, system governance, technology and operational aspects of a CBDC,” RBNZ spokesman James Weir said.

Member input was expected on issues such as the practical challenges associated with designing, implementing and operating a CBDC and privacy and anonymity considerations.

“The forum offers a structured mechanism for obtaining expert views and advice on a potential New Zealand CBDC, but it does not have any decision-making responsibilities.”

The Reserve Bank wouldn’t comment on the Dasset episode, but Weir offered the general comment that: “The forum was established in July 2022 for a 12-month period initially. We are currently reviewing the status of the CBDC Forum and the membership composition is part of the review.”

Strajnar said he was unaware the role was time-limited.

Crypto regulation on the way? Maybe

Several Dasset customers, including D’Ambrosio, were surprised that various references to regulatory oversight on Dasset’s website amounted to few redress options in practice.

The firm promoted that it was on the financial service providers register FSPR, and said on its website that it was “under the supervision of the Department of Internal Affairs”.

But FSPR registration does not mean regulation by an NZ regulator, and the register’s disputes provider (the Insurance & Financial Services Ombudsman Scheme) was powerless to press Dasset users’ complaints about being locked out of their accounts over May, June and July. Dasset was ultimately kicked out of the scheme for ignoring its communications but continued to trade.

The DIA supervision related to compliance with laws around money laundering and financing of counter-terrorism. The DIA “does not regulate or respond to consumer complaints” for cryptocurrency exchanges, a spokeswoman said.

Commerce and Consumer Affairs Minister Duncan Webb, when asked about regulators’ autoreply-only to Dasset customer complaints earlier this year, said: “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.”

National’s commerce spokesman Andrew Bayly said: “Clearly there needs to be more oversight and regulatory clarity. But neither do we want Kiwis to miss out on the opportunities that cryptocurrency and associated technologies like blockchain can provide.”

Both MPs are on Parliament’s finance and expenditure committee, which earlier this month released a report on cryptocurrency.

The report recommended that the Government “adopt policy settings to encourage developments in digital assets and blockchain in New Zealand” and that cryptocurrency and blockchain skills be added to the fast-track immigration list.

It recommended the local crypto exchange industry “develops a best practice code or guidance with minimum standards for the custody of digital assets”.

The report noted: “The Cryptopia hack [where customers of a Christchurch-based cryptocurrency exchange lost $30m in 2019] highlights the lack of investor protection ... because of regulatory gaps.”

It said there should be no primary regulator for digital assets.

Rather, “The Government direct MBIE, in consultation with the FMA and the industry, to use its regulation-making powers to add a defined class of digital assets which are used for investment purposes as a new category of ‘financial advice product’ (but not, to be clear, a new ‘financial product’) to bring them into the regulated financial advice and client money–client property services regimes.”

The report recommended a multi-agency working group develop a policy for digital assets in NZ. How that proceeds will be up to whoever forms the next Government.

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.