Representatives from Grant Thornton have published their Liquidator’s Second Report regarding collapsed New Zealand cryptocurrency exchange Cryptopia.
Just prior to its dissolution in May, Cryptopia had over 2.2 million registered users worldwide and 37 employees, Grant Thornton (GT) claims.
Hackers are believed to have stolen $16 million in cryptocurrencies from Cryptopia in a days-long exploit last January.
During the attack, Cryptopia operators reportedly watched powerless as account after account was drained before their eyes.
Because serving very volatile markets can be difficult, especially for a start up, GT auditors say Cryptopia was already on thin ice in the months leading up to the attack:
“The rapid growth of Cryptocurrency in early 2018 meant the Company scaled up to manage the increased level of trading. The Company entered into a number of long term, high cost contracts to provide the infrastructure necessary to trade at this level. Unfortunately trade volumes, from which the Company earned its revenue, reduced significantly through late 2018. Accordingly, the Company then took steps to reduce its expenses to minimise trading losses.”
The hack was a fatal blow, GT writes:
“The reputation damage from this event adversely affected trade volumes and meant the Company was unable to meet its debts as they fell due. It was then decided the appointment of liquidators was in the best interests of customers, staff and other stakeholders.”
The report contains a long list of work done by the liquidators and hourly rates of staff, which range from $150/hr (analyst) to $650/hr (IT specialist).
Work includes legal action taken in the U.S. to, “preserve the Cryptopia information that was stored and hosted on servers of an Arizona based business,” a business that has claimed it is owed $2 million by Cryptopia.
GT auditors travelled to-and-from New Zealand to collect, “assets from this business data centre”:
“This step was vital as it contained the only records of Cryptopia’s customer holdings and certain crypto-assets.”
GT says that the recovery of assets, in this case, is very “complex” and requires the cooperation of third parties.
For instance:
“We have continued to employ certain Cryptopia staff to assist with the collection of tangible and intangible assets. However, the headcount of the Company has significantly reduced and therefore we have vacated the company’s premises for a smaller more cost effective one. We have sold by online auction excess (furniture).”
For work conducted between mid-May 2019 and the end of October, Grant Thornton disbursements total about $823 000, including almost $72 000 in travel costs.
GT’s next statutory report is due May 2020, but the liquidators expect to update stakeholders in February.
GT says Cryptopia had about $1 million on hand when the hack occurred and about $4.5 million in fiat (conventional real-world currencies) already converted.
An additional $5 million in assets has been recovered, for a total of almost $11 million in assets established.
When it was liquidated, Cryptopia had about $3.7 million in outstanding liabilities, the report indicates (the $2 million reportedly owed to the Arizona company is not listed in the second report).
Closing funds on hand are just over $7 million dollars.
With regards to why the process is taking so long, GT explains:
“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.”
Further:
“No detailed reconciliation process between the customer databases and the crypto-assets held in the wallets has ever been completed. At the date of this report the process is well underway but will still take some time to complete. We are working to reconcile the accounts of over 900,000 active customers, many holding multiple crypto-assets, millions of transactions and potentially over 900 different crypto-assets.”