Crypto collapse raises issues of Blockchain Global’s money control

Administrators of collapsed cryptocurrency firm Blockchain Global have found ‘there was intermingling of profits and investors’ funds’ in a bank account.

Cryptocurrency bitcoin savings investment conceptual illustration. Hand placing bitcoin into a piggy bank.

Administrators of collapsed cryptocurrency firm Blockchain Global have found potential breaches of directors duties and insolvent trading – and don’t have a definitive answer about who controlled the money put in by traders.

Pitcher Partners, in a report to creditors filed with the corporate regulator on Thursday, said it was clear that money placed onto the platform by crypto traders was instead combined into a single pool.

The report found “there was intermingling of profits and investors’ funds” in a bank account that loaded credits to investors to use on the platform once they deposited money into it.

“Profits and investment funds were not segregated into separate distinct bank accounts; and it was impossible, when reviewing the transactions, to determine where all investment monies went as the structure of operations were not set up correctly,” it read.

In its findings, the report identified unfair preference payments, insolvent trading and uncommercial transactions, and a potential breach of director duties.

The report also details some of infighting between company directors over deeds of settlements, jointly owned cryptowallets and unsettled bitcoin exchanges.

Blockchain Global collapsed into administration in October owing creditors at least $21m.

The company had said it was the developer and operator – and on some occasions, the owner – of a related platform called ACX.

The Pitcher Partners report comes after 94 traders sued Blockchain Global and three of its former directors, Liang Guo, Xi Samuel Li and Jin Chen, in the Victorian Supreme Court claiming they “misappropriated” $10.3m in cryptocurrency they held on the ACX platform.

Administrators have not yet made a definitive answer on ownership of ACX Exchange, which was originally operated by Peak Hong Kong Limited, a Hong Kong-registered entity that went into liquidation in 2018.

However, administrators say evidence in the form of a “non-exhaustive list” is stacking up.

“The ACX Exchange was purportedly originally held by (Peak) due to concerns regarding Australia’s stance on cryptocurrency at that time,” the 76-page report reads. “BGL’s change in business model between 2016 to 2017 coincides with the period in which the (exchange) started operating.”

The report also concluded that minutes of directors meeting in 2018 included an exchange platform and that Blockchain Global had to spend 176 bitcoins to buy back access to the ACX Exchange from Mr Chen. Mr Chen, a former director, has brought proceedings in the Supreme Court over a deed of settlement that shows him to be the “sole director” of ACT Tech, “an entity associated with BGL”.

Mr Chen was set to leave BGL and ACX Tech in exchange for 176 bitcoins ($9.35m) paid in three instalments. The first instalment of 58.67 bitcoins was transferred but the two remaining amounts, totalling 117 bitcoins, were transferred to a multi-signature security wallet in which Mr Chen and then director and chief investment officer Allan Guo shared a “seed phrase” to access.

Mr Chen has provided his phrase, but “Mr Guo is yet to provide his half of the seed phrase”.

Mr Guo is one of 11 directors and officers who ran Blockchain Global before it was put into administration. At the time of liquidation, Zijing Xu was the longest serving director still in power alongside Xiangdong Gao, who was appointed in June 2019, and Samuel Lee, appointed in 2020.

The liquidator’s report states that Mr Lee did not attend an interview in January this year, but the others did.

In February, former directors Liang Guo, Xi Samuel Li and Mr Chen were nowhere to be found when the 94 traders sued the company. Mr Guo, who was appointed in 2014, resigned following the failed IPO. He continued assisting Blockchain Global with operations, the report found.

Mr Guo, who appears to have continued to provide services without remuneration, may have him in the position of shadow ­director and subject to fiduciary duties imposed on a formal director, the report shows.

The company, which once believed it would raise revenue via bitcoin mining, changed its pace following an unsuccessful bid to go public in 2016.

ASIC documents state this is when it began operating the platform in question, ACX Exchange, which allowed customers to buy, sell and store cryptocurrency.