Cryptopia liquidators win right to sell another $5m worth of Bitcoin

Cryptopia founders Adam Clark and Rob Dawson.

The liquidators of Cryptopia, which collapsed in 2019, have won a High Court application to sell another $5 million worth of cryptocurrency.

Funds from the sale will go to paying their “reasonable costs and expenses”, running at some $350,000 per month, for at least another year - with no end in sight, and no indication when customers and unsecured creditors might see a payout.

Cryptopia was allegedly hacked in January 2019, leading to the loss of some $30m worth of cryptocurrency held on the exchange - or about 15 per cent of its customers’ total holdings. The apparent hack remains the subject of an open police investigation.

The exchange briefly reopened in March 2019, but its reputation was shot. Grant Thornton’s Russell Moore and David Ruscoe were appointed liquidators in May of the same year.

While only a relatively small percentage of the money held in customers’ digital wallets disappeared in the apparent hack, the liquidators found a tangle. Behind the scenes, funds were “co-mingled”. A multi-year effort began to establish the balances for some 960,000 Cryptopia customers across 180 countries, whose accounts held some 370 different cryptocurrencies.

Expenses now $22.1m

The liquidator’s ninth six-monthly report, released in June this year, records some $22.1m in expenses incurred so far, including $6.25m in liquidators fees, more than $5m in employee and server costs to keep Cryptopia’s systems running, $3.78m for setting up and running a customer claims portal (that has so far fielded more than 94,000 queries) and $3.58m in legal expenses (numerous trips to the High Court have included a 2020 case that resulted in a landmark ruling that cryptocurrency must be recognised as property, giving a degree of shape to what remains an unregulated financial product. There was also a criminal case - unrelated to the alleged $30m hack - that saw former Cryptopia employee Michael Glaser sentenced to nine months’ home detention for the theft of $250,000 worth of Bitcoin from the exchange, where he was in charge of security for customers’ digital wallets.).

Fourth sale

This was the fourth time that the liquidators had turned to Cryptopia’s well.

In May 2019, the High Court gave them permission to sell 334 Bitcoin. The sale yielded $4.43m. In February 2021, the liquidators were able to sell 80 Bitcoin (by that time, the cryptocurrency had surged to more than US$45,000 per coin, meaning the sale would have brought in around $5m). And in February 2022, the liquidators also gained court permission to sell up to $5m of cryptocurrency.

In his ruling issued this morning, Justice Matthew Palmer accepted that reconciling coins to Cryptopia customer accounts has been “a highly complex and technical process”.

That process grinds on.

Today’s judgment says 40,000 account holders “have completed identity verification and have been invited to accept their account balances, to confirm that Cryptopia’s reconciled database records were correct”.

Others have yet to come forward, despite the creation of a customer portal and some 70 email campaigns to date.

So far only “approximately 24 per cent of Cryptopia’s BTC [Bitcoin] holdings and 34 per cent of its DOGE [Dogecoin] holdings have been claimed by account holders”, according to today’s judgment.

When will customers finally see funds?

When could Cryptopia customers finally see some of their funds, and how much is in the kitty?

The September 6 judgment says: “The current value of the company’s assets is being kept confidential for commercial reasons, [but] the liquidators advise that the total costs they have incurred to date remain a very low percentage of the value of the total funds under management.” (Early reports used a $170m figure, but beyond the currency sold to fund the liquidation, the value of the hundreds of cryptocurrencies involved has gyrated wildly.)

A High Court application by the liquidators for a distribution allocation says the final cut-off date for account holders to register their interest will be December 31, 2024.

A date for a full hearing on the distribution allocation has yet to be set.

Beyond Cryptopia customers, unsecured creditors are owed $2.99m.

“At this stage, it is unclear if there will be any funds available to pay out the unsecured creditors,” Moore and Ruscoe said in their ninth report.

(There were two preferential creditors - staff and Inland Revenue. Claims from employees totalling $312,000 were paid in November 2019. IRD was auditing Cryptopia at the time of its liquidation. The audit is ongoing.)

No end in sight

This morning, the Herald asked Moore if he had a feel for when the Cryptopia liquidation would finally wrap up.

He said he could not comment beyond what he and Ruscoe said in their public reports. The latest, in June, ended with the line:

“At this stage it is not practicable to estimate a completion date for the liquidation.”

Meanwhile, Roscue and Moore have become something of a go-to for local crypto collapses.

On August 15, they were appointed liquidators for Auckland-based cryptocurrency exchange Dasset - where they are liaising with the Financial Markets Authority and the Serious Fraud Office on the initial phases of their investigation.

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.