The liquidator of one of Australia’s first failed cryptocurrency exchanges, Blockchain Global entity ACX.io, has reported one former and two current directors to the corporate watchdog ASIC for potential breaches of the Corporations Act.

Key points:

The regulator has told 7.30 it will only take action on those reports where there is sufficient evidence. 

The collapse of the cryptocurrency trading platform, which was launched in 2016, has left more than $50 million owed to creditors and some investors say the regulators have not done enough to protect them.

The Blockchain Global ACX.io platform allowed investors to buy and sell digital currencies, but in late 2019 customers lost access to their Funds on the exchange.  

Liquidator Andrew Yeo from Pitcher Partners was appointed to investigate where the customers’ funds and digital assets went, and the company affairs of Blockchain Global when it went into voluntary administration in October 2021.

In Mr Yeo’s latest report to creditors, he outlines the potential misuse of customers’ funds. He has written to the corporate watchdog recommending that it investigate directors Sam Lee, Zijing ‘Ryan’ Xu and former director Liang ‘Allan’ Guo for potential breaches of the Corporations Act.

Mr Yeo found that investor funds were intermingled with company funds and used to invest in other companies and personal spending, including paying down home loans without the knowledge of customers.

“The business itself started as a crypto mining business. It appeared to be quite profitable in the early days and did make significant monies from what we can see from that mining operation,” Mr Yeo told 7.30.

Mr Yeo expects creditor claims to exceed $50 million.

“About half of those monies relate to the claims of individual investors; we are aware that there’s certainly likely to be more claims that have come in that will come to the fore in the future,” Mr Yeo told 7.30.   

Tracing the money

Blockchain Global’s ACX.io cryptocurrency exchange was the brainchild of three business men: Liang ‘Allan’ Guo, Xue ‘Samuel’ Lee and Zijing ‘Ryan’ Xu, with the trading platform developed by Jin ‘Jim’ Chen, who left the company in mid-2018.

The business was headquartered in Melbourne, with an address listed for City Road on ASIC documents. 

Customer funds were transferred between various bank accounts owned by related trusts and companies, including providers of custodian banking services, and moved into online and offline digital wallets, according to the liquidator’s latest update to creditors that summarises evidence given at public examinations last year.

Former director Allan Guo claims he lost access to certain wallets containing the company’s cryptocurrency, valued at $5 million, contained on a laptop computer that was stolen from an airport in China in December 2019.

“It’s not like normal tracing of funds — in circumstances where if, for instance, particular parties either lost or destroyed that password, then those funds are essentially not able to be accessed,” Mr Yeo said.   

Mr Yeo found that customer funds were also being loaned to a related business that specialised in arbitrage trading, which is when an investor buys and sells to make a gain, using a “trading bot.”

His report found that there was poor record keeping of customers’ funds used in this manner.

The liquidator found that millions were also invested in ventures including Canadian company Global Cannabis Applications Corp (GQAC), and Telegram Group, and that this was also all done without the knowledge of ACX customers.

The report states that Mr Guo and Mr Lee transferred more than $1.7 million from an account holding customer funds to invest in publicly listed shares put in the name of Mr Guo’s family trust and for the benefit of Blockchain Global.

Mr Yeo said the company’s use of customer funds was not in line with the terms and conditions listed on the ACX exchange website, which stated that the company claimed no ownership over customers’ monies and digital assets.

“What we have been able to ascertain, however, is that those funds were mixed with other company funds and used for a series of other purposes,” Mr Yeo told 7.30.   

“They included things like initial coin offerings, other startup businesses, a number of which ultimately failed, and the investments were lost.” 

Investors left short   

For more than two years, Bruno Fabre successfully completed thousands of trades on Blockchain Global’s ACX exchange.

But in early 2020, he discovered his account was frozen, and he is among 135 Blockchain Global customers trying to claw back funds as part of a civil claim against the company, Mr Guo, Mr Lee and Mr Chen.  

 Mr Fabre said he thought his investments would be safe on the exchange.    

His claim for money owed to him by the exchange is $100,000.  

“For almost three years, it traded as a normal platform, it did everything it was supposed to do,” he told 7.30.

“When I had issues I was able to log calls and get in touch with support people.

“It seemed to be legitimate.”   

Mr Fabre said he and other investors confronted Blockchain Global directors in person after the collapse but did could not get any answers about their missing money from the men.  

‘Australia’s FTX’   

Comparisons have been made between the collapse of Blockchain Global and the misuse of customer funds and poor record-keeping that led to the demise of cryptocurrency exchange FTX, involving crypto entrepreneur Sam Bankman-Fried. 

The lawyer acting for investors involved in the civil claim against Blockchain Global, Christos Stathopoulos, said much like FTX, Blockchain Global funds were not held in trust like they should have been, and instead appear to have been used for potential misappropriations. 

“Once the user starts pulling out their crypto, and there’s nothing left in the bank to do as such, then it got to a point where there was just nothing left in the kitty to give to the user,” he told 7.30.   

When FTX collapsed in November last year, US prosecutors charged crypto entrepreneur Sam Bankman-Fried with a host of financial crimes and campaign finance violations.

