$20 447 000 USD

JANUARY 2019

NEW ZEALAND

CRYPTOPIA

DESCRIPTION OF EVENTS

"Cryptopia Ltd (Cryptopia) was a New Zealand cryptocurrency exchange basedin Christchurch. It delivered custodial services and operated as a full-featured spot trading platform for major cryptocurrencies, requiring users first to register their membership by opening an account and making a deposit. On completion of the registration process, Cryptopia would provide users with a positive coin balance in their online account and enable them to trade."

 

"Start trading the world's largest range of cryptocurrencies. Find out why over 2 million users love trading with Cryptopia." "Trading cryptocurrencies has never been easier. Our exchange is simple to use, fast and secure. Deposit, trade or withdraw all major coins, trading pairs and new currencies within minutes. With access to dynamic charts, live coin information, world class service and the world’s largest range of coins, Cryptopia offers users the best global transparent exchange platform to trade cryptocurrencies." "We deliver a high quality service for our users with premier support and fast response times." "Get early access to all the new and innovative coins that are listed on Cryptopia first." "We are ethically run from New Zealand, regulated by New Zealand law and a leading trusted exchange."

 

"While the number of registered users at Cryptopia remained relatively modest from 2014 to 2017, it grew exponentially with the rise in the price of bitcoin and in late [2018] it surpassed 900,000. The business was global with investors in over 230 countries (New Zealand had the 26th largest number of account holders in Cryptopia) and more than 900 different cryptocurrencies traded on the exchange."

 

"At the date of liquidation, it had over 2.2 Million registered users worldwide and employed 37 staff. The rapid growth of Cryptocurrency in early 2018 meant the Company scaled up to manage the increased level of trading. To manage this 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 in an attempt to minimise trading losses."

 

"Private keys of purchased cryptocurrencies would be stored in omnibus accounts held by Cryptopia in virtual self-hosted wallets, in the proportions recorded in the booksof the same exchange. For security reasons, most of the cryptocurrencies were stored off-line in a ‘cold storage unit’ and managed via a separate address using different secret keys from a ‘hot storage unit’ connected to the blockchain network, primarily kept in order to meet the trading requirement each day. This holding structure facilitated the circulation of cryptocurrencies as transfers effected directly on the exchange by crediting and debiting the users’ accounts were instant and never affected by blockchain congestion."

 

"Adam Clark, the exchange’s former founder and programmer, has been building a new crypto exchange." "Assetylene is a top of the line Exchange platform for Crypto-Currency assets like Bitcoin and Monero." "According to his LinkedIn profile, he’s been working on Assetylene since September 2018. So, if you lost your money on Cryptopia, you can try again on Assetylene. I’m sure they’ve got their security issues sorted out by now."

 

"Seeing as Cryptopia did not fully close until May 2019, and Assetylene’s date of founding is listed in the preceding September, it may be that Clark had moved on to this new business well before Cryptopia’s collapse began. However, there’s also reason to believe that Clark set up the new exchange quickly, after Cryptopia’s hack had already occurred." "Assetylene has zero liquidity, is not listed on CoinMarketCap and its about page is empty with no trading data found on the site."

 

"According to Decrypt, Clark said that the new exchange 'Assetylene' was a passion project after he departed Cryptopia in early 2018, due to the new management wanting to take the company in a direction Clark disagreed with."

 

'I left Cryptopia in late 2017 early 2018 due to new management wanting to take the company in a different path I fundamentally disagreed with, so we parted ways and I started working on the core products I wanted in the Crypto space', Clark said.

 

"Adam Clark was not working @Cryptopia_NZ at the time of hack. He have nothing to do with Cryptopia for a long time. I confirm that i branded and designed a logo for Assetylene exchange almost a year ago. So that idea is not new as people are thinking."

 

"However, in the tradition of other crypto exchanges, in January 2019 Cryptopia’s servers were hacked and cryptocurrencies were stolen from its ‘hot digital wallets’ for an estimated value of NZD 30 million." "14th January 2019, the Cryptopia Exchange suffered a security breach which resulted in significant losses. Once identified, the exchange was put into maintenance while we assessed damages." "Cryptopia has notified and is cooperating with the appropriate government agencies, including the NZ Police and High Tech Crimes Unit. Please see their media release below."

