Liquidation costs to date exceed $23 million for Cryptopia liquidators Grant Thornton chasing down cryptocurrency assets hacked in a 2019 online attack and seeking both to identify Cryptopia customers and to reconcile customer accounts. The High Court has set out rules for customer repayments with a December 2024 deadline for claims.
Based out of Christchurch, Cryptopia Ltd was supposedly a secure custodian for nearly one million account holders from some 180 countries storing hundreds of different cryptocurrencies.
The hack targeted ‘hot wallets’ on Cryptopia’s servers used to meet requests for outgoing cryptocurrency. Currencies stolen were only Bitcoin, or cryptocurrencies readily exchangeable for Bitcoin. Liquidators’ report that nine per cent of Cryptopia’s Bitcoin holdings were stolen. Those responsible have never been identified. Seventeen Cryptopia Bitcoin were later recovered in the United States by the FBI. The true owner could not be identified; this Bitcoin had been put through ‘the mixer.’
Four years into liquidation, Grant Thornton applied to the High Court for directions on distribution of assets held.
They told the court all cryptocurrencies held at date of liquidation had been moved to a secure server and accounts frozen.
Liquidators are separately holding $855,000 on behalf of 12,000 depositors; crypto currencies paid into Cryptopia for safekeeping subsequent to the widely publicised 2019 hack and apparently in ignorance of advice not to make further deposits. Individual depositors are known. These funds are to be returned.
More complicated is allocation of losses between Cryptopia depositors as at date of the hack.
The High Court ruled each type of cryptocurrency on the books is to be treated as a separate class. Depositors for each currency prove against Cryptopia holdings of that crypto asset. Liquidators can ignore low account balances where nominal value due for repayment is less than that account holders share of liquidation costs. They are to be written off.
The High Court approved a ‘soft cut-off date’ and a ‘hard cut-off date.’
Grant Thornton has set up a claims portal to interact with account holders. Some 25 per cent are based in the United States.
Liquidators told the High Court that as at November 2023, over eighty per cent of account holders had opened their email advising of the portal. Only thirteen per cent had completed the registration and identification process. Liquidators said this low response rate was typical of overseas cryptocurrency frauds. Account holders may suspect the process is an ‘exit scam’ seeking to steal more money, or may have been hiding illicit proceeds from money-laundering or fraud, or have already written off any claim as not worth pursuing.
The proposed ’soft-cut off’ date is 90 days from the date liquidators email account holders advising claims procedure is closing. This provides a window within which account holders are told what is the liquidators’ assessment of funds held on their behalf. Account holders can challenge this calculation, providing evidence to the contrary.
The ‘hard cut-off’ date is 31 December 2024. Account holders who have not engaged with the liquidators by this date are presumed to have abandoned any claim. Account holders with valid claims will then be paid out.
After deduction of liquidators’ costs from each class of cryptocurrency, the crypto assets held by the liquidator will be returned pro-rata to account holders in that class. There may be instances where there is a surplus; a lack of claims in one cryptocurrency class might mean there are enough crypto assets to achieve a full return to those account holders who do claim, with cryptocurrency left over.
Liquidators told the High Court there are complications in making in specie cryptocurrency distributions to account holders in some countries. They identified ten countries, including China and Vietnam, where it is illegal to deal in cryptocurrencies. Liquidators said Cryptopia has some 1,100 account holders in these ten countries with holdings between them valued in excess of USD two million. The High Court approved payment to these account holders in cash, following sale of their cryptocurrency holding.
The High Court signalled liquidators can return to court after their distribution to customers to decide how any surplus might be distributed.
Still standing in line are Cryptopia’s unsecured trade creditors, currently owed $2.9 million. Cryptocurrency account holders not repaid in full will probably join them.
re Cryptopia Ltd (in liquidation) – High Court (1.03.24)
24.066