Liquidators for Globix, a collapsed cryptocurrency trader, have secured a court order that freezes digital assets and forces crypto exchanges to hand over customer information as they search for $43mn of missing funds.
A court injunction in Gibraltar earlier this month ordered Binance, the world’s largest crypto exchange, to halt attempts to move assets from several Globix-linked crypto wallets.
The court also demanded that rival exchanges including Crypto.com, Bitstamp and Kraken reveal the identities behind certain crypto wallets associated with the Globix platform, according to the order, which has been seen by the Financial Times. Insolvency lawyers are looking for around $43mn, 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 asset businesses. The British Overseas Territory passed regulations for crypto in early 2018, making it one of the first jurisdictions in the world to write rules for the fledgling market.
Globix was trying to carve a niche in crypto investing by letting investors choose automated trading strategies to pick attractively valued tokens, but was caught out by 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 multiple 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 fair number of the investors knew each other,” said an individual familiar with the matter, who added the majority of missing funds were held in tether, a stablecoin pegged to the dollar and widely used to move funds between sovereign money and crypto.
The injunction, which was granted on April 13, further added that any other person with knowledge of the order who helped or permitted the respondents breach its terms might be held in contempt of court.
Following the failure of FTX in the Bahamas — and several major crypto firms in Singapore — financial centres around the world are wrestling 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 individual, who spoke on the condition of anonymity, questioned how experienced investors familiar with financial services could have invested in an unlicensed investment vehicle. Another individual, who also spoke on the condition of anonymity, added: “It should have been regulated in Gibraltar.”
The Gibraltar Financial Services Commission told the FT it took a “proactive approach to perimeter issues”, and worked with relevant authorities to “help safeguard consumers and the reputation of Gibraltar”.
Globix closed its doors to investors in June last year as a crisis of confidence gripped the crypto market, causing several major crypto tokens including bitcoin to lose more than half their value and several once-prominent firms to go bankrupt. Carreras voluntarily put Globix into liquidation last month after a prolonged period of struggling to pay investors.
Last June, the same month Globix investors were locked out of the system, Gibraltar was placed on a “grey list” by the Financial Action Task Force, an intergovernmental organisation that leads global action to combat financial crime. Countries placed on this list are identified as having strategic deficiencies in their regimes to counter money laundering and terrorist financing.
The Government of Gibraltar said the case “demonstrates the need for firms to be licensed and supervised in order to provide adequate standards of consumer protection”, which it adds was the “overriding objective” in Gibraltar’s crypto regulations.
Carreras told the FT Globix was “the victim of cyber crime, and theft of our fund, which we have tried to recover”.
Submissions made to Gibraltar courts claim a Globix funding wallet was active until late September 2022, well after investors were locked out of their accounts. Moreover, roughly $18mn was transferred to Binance between May 2021 and September 2022. Binance said it complied with all lawful information requests.
According to two people familiar with the matter, Carreras had been reluctant to co-operate with the appointed joint liquidators, Adrian Hyde, Joanne Wild and Brian Simpson of corporate recovery specialist firm Begbies Traynor.
Carreras said he was co-operating with the assistance of legal advisers, and declined to provide more information due to the ongoing legal process.
“It’s an impossible standard to expect a regulator to be omniscient and know what every single Gibraltarian is investing in, especially if a company isn’t regulated or established within the jurisdiction,” said one person familiar with financial services in Gibraltar.