Class Action Against Liquidator
Updated: Dec 5, 2020
Hey everyone. We have been a little quiet on detail for a while, the reason for this is we have been waiting for the liquidator to agree to a passive and collaborative approach to sorting account holders claims.
The Cryptopia Rescue proposal offers a credible exchange (bitcoin.com) prepared to host all 859 coins that had been previously listed on the Cryptopia exchange (with a couple of exceptions), audit of the process including transfer of the coins by PWC’s leading blockchain audit team in Europe, a cost effective resolution by using a single power of attorney point of contact, credible 3rd party cost effective KYC and AML systems and most importantly for the liquidator indemnity from any civil proceedings by Cryptopia Rescue participants. (our thinking around this was that sometimes it is better to pick your battles, in this case get people settled and then move on) On Thursday Grant Thornton rejected any offer to work collaboratively.
Grant Thornton rejection of our offer doesn’t change anything from our end, in fact as you will see from the action plan below it is probably significantly better for account holders.
Events leading up to todays Grant Thornton announcement.
As many of you will recall when the liquidator took action to get clarity on whether account holders were secured or unsecured creditors, he worded the announcement implying anyone who wanted to be heard could apply to be joined and heard in the proceedings.
At that time I spent around $14,000 with leading lawyer Mai Chen working through the process to be joined. In our opinion the proceedings looked like a set up with Jenny Cooper QC, being the leading Financial Markets lawyer in the country, representing the side that account holders were unsecured. Then Peter Watts QC, a long time academic lecturer of law at Auckland University, representing that account holders were secured and should get their coins back.
We started off by discussing with Peter Watts QC the proposal of working with him to assist because as much as he is brilliant on the technicality of the law, he had next to no facts on the actual operation of Cryptopia, no ability to communicate with account holders to obtain their story on what had happened, what had been offered, what communications there had been or anything to do with the day to day realities of being an account holder dealing with Cryptopia. This sort of evidence is really critical in legal case, it is facts over law.
A week after Peter Watts QC advised us it was probably a good idea, he completely changed his tune and denied working together.
I had exhausted my budget at that time and so I proceeded to apply to join without Mai help. The liquidator was very quick to file a submission opposing my application to join, the main basis of their opposition was attacking my credibility (interesting because as I responded in my submission at the time the issues I had had with the New Zealand Securities Commission were because of business decisions my company at the time had made based on the legal advice from the same law firm the liquidator now uses) and legal technicalities to do with the application.
Jenny Cooper QC then opposed, her submission was 2 paragraphs basically supporting the liquidators position.
Finally Peter Watts QC also opposed. To his credit he used 4 or 5 pages to explain his reasons and to address the issues I had raised in my application to join. The main issue was that there were no facts on behalf of account holders being presented. Peter Watts QC response was effectively to say that he was not representing account holders, and that for him to do that could be conflicting, and so he was representing a legal argument which was effectively the concept of being an account holder.
So when you thought you were being represented in the proceedings, the fact is you were mislead. Mislead because Peter Watts QC was representing the concept of being you, not the reality of you. Also mislead to believe as a lay person you could apply to be heard, the reality was that anyone that actually took up that nice offer of the liquidator was going to be opposed.
The court finally ruled that I could not be heard because of a technicality in the High Court rules.
Despite this I sat in through most of the 4 days of the hearing which was quite interesting. Peter Watts QC presented very articulately as expected, Jenny Cooper QC was surprisingly less compelling, probably because it was pretty clear what the outcome should have been.
The liquidator opened the proceedings basically outlining the purpose for the proceedings. Following this Jenny and Peter presented their submissions. At the end of the trial the Judge advised he would reserve his decision and that it could be several weeks (I think possibly 8) because he had another major trial starting very shortly.
A week or two later New Zealand went into full lock down because of covid and so everyone was required to stay home or work from home. This obviously gave the judge good time to complete his decision and so a couple of weeks into lockdown and his order was released. The order was in favour of account holders, stating that they are secured and entitled to their coins back. More importantly was that coins were held in a trust structure.
