​The liquidation of New Zealand crypto exchange Cryptopia Ltd is Other-Worldly!

by The REJIGIT Blog

February 2024

Cryptopia Ltd was a Christchurch, New Zealand based online Crypto Currency exchange which fell victim to a massive hack on 14 January 2019 resulting in the theft of an estimated US$18 million of crypto assets.

Subsequent to the hack, shareholders of Cryptopia Ltd resolved to appoint David Ruscoe and Russell Moore of Grant Thornton New Zealand Ltd as Liquidators of the Company on 14th May 2019

Cryptopia Ltd is now subject to another hack of sorts, albeit lawful. The liquidation process has to date run up the extraordinary sum of about NZ$30 million in Liquidator’s costs, expenses and fees and the end of the liquidation process is nowhere in sight.

At the time of liquidation Cryptopia Ltd had more than 2.2 million account holders / registered users worldwide and the liquidator reported as at 12 December 2023 that they had assisted more than 99,000 users through their recovery process. It would appear therefore that approximately 2.1 million registered users were missing in action.

Liquidators resolved to subject claimants to “Enhanced Verification” (Source of Wealth) in the event of users having account balances in excess of NZ$100,000. This is part of international Anti Money Laundering and Countering Financing of Terrorism measures and could be reasons why some Cryptopia users have opted not to engage with the Liquidator’s recovery system.

The Liquidators have advised that Cryptopia was holding US$120m of assets at the time of the Jan 2019 hack and it has been suggested by third party observers that the true value of Cryptopia’s holdings at the time of the hacks has been significantly understated.

The Liquidators estimate that Cryptopia lost approximately NZ$30m of their and their clients crypto holdings as a consequence of the two Jan 2019 hacks. The Liquidators also advised that approximately 90% of the total value of all holdings held in trust by Cryptopia are Bitcoin (BTC) and Dogecoin (DOGE). It was also reported that a significant percentage of assets were Etherium & ERC20 Tokens.

As at the date of liquidation 75% of Cryptopia’s crypto currency account data was held on Cryptopia’s own computer servers via cold wallets with back-up data regularly updated to five USB drives each held by five individual Cryptopia employees by way of an additional security measure. 25% of the company’s crypto data was recorded on hot wallets uploaded to an independent data centre, Phoenix NAP in Arizona.

As at June 2023 the Liquidators had burned through NZ$22m of Cryptopia’s realised assets and liquidation costs and expenses were reported to be approaching NZ$30m.

In Sept 2023 the New Zealand High Court granted consent for the Liquidator’s to generate a further NZ$5m by way of disposing of further crypto assets.

Liquidator David Ruscoe’s affidavit dated 31.07.2023 could be required reading for those active in the crypto market who may not be fully aware of the precarious nature of crypto wallet systems. “Reconciling and Gaining Custody of Trust Assets” (Page 4, para 15 – 19). https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/cryptopia/2023/affidavit-of-david-ian-ruscoe-in-support-of-originating-application-1.pdf