COMPANIES IN RECEIVERSHIP AND LIQUIDATION

Update for Cryptopia account holders 25 October 2019

Since our last update we have made further progress towards securing and preserving Cryptopia crypto-asset holdings for the benefit of those entitled to them. Below is an outline of the progress we have made since our last update on 20 August 2019.

Legal directions

We applied to the High Court of New Zealand for directions and to ask the Court to appoint two Queen’s Counsel.

We are seeking directions regarding the legal status of customers’ holdings and the ability to hold Cryptocurrency on trust.

The Court has approved the Queen’s Counsel appointment. See the link below:

1. Court Orders as to Representation and Service [ 811 kb ]

This should be read in conjunction with the following documents;

2. Notice to Creditors Re Application [ 119 kb ]

3. Originating application with hearing date [ 884 kb ]

4. Affidavit of David Ian Ruscoe [ 4414 kb ]

5. Interlocutory application [ 1811 kb ]

6. Memorandum of counsel [ 740 kb ]

Reconciliation process

Our previous update mentioned the process to determine customer holdings.

We appreciate that customers wonder why it is taking so long for us to determine customer holdings. There are two main reasons for the time and complexity of the process:

  1. Customers did not have individual wallets and it is impossible to determine individual ownership using just the keys in the wallets. While Cryptopia held details of customer holdings and reported these on the Exchange, the crypto-assets themselves were pooled (co-mingled) in coin wallets. As a centralised exchange, customers' trades would occur in the exchange's internal ledger without confirmation on the blockchain.
  2. No detailed reconciliation process between the customer databases and the crypto-assets held in the wallets has ever been completed.

This process is well underway and will still take some time to complete. We are working to reconcile the accounts of over 900,000 customers, many holding multiple crypto-assets, millions of transactions and over 400 different crypto-assets.

We have split the reconciliation process into three main phases:

  1. Securing assets and company data – We have recovered assets from Phoenix and have secured company data.
  1. Wallet environment and customer reconciliation – Due to the January 2019 security compromise it was necessary to rebuild the full wallet environment. This was done to ensure no leftover malicious code from the January hack would corrupt the new environment. This recompiling is not a straightforward process, as over 900 different assets were supported by Cryptopia at one time or another.
  2. Identifying users and repatriation of returns - This phase is at an early stage. A number of legal matters need to be resolved before this phase can progress.

Hacked assets

We continue to work with the New Zealand Police and international authorities as they work to determine the source of the January 2019 hack.

We are not investigating the root cause of the hack. Our obligation is to seek recoveries for stakeholders’ benefit. .We have therefore undertaken work scoping potential actions to trace and or freeze stolen crypto-assets. This is a complex situation with cooperation needed from third parties.

Sale of surplus plant and equipment

We have sold by auction excess desks, computer equipment, furniture and other items that are not required for the continued operations. This is a standard liquidation procedure.

Coin developers meetings

Over the past month we have held a number of webinars with affected coin developers, in order to better engage with the developer community, provide an overview of the liquidation process and allow the developers to raise any issues or concerns they have. So far we have received positive feedback on these sessions and we plan to hold further webinars.

What happens next

While our reconciliation process is progressing well, we still require direction from the New Zealand courts before we can return crypto-assets to customers. The information outlining the legal process included in the last communication is still current and is set out below.

We continue to liaise with our legal advisors about the legal status of crypto-assets, the legal relationship between Cryptopia and its customers, and to determine how crypto-assets could be returned to customers.

We have certain legal requirements and obligations in New Zealand and internationally that liquidators must meet, such as Anti Money Laundering/Know Your Client (AML/KYC) requirements when considering any repayment or return of assets.

The KYC process cannot be avoided, as it is a legal requirement in New Zealand. Before returning crypto-assets we will correspond with customers about how this process will be completed. Please note, customers who have previously completed the KYC process with Cryptopia will still need to go through the process set by us.

Anyone who did not complete KYC while the exchange was open will also be given the opportunity to confirm their identity.

Where to go for updates

We appreciate that you want to be advised of our progress on the Cryptopia liquidation. We will continue to update you as further information comes to hand. Updates can be found on the Grant Thornton New Zealand and Cryptopia websites and their respective social media channels.

The next statutory report is due in early December and we will provide a formal update on the liquidation progress via this report.