 

"And on Jan. 15, New Zealand exchange Cryptopia notified the public of a security breach, and it was later revealed that $16 million in digital currency was lost." "[T]he exchange went offline after publicly reporting a “major security breach,” which likely resulted in a theft of at least $3 million USD. Promising to involve several of the nation’s law enforcement agencies, Cryptopia’s announcement also stated that all of the exchange’s functionality and trading services would be suspended until further notice."

 

"Police were advised late yesterday of an issue involving potential un-authorised transaction activity at the Christchurch based crypto-currency trading company Cryptopia. A significant value of crypto-currency may be involved and Police are taking this very seriously. We are currently talking to the company to gain a further understanding of what has occurred. A dedicated investigation team is being established in Christchurch including specialist police staff with expertise in this area. Police are also liaising with relevant partner agencies in New Zealand and overseas. The investigation is still in its very early stages and police are unable to provide further information tonight. We expect to provide an update tomorrow."

 

"We are also aware of speculation in the online community about what might have occurred. It is too early for us to draw any conclusions and Police will keep an open mind on all possibilities while we gather the information we need. A priority for police is to identify and, if possible, recover missing funds for Cryptopia customers; however there are likely to be many challenges to achieving this. We would also like to make clear that Cryptopia are cooperating fully with the investigation team and a media report that police ‘stormed’ the building today is entirely incorrect."

 

"This is a complex investigation involving the theft of cryptocurrency in an unregulated environment. The stolen cryptocurrency is being actively tracked by Police and specialists worldwide due to the nature of the cryptocurrency blockchains being publicly available. Excellent progress is being made in the investigation and we are working with Cryptopia management plus current and former employees who have been providing valuable assistance. We are working closely with our international partners and cybercrime experts to continue the investigation. Cryptopia’s managers are on site at their Christchurch address and Police are expected to finish at the premises by the end of next week (Friday 15 February)."

 

"The funds were taken from more than 76k different wallets, none of which were smart contracts. The thieves must have gained access to not one private key, but thousands of them. - Elementus" "The New Zealand based platform fell victim to up to US$18 million in lost ECR20 tokens, and was slightly unusual as the theft was conducted in a number of small operations using a number of wallets. Usually, thieves will take the money and try to launder it in one shot, which made the hack notable. However, the small transactions were probably cheap and helped the hacker escape detection."

 

"According to a Chainalysis report issued at the beginning of February 2019, it is likely that this hack and several others were perpetrated by two groups, dubbed “Alpha” and “Beta.” These hackers displayed a sophisticated method of funneling stolen crypto assets into a variety of wallets and exchanging said assets into fiat without leaving a trail that investigators could follow."

 

"We are continuing to work on assessing the impact incurred as a result of the hack in January. Currently, we have calculated that worst case 9.4% of our total holdings was stolen. Please keep an eye on our page for further updates today."

 

"The exchange, as well as Cryptopia’s website, [were] still down in late February. Users have been left largely in the dark as to any updates on the site’s functionality or Cryptopia’s plans to deal with the fallout of this hack."

 

"When the hack was discovered the Company closed the exchange for trading. The Company then decided to reopen the exchange for the trade of certain crypto-assets in March 2019 and continued to trade through to the date of Liquidation. However, trade volumes were insufficient for the Company to meet its debts as they fell due and it was decided the appointment of liquidators was in the best interests of customers, staff and other stakeholders."

 

On February 26th, "We are securing each wallet individually to ensure the exchange is fully secure when we resume trading. We have more updates to come today, please keep an eye on our page."

 

"A former employee from the disgraced New Zealand-based cryptocurrency exchange Cryptopia has pleaded guilty to stealing $176,000 worth of crypto assets and customer data from the platform. According to Stuff.co.nz, the former staffer, which was no named by the court, admitted the crime before Judge Gerard Lynch at the Christchurch District Court on Monday."

 

"The highly publicised hack of Cryptopia’s exchange in January 2019 had a severe impact on the company’s trade. Despite the efforts of management to reduce cost and return the business to profitability, it was decided the appointment of liquidators was in the best interests of customers, staff and other stakeholders."

 

"In May 2019, after an un-successful attempt to resume its operations, Cryptopia’s shareholders resolved toplace the company in liquidation." On May 14th, 2019, "David Ruscoe and Russell Moore from Grant Thornton New Zealand were appointed liquidators of Cryptopia Limited, a New Zealand cryptocurrency exchange based in Christchurch." "The liquidators are focused on securing the assets for the benefit of all stakeholders. While this process and investigations take place, trading on the exchange is suspended."

