It’s another bad day of news for Cryptopia, the now defunct New Zealand cryptocurrency exchange. The liquidators of the company have filed to secure user data stored in the U.S. as part of their refund proceedings, and internet sleuths have uncovered more uncomfortable truths about the company.
The May 27 filing urges the U.S. to recognize the ongoing bankruptcy proceedings being held in New Zealand. Without that recognition, it appears that data could be lost. “We took these steps to preserve the Cryptopia information that is stored and hosted on servers with an Arizona based business,” the statement read, and the continued:
“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.”
That Arizona business is apparently playing hardball, demanding a ransom of $2 million for the data. Without it, none of Cryptopia’s former customers will see their money.
The Grant Thornton audit firm running the liquidation is hopeful that U.S. courts can compel the company to return the customer data they need, but it may take months. They wrote, “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.”
Allowing a third party to have sole access of user data is worrying enough, and should be a huge red flag for future regulators to look out for. In the case of Cryptopia, the red flags were piling up long before their January hack.
Internet sleuths have uncovered old Reddit posts about the exchange from March 2018, where users discussed difficulty withdrawing from the exchange, and withdrawal limits of up to NK$5000 ($3272) without any know your customer (KYC) checks.
It’s bad enough that people were publicly warning each other to stay away because of 40 day withdrawal waiting times. That should have been the only red flag anyone needed to know Cryptopia was in trouble. For a seasoned regulator though, it’s pretty clear that very few people would be willing to tolerate waiting more than a month to withdraw thousands anonymously. In all likelihood, those users had to be desperate to hide their money trail, and could very well have been criminals or money launders.
If you happened to have been one of the legitimate customers that got caught up in this trap, this is all dark news. Don’t worry too much about Cryptopia’s founder Adam Clark. He left Cryptopia in February 2018 to start a new platform called Assetylene, an uninspiring and unpolished looking exchange.
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