Globix liquidators freeze crypto assets in pursuit of missing $43 million

Liquidators for collapsed cryptocurrency trader Globix have secured a court order freezing digital assets and forcing crypto exchanges to hand over customer information as they search for $43 million in missing funds.

A court order in Gibraltar earlier this month ordered Binance, the world’s largest crypto exchange, to stop attempts to move assets from several Globix-linked crypto wallets.

The court also required rival exchanges including Crypto.com, Bitstamp and Kraken to reveal the identities behind certain crypto wallets linked to the Globix platform, according to the order, which has been seen by the Financial Times. Bankruptcy lawyers are seeking about $43 million, according to a person familiar with the search.

The asset injunction has threatened to undermine Gibraltar’s ambitions to become a world-leading jurisdiction that properly monitors digital assets. The British overseas territory adopted regulations for crypto in early 2018, making it one of the first jurisdictions in the world to write rules for the new market.

Globix tried to carve a niche in crypto investing by allowing investors to choose automated trading strategies to pick attractively valued tokens, but was caught in the unprecedented crypto downturn last summer.

Damian Carreras, the company’s sole shareholder and director, is a Gibraltarian citizen while the majority of Globix’s investors are in Gibraltar, according to several people familiar with the matter. Some occupied positions of influence in legal and political circles, and at least one investor was a sitting member of the Gibraltar parliament, one of the people said.

“A good number of the investors knew each other,” said a person familiar with the matter, who added that the majority of missing funds were held in bonds, a stablecoin pegged to the dollar and widely used to move funds between government money and crypto .

The ban, which was granted on April 13, added that any other person with knowledge of the order who helped or allowed the respondents to breach its terms could be held in contempt of court.

Following the failure of FTX in the Bahamas – and several major crypto firms in Singapore – financial centers around the world are grappling with the reputational fallout that comes with controversial crypto collapses.

Globix was not licensed by local regulators, but its fate has called into question whether the architects of Gibraltar’s crypto ambitions can adequately identify risks to consumers.

One person, who spoke on condition of anonymity, questioned how experienced investors familiar with financial services could have invested in an unlicensed investment vehicle. Another person, who also spoke on condition of anonymity, added: “It should have been regulated in Gibraltar.”

The Gibraltar Financial Services Commission told the FT it was taking a “proactive approach to perimeter issues”, working with relevant authorities to “help protect consumers and Gibraltar’s reputation”.

Globix closed its doors to investors last June when a crisis of confidence gripped the crypto market, causing several major crypto tokens, including bitcoin, to lose more than half of their value and several once-prominent firms to go bankrupt. Carreras put Globix into voluntary liquidation last month after a long period of struggling to pay investors.

In June last year, the same month that Globix investors were locked out of the system, Gibraltar was placed on a “grey list” by the Financial Action Task Force, an intergovernmental organization that leads global action to combat financial crime. Countries placed on this list have been identified as having strategic deficiencies in their anti-money laundering and countering the financing of terrorism regimes.

The Gibraltar government said the case “demonstrates the need for firms to be licensed and monitored to provide adequate standards of consumer protection”, which it added was the “overarching objective” of Gibraltar’s crypto regulations.

Carreras told the FT Globix was “the victim of cybercrime and the theft of our fund, which we have tried to recover”.

Filings to the courts in Gibraltar claim that a Globix funding wallet was active until the end of September 2022, long after investors were locked out of their accounts. Also, approximately $18 million was transferred to Binance between May 2021 and September 2022. Binance did not respond to a request for comment.

According to two people familiar with the matter, the Carreras had been reluctant to co-operate with the appointed joint liquidators, Adrian Hyde, Joanne Wild and Brian Simpson of the recovery firm Begbies Traynor.

Carreras said he was cooperating with the assistance of legal counsel, and declined to provide more information because of the ongoing legal process.

“It is an impossible standard to expect a regulator to be omniscient and know what every single Gibraltarian is investing in, especially if a company is not regulated or established within the jurisdiction,” said a person familiar with financial services in Gibraltar.