<https://www.theguardian.com/technology/2021/dec/12/the-search-is-on-for-50m-in-lost-cryptocurrency-after-two-australian-exchanges-collapse>
Andrew Yeo doesn’t know what’s happened to tens of millions of dollars worth of
cryptocurrency belonging to hundreds of clients of the collapsed exchange ACX,
but he aims to find out.
In mid-October the veteran insolvency practitioner was appointed administrator
of Blockchain Global, the company that used to run ACX, and since then he’s
been getting a crash course in all things crypto from the tech experts at the
firm where he’s a partner, Pitcher Partners.
“There’s always stuff that’s different – you have that on every job,” he says.
“Its always about finding out what’s different about this industry and how you
can use it.”
A cryptocurrency exchange is digital marketplace that enables customers to buy,
sell and hold cryptocurrencies. It makes money through set fees or by taking a
percentage of transactions. No mainstream banks in Australia allow customers to
buy and sell cryptocurrencies, although the Commonwealth bank has a pilot in
the works, so exchanges are currently the only means to do this.
To get to the bottom of what has happened to the cash and coins held in the
accounts of ACX customers, Yeo will need to cut through a jungle of claims and
counter-claims that have been playing out in court since last year.
“It’s clear that there’s a number of channels of investigation which we may
have available and determining which ones are best to follow first is not a
simple task,” he says.
There’s plenty at stake. Since Yeo’s appointment, creditors, including ACX
clients and Blockchain Global’s directors and management, have come forward
with claims they are owed close to $50m.
ACX is not the only Australian exchange to run into trouble in what is – for
now – a completely unregulated industry.
Last week, the smaller exchange Mycryptowallet also fell into administration,
reportedly owing clients hundreds of thousands of dollars.
Globally, exchanges have proven vulnerable to failure and theft; Japanese
operation Mt Gox collapsed in 2014 after someone stole 850,000 bitcoins from it
and in 2016 hackers stole almost 120,000 bitcoins from the British Virgin
Islands group Bitfinex, which managed to survive and still exists today. It’s
not suggested that ACX’s assets have been stolen.
This week, the Morrison government announced plans to regulate exchanges – some
time in the future.
In a speech on Thursday to the Australia-Israel Chamber of Commerce, the
treasurer, Josh Frydenberg, said the government would consult on establishing a
licensing system for digital currency exchanges, together with regulation of
businesses that hold custody of crypto on behalf of customers.
The consultation process is due to be finished by the middle of next year,
after an election that must be held by 21 May 2022.
Experts say licensing exchanges is a good idea, but it needs to be backed up by
enforcement.
“With regulation comes a halo, businesses can say they’ve got a stamp of
approval, and represent that people should have trust and confidence in them,”
says the chief executive of the Consumer Action Law Centre, Gerard Brody.
“The regulatory regime itself has got to be robust. It’s no good having a
licence given to a business if the standards it’s got to meet under that
licence result in consumer detriment.”
Pamela Hanrahan, a professor of commercial law and regulation at the University
of New South Wales, says licensing creates a “moral hazard”.
“It does carry some kind of colour to it that people are properly regulated,
but that’s true of every form of occupational licensing, from hairdressing to
whatever,” she says.
She points to failures such as the financial planning scandals that rocked the
banking industry in the mid-2010s, and the 2009 Trio Capital failure, which
deprived retirement savers of $176m and was the biggest superannuation collapse
in Australian history, as examples of where licensing regimes have failed to
safeguard consumers.
“You do have to enforce it properly,” she says.
Victims of ACX’s collapse certainly feel they’ve been neglected by regulators
including the Australian Securities and Investments Commission.
In a lawsuit filed in the Victorian supreme court, 94 of them claim Blockchain
Global, as operator of the exchange, owes them $13m worth of tokens including
bitcoin, ethereum and ripple, as well as cash held in their ACX accounts.
“The biggest thing I’m angry about is that we’re not getting any help from
Asic,” one ACX client says.
“These companies are registered with Asic but … we have to sue the company.”
Not all of ACX’s clients are participating in the lawsuit and all up there are
estimated to be more than 200 who claim to have lost access to crypto and cash
held at the exchange.
On Thursday afternoon, judge Richard Attiwill stayed the proceeding against
Blockchain Global due to Yeo’s appointment as administrator.
However, he allowed it to continue against the other defendants in the case,
including Blockchain Global chief executive, Allan Guo, and the company’s chief
financial officer, Samuel Lee.
Guo and Lee did not respond to questions from Guardian Australia and they are
yet to file defences in the matter.
Meanwhile, in another dispute also before the Victorian supreme court,
Blockchain Global and Guo are fighting a former company employee, Jin Chen,
over control of 117 bitcoins. Chen claims that he is owed the crypto for work
developing software to run the ACX exchange, but the company and Guo say Chen
has failed to comply with a deal that was supposed to end the stoush, because
he did not make the source code of the software accessible. Chen denies this.
On Thursday afternoon Attiwill also stayed Chen’s claim against the company in
light of the appointment of the administrator, but allowed the contest between
Chen and Guo to go ahead.
The issues are less clear at the smaller Mycryptowallet, which is in the hands
of liquidator Terry van der Velde of SV Partners.
SV Partners says little information is available because the appointment is “at
very early stages” but van der Velde aims to sell the business.
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