To date not much has been said about the trust structure and the issues that creates for the liquidation. The liquidator elected not to appeal the decision, possibly because his ability to sell off assets under a trust liquidation are fairly similar to the law under a company liquidation, so his ability to milk it are much the same.
Once the order came out, I wrote to the court and requested copy of some e-files that were referred to in one of the affidavits provided by the liquidator to the court. The grounds I provided to the court were that the liquidator had made his affidavits public documents by posting them on his website and the only reason given for the e-files being provided electronically was because of the size of them. In the documents I have seen and in the oral submissions to the Judge, to my recollection, no application was made by the liquidator to the court that these e-files were confidential in any way.
The High Court officer took about a week to finally respond because she advised she needed to get sign off from her supervisor. Her supervisor had agreed the files could be sent to me and so I provided a flash drive and about a week later I received the e-files from the High Court.
To my absolute astonishment one of the files was an unsecured spreadsheet which was the entire database of account holders who the liquidator claimed still had coin holdings, it included user names, email addresses, details of each account holders coin holdings, details of each account holders transactions and estimated value of each account holders coin holdings, plus a lot of other information.
I copied the data on to my laptop and sent the flash drive to one of the technical team who has been involved in the systems preparing for KYC and the transfer of coins to bitcoin.com once we get to that stage. The thinking of that was certain data would be used to confirm identity and rights to claim against the liquidator.
For the period I had the information I helped people with limited information regarding what the liquidator claimed they had. I believe I was careful to ensure I received enough information from people asking so I could verify who they were against the data I had received.
During this whole period the liquidator tried to discredit me again with statements saying anyone claiming to have account information was not credible and to be aware of scams. I am yet to get an apology.
Around 3 or 4 weeks ago I received a phone call from the High Court. The person advised they thought the files they had sent me they weren’t supposed to have sent to me and would I mind deleting them. I questioned why they thought they weren’t supposed to send them and they responded to say that they thought I had applied for them under rule 9 and I should have applied under rule 11. That if I wanted to I could reapply under rule 11. Whatever all that means!!!
My position was that ethically I wouldn’t use the information for marketing or anything like that. The information was useful for helping account holders but that was soon to be potentially sorted with tech team in Europe that had the flash drive. So I agreed to delete the files I had received and I deleted them that same day.
That day the High Court emailed me confirming I had agreed to delete the files. They CCed the liquidator and the liquidators lawyer which caused all hell to break lose.
The liquidators lawyer emailed to say this will need to go back before the court, to which I requested to be heard. He then opposed me being heard. He was pointing the blame at the court for releasing the files, something I have my own opinion on which is that the court followed a procedure before releasing the files, and that if the liquidator was so concerned about the security of these documents a few key things.
1. Anyone with any basic technical knowledge would never provide this sort of data in an unsecured format.
2. There are a host of other formats and options available to be able to provide the same information, exclusively to specific people.
3. There was no application made by the liquidator at the time to ensure the security of these files.
4. This liquidation is the largest tech company liquidation, to my knowledge, in New Zealand history. It involves a hack, which is probably the largest dollar value theft in New Zealand history. It has nearly 1 million creditors. And the liquidator doesn’t have the technical knowledge or the legal advice to ensure security of personal data.
‘Professional Negligence comes to mind’
The following day I was served with an order of the court. I had not been given an opportunity to be heard and the High Court of New Zealand had been convinced by the liquidators lawyer to make an order against me.
The order required me to file an affidavit advising what I had received, who I had given it to, that I had deleted the information, and to hand over my laptop to the court appointed forensic IT specialist to analyse my computer. All of this by 3pm 2 days later.
I filed my affidavit within time, but received no advice of who was appointed to analyse my computer. The following week the lawyer was threatening me with contempt of court to which I responded that I had received no notification of any such IT specialist.
What evolved is that Deloittes were appointed to analyse my computer. I raised question as to conflict of interest as we had started discussions with Deloittes regarding a future possibility of getting enough support to remove Grant Thornton and appointing a liquidator with the technical competence. Also New Zealand is a small country, Buddle Findley law firm is a reasonable size firm and it is unlikely they have not represented Deloittes at some stage.