 

“We realise Cryptopia’s customers will want to have this matter resolved as soon as possible. We will conduct a thorough investigation, working with several different stakeholders including management and shareholders, to find the solution that is in the best interests of customers and stakeholders,” says David Ruscoe. “Given the complexities involved we expect the investigation to take months rather than weeks.”

 

"Cryptopia's assigned liquidator, Grant Thornton, then petitioned the Southern District of New York’s bankruptcy court to seek recognition of this liquidation and protect exchange data stored on servers by a firm in Arizona." "Per a report from Bloomberg, the unnamed firm had terminated its agreement with Cryptopia and was seeking $2 million in compensation for its services. Cryptopia's liquidators secured the bankruptcy order from the Southern District of New York, ensuring that the firm's data are intact through a provisional relief that will last until June 7, 2019."

 

"On Friday 24 May 2019, we filed a petition in the Bankruptcy Court in the Southern District of New York (SDNY) seeking recognition of the New Zealand liquidation in the USA, and we also applied for urgent interim relief. We took these steps to preserve the Cryptopia information that is stored and hosted on servers with an Arizona based business." "The interim order preserves the Cryptopia data, which includes a SQL database containing all account holders’ individual holdings of cryptocurrencies and the account holder contact details. Without this information, reconciling individual holdings with the currencies held by Cryptopia will be impossible."

 

"Our objective is to protect and to preserve those holdings for the benefit of those entitled to them. We are seeking legal advice about our responsibilities in relation to the various currency holdings." "We expect that the process of recovering data and determining how to make distributions to account holders will take some months at least. We understand that this delay will be frustrating for account holders. For that reason, we are working to resolve these issues as soon as reasonably practicable."

 

"We have to establish a claims process and cannot just open up the Cryptopia exchange: the exchange was hacked prior to the liquidation. With the source of the hack still not identified we cannot open up an exchange that has been compromised. We have to complete the reconciliation process: this includes re-establishing coins in a non-hacked environment and then reconciling coin balances to the customer database. With over 900,000 active customers and up to 900 different coins, this is not a quick process. We will likely need to go back to court to seek further directions in respect of the distribution process including AML requirements. As liquidators, we need to follow the laws in New Zealand and cannot just return coins to account holders without completing appropriate KYC procedures."

 

"The Court’s directions indicate repatriation of customer holdings is to be in crypto where possible. We will work through this and seek further directions as required."

 

"We cannot re-open the exchange to return account holders’ coins. The exchange was hacked and the source of the hack is still unknown and is still being investigated by the New Zealand Police. Because of the hack, we have had to re-secure all of the coins in a non-hacked environment prior to undertaking the reconciliation process (which had never been completed before). This is not a quick process but is necessary to ensure that coins are secure and that a further hack does not occur."

 

"Because no detailed reconciliation process between the customer database and the crypto assets held in the exchange’s wallets was ever undertaken, we cannot confirm that account holders' coin balances will match the actual holdings for each coin."

 

"On March 17th[, 2021] an update was provided by the Cryptopia liquidator Grant Thornton to claimants and stakeholders. The update provided clarity on the ongoing claims process for lost funds which began in early December 2020. The update says 960,000 Cryptopia account holders who had positive account balances were notified through email about the start of the claims process."

 

"To date, 57% of those (by value) have responded but Grant Thornton acknowledges there have been issues with the claims registration portal and many related support tickets remain outstanding. It says it will continue to promote claims registration to encourage more account holders to file a claim."

 

"The first step of the claims process is registering account holder’s details. Step 2 will be an identification process, and the once account holders reach the required verification standard, asset returns will begin."

 

"The update states that Grant Thornton has been allowed by NZ courts to convert 80 BTC held by Cryptopia Limited (not its account holders) to “meet the reasonable costs and expenses of and incidental to the protection, preservation, recovery, administration of any cryptocurrency”. At today's prices 80 BTC is worth US$4.60 million."

 

"As of June 2021, over 55,000 users had completed the claims registration step. This was the first step required by former users of the Cryptopia exchange for regaining funds. The process further entails much bureaucratic red tape from the court system in New Zealand."

