An Australian cryptocurrency exchange that collapsed last year trapping more than $20 million of customer money dipped into customer funds to provide a loan to support another part of its business instead of keeping the funds on reserve, a court has heard.
The group – Blockchain Global, which operated the ACX exchange – also pooled customer accounts into a single fund and mingled that money with company funds, and kept scant records of the trades by each of its customers.
The three founders of Bitcoin Global: (from left) Jin Chen, Sam Lee and Allan Guo in happier times. Credit:Paul Jeffers
The unusual trading activities of Blockchain Global were laid bare at the Supreme Court of Victoria on Wednesday during public liquidator’s examinations into the group.
Blockchain Global collapsed in October last year owing creditors as much as $50 million, including hundreds of Australian account holders who lost large sums after the group blocked withdrawals. Liquidators Andrew Yeo and Innis Cull from Pitcher Partners are now investigating the disappearance of the millions of dollars deposited into the platform by its customers before its collapse.
The examinations have provided an insight into the management of one of Australia’s first bitcoin exchanges and the risks to investors dealing in these largely unregulated operators, and Blockchain Global’s significant differences in business practices when compared with traditional exchange operators and stockbrokers.
Blockchain was formerly known as Bitcoin Global, a bitcoin mining group that suspended its plans to list on the ASX in 2015 after the corporate regulator demanded the group address concerns about its prospectus, which included giving investors the impression that Malcolm Turnbull was backing the group (when he wasn’t) and its claims to be profitable (when it wasn’t). By 2016, the group had restyled itself as a cryptocurrency trading business that allowed customers to invest fiat currency to then trade cryptocurrency on the ACX exchange.
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The court heard on Wednesday that Blockchain Global’s ACX exchange took the cash invested by its customer to trade cryptocurrency and mingled the funds into one pooled fund – a practice that is in breach of client money reporting rules for licensed stockbrokers and trading groups but not for the largely unregulated cryptocurrency market.
Under examination by counsel for the liquidators Andrew Silver on Wednesday, Blockchain Global’s chief technology officer, Jin Chen, said the company kept limited records of each customer’s trades and their holdings.
