Andrew Yeo doesn’t know what has happened to tens of millions of dollars in cryptocurrencies belonging to hundreds of clients of the collapsed ACX exchange, but his goal is to find out.
In mid-October, the veteran insolvency practitioner was appointed administrator of Blockchain Global, the company that used to run ACX, and has since been taking a crash course on all things crypto from the tech experts at the company where he is a partner, Pitcher Partners. .
“There are always things that are different, you have them in each job,” he says.
“It’s always about finding out what’s different about this industry and how it can be used.”
A cryptocurrency exchange is a digital marketplace that allows clients to buy, sell, and hold cryptocurrencies. Earn money through set fees or by taking a percentage of transactions. No mainstream bank in Australia allows clients to buy and sell cryptocurrencies, although the Commonwealth bank has a pilot project in the works, so exchanges are currently the only means of doing this.
To get to the bottom of what has happened to the cash and coins in ACX client accounts, Yeo will have to navigate a jungle of claims and counterclaims that have been unfolding in court since last year.
“It is clear that there are several channels of investigation that we can have available and determining which are the best to follow first is not an easy task,” he says.
The stakes are high. Since Yeo’s appointment, creditors, including ACX clients and Blockchain Global directors and management, have filed claims owing them close to $ 50 million.
ACX is not the only Australian exchange struggling in what is, for now, a completely unregulated industry.
Last week, the smaller exchange Mycryptowallet also went into administration and reportedly owes clients hundreds of thousands of dollars.
Globally, exchanges have proven vulnerable to failure and theft; Japan’s Mt Gox operation collapsed in 2014 after someone stole 850,000 bitcoins 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 is not suggested that ACX assets have been stolen.
This week, the Morrison government announced plans to regulate the exchanges, at some point in the future.
In a speech Thursday to the Australia-Israel Chamber of Commerce, Treasurer Josh Frydenberg said the government would consult on establishing a licensing system for digital currency exchanges, along with regulating companies that maintain the custody of cryptocurrencies on behalf of clients.
The consultation process should be completed by the middle of next year, after an election to be held before May 21, 2022.
Experts say that the license exchange is a good idea, but it must be supported by the application.
“With regulation comes a halo, companies can say they have a seal of approval and represent that people should have confidence in them,” says Consumer Action Law Center executive director Gerard Brody.
“The regulatory regime itself has to be robust. It is not good to have a license granted to a company if the standards that it must meet under that license are to the detriment of the consumer. “
Pamela Hanrahan, professor of business law and regulation at the University of New South Wales, says that licensing creates a “moral hazard.”
“It has some kind of color that people are properly regulated, but that’s true for all forms of occupational licensing, from barbering to whatever,” she says.
She points to flaws such as the financial planning scandals that rocked the banking industry in the mid-2010s and the 2009 bankruptcy of Trio Capital, which deprived retirement savers of $ 176 million and was the largest retirement collapse in Australian history, as examples of where licenses were granted. the regimes have failed to protect consumers.
“You have to enforce properly,” she says.
The victims of the ACX collapse certainly feel they have been neglected by regulators, including the Australian Securities and Investments Commission.
In a lawsuit filed in Victoria’s supreme court, 94 of them claim that Blockchain Global, as the operator of the exchange, owes them $ 13 million in tokens, including bitcoin, ethereum, and ripple, as well as cash in their ACX accounts.
“What annoys me the most is that we are not getting help from Asic,” says an ACX customer.
“These companies are registered with Asic but … we have to sue the company.”
Not all ACX clients are participating in the lawsuit and it is estimated that there are more than 200 who claim to have lost access to cryptocurrencies and cash on the exchange.
On Thursday afternoon, Judge Richard Attiwill suspended the proceedings 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 CEO Allan Guo and the company’s chief financial officer, Samuel Lee.
Guo and Lee did not respond to Guardian Australia’s questions and have yet to present defenses in the matter.
Meanwhile, in another dispute also before the supreme court of Victoria, Blockchain Global and Guo are fighting a former employee of the company, Jin Chen, for control of 117 bitcoins. Chen claims he is owed the crypto for working on developing the software to run the ACX exchange, but the company and Guo say that Chen failed to honor an agreement that was supposed to end the tumult, because he did not create the source code for the exchange. accessible software. Chen denies it.
On Thursday afternoon, Attiwill also suspended Chen’s claim against the company in light of the manager’s appointment, but allowed the contest between Chen and Guo to continue.
The issues are less clear on the smaller Mycryptowallet, which is held by SV Partners liquidator Terry van der Velde.
SV Partners says little information is available because the appointment is “in the very early stages”, but van der Velde aims to sell the business.
Hanrahan says the collapses make government regulation of exchanges an urgent necessity.
“They need to act reasonably fast,” he says, but not so fast that laws fail in the same way that those covering financial services have.
“It’s one thing to advertise it, but you know, they’re going to have to deliver it and hopefully not make the mess that they did with chapter seven of the Corporation Law. [which regulates financial services],” she says.
Meanwhile, people who buy and sell cryptocurrencies must realize that they “have no inherent value.”
She believes that cryptocurrencies are worse investments than the tulip bulbs that changed hands for fortunes during the tulipmania that gripped the Dutch in the 17th century, an episode in history that is considered a classic example of a speculative bubble.
“At least if you bought a tulip bulb, you can plant it and grow a tulip,” he says.
“These things do nothing.”