 

"A former employee has reportedly pleaded guilty to embezzling NZD 245,000 (USD 172,000) worth of cryptocurrencies and stealing customer data from the now-defunct New Zealand-based crypto exchange Cryptopia." "At the time of the transactions, the bitcoin was worth about $235,000."

 

"The hack was noticed after someone told the exchange’s liquidators they had accidentally deposited some bitcoin into an old Cryptopia wallet and requested the funds be returned. After reviewing Cryptopia’s wallets, the liquidators saw 13 bitcoins had been illegally withdrawn from various wallets in a series of transactions, some of which had been laundered via a mixing service. At the time, the laundered bitcoin totalled about NZD 235,000 (USD 165,000). Then the man stole more cryptocurrency, worth about NZD 10,000 (USD 7,000)."

 

“The defendant admitted that he was frustrated with Cryptopia but also motivated by the belief that he could get away with the theft as he thought nobody would ever check the old deposit wallets,” read the summary of facts, as reported by Stuff. "At some point during his employment, the employee made an unauthorised copy of private keys from Cryptopia's numerous wallets and saved it on a USB storage device, taking it home and uploading the information to his own computer."

 

"The ex-employee said he had returned some of the stolen currencies and offered to pay back the remaining amount." "This employee pled guilty to charges in New Zealand courts in July of this year and is expected to be sentenced sometime this month." "The hack was not related to the former employee's charges."

 

"According to a report by local news outlet Stuff, the ex-employee has admitted to two charges: theft by a person in a special relationship, and theft of over NZD 1,000 (USD 700). He will receive his official sentence on October 20. The Christchurch district court has granted the man interim name suppression." "Through his lawyer, Allister Davis, he admitted two charges – theft by a person in a special relationship, and theft of more than $1000. He was convicted and remanded on bail until sentencing on October 20."

 

"The ex-employee reportedly had issues with management about the handling of private keys for many wallets held by the exchange. At one point, the employee made an unauthorized copy of private keys from Cryptopia’s wallets and saved it on an external storage device, transferring the information to his personal computer."

 

"Per a summary of facts from the hearing, this gave him access to tens of thousands of digital wallets and access to over NZD 100 million (USD 70.2 million) worth of different cryptocurrencies."

 

"In October 2021 stage 2 of the claims process was launched to qualifying users. This has been a staged process due to the fact that Cryptopia users are domiciled in 183 different countries. The Liquidators are seeing good progress to date with many account holders registering and verifying their identity. This is step 2 in the previously reported claims process."

 

"We continue to encourage claims registration and continue to send reminder emails to those who are yet to engage. At the date of this report, 78% of users by value have interacted in the claims process in some way."

 

"To support the claims process a dedicated customer support portal has been deployed. To date, the customer support team, via this portal, has supported over 76,000 users through the registration process. We continue to build this team to assist account holders to complete the claims and asset transfer process."

 

"We appreciate that you want to be advised of our progress on the Cryptopia liquidation with our next statutory report due in June 2022 however, we expect to provide an update on legal applications before this date. We will continue to update you as further information comes to hand and provide updates on the claims process. Updates can be found on the Grant Thornton New Zealand website, as well as the social media channels for Grant Thornton and Cryptopia."

After growing to enormous international popularity, Cryptopia was breached in January 2019, and many millions of dollars worth of assets were taken. Although the platform did successfully manage to relaunch, they had not adequately addressed the original problems which caused the hack, and trading was slow. Customers of Cryptopia now face an ongoing and expensive bankruptcy. The process has seen additional hacks and thefts occur throughout.

HOW COULD THIS HAVE BEEN PREVENTED?

Cryptopia failed to secure funds properly. While some sources may indicate that funds were stored offline, others indicate the hot wallets were breached and that multiple employees may have had access. The thing which is most certain is that the use of multi-signature wallets was not widespread. An ex-employee was still able to take funds after the bankruptcy liquidation had started. In addition, users had limited access to validate their fund backing, though this was not the primary problem.

