As a result of the requests from several of the registered account holders, Cryptopia Rescue has submitted the following complaint to the New Zealand serious fraud office.
We encourage affected people to also lodge their complaint online here https://www.sfo.govt.nz/make-a-fraud-complaint-online
Copy as follows.
Serious Fraud Complaint regarding
Grant Thornton NZ (accountants)
David Ian Ruscoe (liquidator)
Malcom Russell Moore (liquidator)
Buddle Findlay (solicitors)
Scott Barker (solicitor)
Bridie McKinnon (solicitor)
Creating and using documents to defraud and obtain pecuniary advantage.
Background
Ruscoe and Moore were appointed as liquidators of Cryptopia, a Christchurch based crypto currency exchange, in or about May 2019. The liquidators first report can be found here https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/first-liquidators-report-31-05-2019.pdf
In understandable circumstances the first report was limited in information about the financial status of the company. A better understanding of the assets of the company and financial status is found on page 9 of the second report here https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/cryptopia/second-liquidators-report-to-creditors_cryptopia.pdf
Confirmation of the assets and financial status of the company can then be found on page 9 of the third report here https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/third-liquidators-report_cryptopia-12-06-2020.pdf
Again confirmation of the assets and financial status is found on page 7 of the forth report here https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/fourth-liquidators-report_cryptopia.pdf. For some reason the liquidator has changed the whole format of the financial reporting, which makes it difficult for laypeople to follow and understand.
In or about March 2020 a High Court hearing was run by the liquidator to determine the status of the over 960,000 account holders who all had a positive coin balance in their Cryptopia account. At the time the value of coins was roughly USD$130,000,000. Based on current bitcoin price and the movement is many of what are called Alt Coins the current value of coins is closer to USD$800,000,000.
Many of the documents relating to the court case can be found here https://www.grantthornton.co.nz/update-for-cryptopia-account-holders-10-february-2020/
The final court order can be found here https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/cryptopia/civ-2019-409-000544---ruscoe-and-moore-v-cryptopia-limited-in-liquidation.pdf
In summary the High Court order of Gendall states that Cryptopia was effectively a Trustee for the account holders, that the account holders were secured creditors and their digital assets can be returned to them.
The implications of the court hearing basically were … if it was found the account holders were unsecured creditors then the US$120 million of coins could be sold by the liquidator and distribution of dollars after costs would be sent proportionately to all creditors. If it was found the account holders were secured creditors then only coins owned by the Cryptopia company were assets of the liquidation and could be sold to fund the liquidation and pay creditors.
First issue of complaint.
Page 17 of the liquidators first report is an order obtained by the liquidator to sell 344 bitcoin. There is no accountability of what submission was put to the court to obtain the order. What we know from page 10 of the sworn affidavit of Ruscoe is a list of the accounts on the database that the company had coins in, and attached to the affidavit was an electronic file which included those accounts, some details of what coins were in each and a value at the time. That affidavit is here https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/cryptopia/2020/1.-second-affidavit-of-david-ian-ruscoe-sworn-8-november-2019.pdf.
Page 20 of the fifth affidavit of Ruscoe here https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-zealand/pdfs/cryptopia/2020/6.-fifth-affidavit-of-david-ian-ruscoe-sworn-13-february-2020.pdf includes a balance sheet of the company just prior to him being appointed as liquidator. That balance sheet states the company had NZD$747,563.39 of bitcoin prior to liquidation. The value of bitcoin on or around that time was US$4,000 roughly, and so we estimate around 125 bitcoin.
It appears Ruscoe has sold 200 or more bitcoin that were trust assets and not company assets.
Ruscoe in submissions to the court for the hearing in March 2020 raised the issue with Gendall that if the decision of the court was in favour of the argument that account holders were secured he had issues because of the previous order to sell 344 coins.
The financial statements in reports 2, 3 and 4 state that company crypto assets were sold and converted to fiat to the value of $4,427,292. If we look at the 31 March 2019 balance sheet it states there was a total crypto and other liquid asset value of around $4.1m. So benefit of the doubt could be that Ruscoe didn’t sell 344 bitcoin (literally) he sold all the company crypto? We don’t know.
Second issue of complaint.
In March 2021 the liquidator has released an update which includes another order obtained from the court giving him authority to sell another 80 bitcoin. https://www.grantthornton.co.nz/update-to-cryptopia-claimants-and-stakeholders/
At todays rate of US$58,000 per coin that totals US$4,640,000.
The sworn affidavits of Ruscoe do not support this sale. There is nothing in any of the regulatory reports of the liquidator to show the company has any coin assets still. These coins are being sold to further fund the liquidators costs.
Our opinion is the court has been mislead into make both these orders.
Third issue of complaint.
As at 14th November 2020 the liquidator has incurred over NZ$8m in costs for this liquidation.
Of that over $2.3m were in direct fees.
Scott Barker and legal have received over NZ$1.4m
Other costs do not pass the smell test, for example employees costs of NZ$1.9m, Server hosting costs of over $600k. The liquidator indicates IT people are costing $600 per hour, equivalent to a salary of over $1.2m per annum per person.
Summary
1. There is a huge number of documents, too many to just file online.
2. We believe the companies and the individuals list above are receiving pecuniary advantage by creating significant profits for their companies and are incentivised to do so.
3. The law firm involved is incentivised to fast track legal process. Currently several orders obtained by the lawyer on behalf of the liquidator for other related matters are being challenged because the lawyers mislead the court and used wrong procedures in order to obtain their orders without objection of affected parties.
4. The liquidator is appointed to liquidate the Trustee Company, Cryptopia, not any of the trusts. What they are doing is actually selling up secured trust assets to fund the liquidation. This is no different than the lawyer who takes client funds out of his trust account without authority. It is clear the liquidator and their lawyers have mislead the court to get these orders.
5. We believe there will be a significant number of other breaches of the law, there are thousands of pages of documents.
6. It is critical the Serious Fraud office investigates this matter for the following reasons.
a. The amount of money involved exceeds NZ$1 billion dollars.
b. The number of creditors involved exceeds 960,000, the majority of them are all over the world.
c. After discussions with politicians and Government agencies it is clear that there is no governing body keeping these liquidators and lawyers to account. It would take hundreds of thousands of dollars for the creditors to instruct lawyers and for a huge number of them they don’t have any more money.