However, attempts by the liquidator for Blockchain Global to get assistance from Australia’s corporate watchdog ASIC have so far not been successful.  

Mr Yeo’s latest update to creditors states he submitted a report to the corporate watchdog ASIC in March last year alleging that Mr Xu, Mr Lee and Mr Guo may have contravened the Corporations Act.

However, he said ASIC confirmed it did not intend to take any further action.  

“We have reported potential offences; at this point in time, I don’t think ASIC’s likely to pursue that investigation, it appears, but that’s always a watch and see, and we’ll see if that position changes down the track,” said Mr Yeo.    

In a statement to 7.30, a spokesman for ASIC said the regulatory body will consider any new evidence related to Blockchain Global provided by the liquidator.

“We will only take action on those reports where there is sufficient evidence and where our action will result in a greater regulatory impact in the market and benefit the general public more broadly,” he said.

The liquidator has issued a demand to Mr Chen to return 110 Bitcoin, worth about $4.8 million, but does not suggest that Mr Chen has engaged in any potential breaches of the Corporations Act. The liquidator’s report states Mr Chen has rejected this demand on “various grounds.” Mr Chen’s lawyer declined to comment further when contacted by 7.30.

Liquidators are seeking to recover between $12.2 million and $42.9 million from Allan Guo, who has not replied to 7.30’s request for interview.   

The claim against Mr Xu is between $11.1 million and $38.9 million. 7.30 has contacted Mr Xu for comment.

Mr Yeo has not yet determined how much he is seeking to recover from Mr Lee.  

In response to questions from 7.30, Mr Lee said he had not acted in breach of the Corporations Act.

He said he resigned from Blockchain Global in 2019 and was reappointed as non-executive director “for the sole purpose to vote on having Blockchain Global put into liquidation after the management have misappropriated funds, this is done to protect the interests of customers, shareholder and creditors.”

ASIC documents list Mr Lee list as a current director of Blockchain Global since his return to the company in April 2020.

He added: “Liquidators have kept my office up to date on all matters. Across both companies I am considered the largest creditor, having made no withdrawals as a customer on the exchange (ACX) and have made numerous loans for company to cover operational expenses of the bitcoin mining company (Blockchain Global).”

Mr Lee has not submitted a Proof of Debt claim form to the liquidator, which is how creditors make their claim.

Links to other failed ventures

Since the collapse of Blockchain Global, Sam Lee and Ryan Xu have been linked to a failed multi-level marketing scheme known as HyperVerse.

Videos online of Sam Lee show him apologising to investors and denying responsibility. Mr Lee has also been involved with Vidilooks, which collapsed only last month, and he has also claimed no responsibility for this. 

New Zealand-based Danny de Hek, who calls himself the Crypto Ponzi Scheme Avenger, has been investigating Sam Lee and Ryan Xu.  

 “I was following HyperVerse, which was Sam Lee and Ryan [Xu], who were painted as heroes within that platform,” Mr de Hek told 7.30.  

Mr de Hek said HyperVerse has rebranded several times.

“What they’re actually doing is selling packages to people where people could invest from as little as $300,” he said.

“And promised within 600 days that they were going to get three times the return on the investment paid back and rewards.”

Mr de Hek has been calling for a global approach to protecting online investors in unregulated financial platforms.  

“My personal opinion is I would love a law change,” he told 7.30.

Calls for regulation    

Cryptocurrency has been described as the wild west of the investment space.

In Australia, digital currencies and and cryptocurrency are effectively unregulated.  

Exchanges are registered with AUSTRAC but there are no consumer protections for investments.  

It took regulator AUSTRAC a year to cancel the registration of Blockchain Global’s related entity, Peak Trading Group, after investors’ accounts were frozen.

Unlike parking your money in a regular bank, which is covered by the Australian government’s deposit guarantee, there are no consumer protections for cryptocurrency exchange users.   

Cryptocurrency exchanges are also not subject to the same regulations as the Australian Stock Exchange. 

Investors in another Australian cryptocurrency exchange, MyCryptoWallet, which went bust in December 2021, have also been caught out.

“You expect a company that’s operating in Australia, that’s registered, that’s supposed to follow the laws of running a business, that there would be some protection there,” Mr Fabre told 7.30.   

“They did nothing, everyone was pointing the finger, saying it’s ASIC … everyone was trying to say it’s somebody else’s job.”

Mr Stathopoulos said the slowness of the federal government to adequately regulate digital currencies and their trading platforms had left Australians exposed.   

“Regulators need to get on top of this, but at the moment as it stands, there seems to be no punishment for these types of issues,” he said. 

 ”At the moment, all we’re seeing is a system where it’s meant to be pooled, but in reality, it’s simply a number on a ledger, and that’s it.

 ”When the user goes into the platform and purchases a Bitcoin, it doesn’t necessarily mean that that Bitcoin is sitting there for that user. 

 ”It’s simply that on a ledger, it sits there, that person is entitled to that one Bitcoin, and the issues arise when everyone wants to take what is there on the ledger out, and it’s not there. That’s when we see collapses happen.” 

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