 

Check Our Framework For Safe Secure Exchange Platforms

Upbit Is the Seventh Major Crypto Exchange Hack of 2019 - CoinDesk (Feb 4)
Cryptopia’s Liquidator Claws Back Nearly $5M, But Identifying Crypto Ownership a 'Mammoth Task' - CoinDesk (Feb 7)
Cryptopia Exchange Kept Users' Cryptos in Pooled Wallet: Liquidator - CoinDesk (Feb 7)
100 Crypto Thefts: A Timeline of Hacks, Glitches, Exit Scams, and other Lost Cryptocurrency Incidents (Jan 25)
Most Significant Hacks of 2019 — New Record of Twelve in One Year (Feb 23)
A Look Back on Some of the Most Devastating Crypto Hacks | Fintech Singapore (Feb 27)
Bitcoin Scams and Cryptocurrency Hacks List - BitcoinExchangeGuide.com (Mar 5)
SlowMist Hacked - SlowMist Zone (Jun 26)
Former Cryptopia Employee Pleads Guilty to Stealing $176,000 in Crypto | Finance Magnates (Jul 6)
The 23 exchange hacks of 2019 (Aug 8)
https://www.pymnts.com/cryptocurrency/2019/major-crypto-hacks/ (Dec 12)
Cryptopia liquidators to begin account holder ID process » Brave New Coin (Dec 26)
Cryptopia - Home (Dec 27)
Cryptopia - Contact Us (Dec 27)
Cryptopia update | Grant Thornton New Zealand (Dec 27)
FAQs: Cryptopia liquidation | Grant Thornton New Zealand (Dec 27)
Cryptopia Limited appoints Grant Thornton as liquidators | Grant Thornton New Zealand (Dec 27)
Update for Cryptopia account holders 27 May 2019 | Grant Thornton New Zealand (Dec 27)
https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/first-liquidators-report-31-05-2019.pdf (Dec 27)
Assetylene – Amy Castor (Dec 27)
@whale_alert Twitter (Dec 27)
Assetylene - Overview, Competitors, and Employees | Apollo.io (Dec 27)
Founder of Defunct Cryptopia Launches New Crypto Exchange - Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides (Dec 27)
Cryptopia Calculates That 9.4 Percent of Assets Stolen in January Hack - Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides (Dec 27)
@Cryptopia_NZ Twitter (Dec 27)
@Cryptopia_NZ Twitter (Dec 27)
@Cryptopia_NZ Twitter (Dec 27)
Chainalysis Report: Two Groups Responsible for Most Publicly Reported Hacks - Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides (Dec 27)
Cryptopia Turns to a U.S. Court for Account Holder Data Protection - Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides (Dec 27)
Founder of defunct Cryptopia exchange has already founded a new one - Assetylene. Must be good, it's got a butt in it : Buttcoin (Dec 27)
Collapsed Cryptopia Founder Wants You to Put Funds on His New Exchange - CoinDesk (Dec 27)
Can we trust the new crypto exchange 'Assetylene', by founder of Cryptopia? (Dec 27)
Cryptocurrencies as Property: Ruscoe and Moore v Cryptopia Limited (In Liquidation) [2020] NZHC 728 by Paul T. Babie, David Brown, Ryan Catterwell, Mark Giancaspro :: SSRN (Dec 27)
Cryptopia - Maintenance (Dec 27)
Investigation involving crypto-currency company | New Zealand Police (Dec 27)
Update: Investigation involving cryptocurrency company | New Zealand Police (Dec 27)
Police continue to make progress in cryptocurrency investigation | New Zealand Police (Dec 27)
Cryptopia - Maintenance (Dec 27)
Cryptopia - Home (Dec 27)
Cryptopia - Maintenance (Dec 27)
Ex-employee pleads guilty to stealing over $170,000 from Cryptopia (Dec 27)
Hacked Cryptopia Exchange Moves to Second Stage in Claims Processing - BeInCrypto (Dec 27)
Fraud Complaint Laid (Dec 27)
Investors’ Rights in (Crypto) Custodial Holdings: Ruscoe v Cryptopia Ltd (in Liquidation) - The Modern Law Review : The Modern Law Review (Dec 27)
Ex-Cryptopia Employee Pleads Guilty to Stealing $170K in Crypto (Dec 27)
https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/cryptopia/2020/5.-fourth-affidavit-of-david-ian-ruscoe-sworn-7-february-2020.pdf (Dec 27)
https://www.crunchbase.com/organization/cryptopia (Dec 27)
https://www.currencyconverterx.com/NZD/USD/30000000 (Dec 27)
Cryptopia NZDT exchange temporarily ending due to bank closing account Feb 9 : CryptoCurrency (Oct 13)
2019 In Review: Major Blockchain/Crypto Security Incidents | MyCrypto Blog (Dec 28)

Sources And Further Reading

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