I questioned Deloittes as I wanted to know who from Deloittes would have access to my laptop and what their procedure was. They advised they would take two copies of my entire hard drive and one would be archived and the other would go to their lab. When I questioned if the liquidator would get copy they tentatively said no, BUT that if the court ordered that he could have copy they would have to comply.
So even though I had deleted the files the risk for me was they could still obtain copy of my entire computer. I sort advice from a tech specialist and was advised the only 100% sure way to ensure the files were deleted was to format my hard drive. So I formatted my hard drive before handing my computer to Deloittes. Fair to say the liquidators lawyer is not happy.
Interesting now is the liquidator has done little or nothing about the original flash drive sent to Europe. No mention of it in his latest announcement either.
On Wednesday the solicitor for Accendos (the power of attorney for those registered) wrote to the liquidator again advising that we would like a response to our offer to work collaboratively by 3pm today (Friday). Yesterday he responded to say he declined the invitation to engage.
Expecting a response one way or the other I posted on the Facebook group advising big news Friday. The liquidator took the bait and of course today he makes an announcement. At some stage I will work through his announcement and report back my thoughts to everyone.
For now though, the next exciting steps.
Our move forward plan now is as follows.
Next week we will launch the request for information strategy.
Under New Zealand law we can make requests on behalf of the registered users for all personal information held by an entity, company or Government department. These requests are under the Official Information Act or the Privacy Act.
Technical team have just about finished the systems to enable account holders to register, pay €6, appoint Accendos (a New Zealand registered company as power of attorney) and request copy of all information held by the organizations on your behalf.
The great thing now is Grant Thornton, Deloittes and the High Court of New Zealand will all receive the request as they all have the leaked individual information.
In addition Grant Thornton will be requested to provide all detailed information, including transaction statements from the beginning of everyones account opening.
This facility will also be available for the 1.4 million other Cryptopia account holders who don’t have coins in their accounts, but require their statements for person accounting reasons.
The other thing about the breach of privacy, we believe the costs to these organisations to provide the leaked data can not be claimed as a cost against the liquidation.
The second part of this is what is looking like the first of many potential class actions against the liquidator and possibly their advisors.
Solicitors are still working through the claim options. The obvious one is a breach of privacy laws. In New Zealand the justice department are immune from claim. That possibly explains why the liquidators solicitor was quick to blame the court for the breach. It is not as clear as that and so legal experts are looking at whether the liquidator breached account holders privacy by making the affidavits public and not taking any steps to secure the e-files provided to the court.
It is not a black or white area when it comes to whether documents in court are public or private so the legality is complex.
We believe class actions of privacy breaches are not possible in New Zealand as each individual is dealt with on their own merits. So this is something we are still working through.
We have had several discussions with the Privacy Commission in New Zealand and they have pointed us to several information resources.
Before the new legislation that’s about to be adopted the penalties for breach of privacy are indicated here. https://privacy.org.nz/further-resources/knowledge-base/view/209. As you can see the minimum penalty has been $5,000. These penalty values are about to go up and the powers of the Commission are also about to be strengthened.
We believe for over 900,000 of the affected account holders a penalty payment from the liquidator and or his advisors of every $2500 would be finally a bit of return on the money they have invested.
The second option, and most likely is a claim against the liquidator based around negligence and breach of fiduciary duty of care.
The liquidators failure to secure the files provided to the court is in our opinion nothing short of negligent.
This claim is a lot easier to put together as a class action. It is reasonable to use the penalties of privacy breach for substantiating a claim. Simple maths would put the claim value close to $5 billion.
We are in discussions with litigation funders who would pay the legal costs of a class action and in return take 30% of the win value.
The basis of the claim is likely to be based on the lower end of the privacy breach value so $5,000 each. Again defending a claim for the liquidator we believe would not be a cost he can claim against the assets of Cryptopia. Most likely this would be a claim against his Professional Indemnity provider, we are not sure if he has enough insurance cover at this stage, so watch this space.
All those people registering to receive their personal data will also be added to the class action.
Registration for your private information and to join the class action should be ready later next week and will be announced here.