The mysterious collapse of a cryptocurrency trading platform highlights the risks of the speculative and effectively unregulated currency.
Twelve months after Melbourne based cryptocurrency platform ACX ceased operating and froze the accounts of its users, investors caught up in the debacle are none the wiser to what happened.
Around 200 investors are understood to have lost as much as $10 million in this little corner of the investment world’s Wild West.
ACX has been banned for life by the peak industry body while the financial intelligence regulator AUSTRAC has revoked the digital currency license used by the platform.
Yet investors still have no visibility over a path to restitution or justice. Many of them believe they are victims of a well-planned scam and have given up hope of ever getting their money back.
ACX was a platform or “digital currency exchange” that allowed investors to hitch their wagon to the crypto trading craze by depositing money to buy Bitcoin and its many, many variants.
According to its website, the exchange was managed by Blockchain Global Ltd and had operated since at least 2016.
Blockchain Global positioned itself as a successful investor in crypto-adjacent businesses after early successes investing in bitcoin. Through ACX, Blockchain Global provided bitcoin mining, consulting and other services to a largely Australian customer base.
Blockchain Global is a Melbourne headquartered firm run by Sam Lee. Mr Lee also promoted the platform at events designed to drum up business.
BlockChain Global however says that ACX was registered by a different company – ACX Tech Pty Ltd, which is owned by Sam Lee, Jin Chen and Liang (Allan) Guo – and that it did not provide any deposit or withdrawal services to the exchange.
The money, it says, was held by another company, Peak Hong Kong Limited. Liquidators were appointed to Peak Hong Kong in 2018 and it was wound up in December 2020.
A liquidator’s report dated January 2019 from McGrath Nicol found the company was involved with ACX however it had been unable to contact Peak Hong Kong’s director. The director was represented by Mr Allan Guo, who disputed the findings.
The Australian Financial Review has approached Blockchain Global and Mr Lee for comment. However, neither have responded. The Financial Review does not suggest that Mr Lee is responsible for the missing money, and Mr Lee claims to himself to be a victim of the ACX collapse.
There are 10 or 20 who lost a lot, who lost more than half a million and the rest are people like me who lost a few thousand each.
— Khaled Said, ACX investor
The experience of University of Queensland research fellow Khaled Said is typical of many of ACX’s victims.
Mr Said began investing in cryptocurrencies on ACX during the first bitcoin boom in 2017. He began by investing a few thousand dollars in popular currencies such as Ripple and Ethereum but following a collapse in the price he lost interest and the investment found its way to the bottom drawer.
By 2019, the price of crypto began to recover and investors like Mr Said returned to the platform. Users of ACX’s platform started having intermittent difficulty withdrawing funds in December 2019.
Crypto was on a tear but ACX’s users had a problem: They could put money in but they could not take it out.
“As far as we can tell there are 10 or 20 who lost a lot, who lost more than half a million and the rest are people like me who lost a few thousand each,” Mr Said said.
Investors who were unable to withdraw funds in December 2019 shrugged off problems as typical Christmas teething problems. But by early January the situation had not changed. On January 10 the alarm bells started ringing when the company published a message saying it was going through an audit.
Blockchain Global boasts that it is a founding member of the Australian Digital Commerce Association (ACDA) and a partner of industry body Blockchain Australia. The two groups merged in July 2019. Blockchain Australia says it aimed to “encourage the responsible adoption of blockchain technology”.
One month after the notice of the audit to ACX, Blockchain Australia issued a statement saying it was aware the platform had been frozen and was concerned ACX had provided no further update. It also said ACX did not respond to a request to show cause why it should remain a member and had banned ACX for life.
Problems and consequences
“ACX are no longer members of Blockchain Australia and the Board of Blockchain Australia has resolved not to entertain any request to renew their membership. We continue to urge ACX to resolve whatever difficulties are preventing renewed trading for customers as swiftly as possible,” the group said.
The following month Blockchain Global published a statement on its website declaring it had nothing to do with ACX apart from providing funding and technical support. The company said deposits, withdrawals and compliance with the law were all provided by Peak Trading Group.
Blockchain Global said it had “significant funds” with ACX “that continue to remain inaccessible” while calling on ACX and Peak Trading Group “to provide transparency as to where funds are held so that they may be released.
The company still managed to raise $5.9 million from a $20 million target before it was forced to return the money to investors.
The industry body Blockchain Australia wasn’t the only body to have deregistered ACX, with financial intelligence regulator AUSTRAC taking similar action just three months ago.
AUSTRAC has regulated digital currency exchange providers such as ACX since April 2018. Its goal is to minimise the risk of criminals using them for money laundering, terrorism financing and cybercrime. There are around 450 digital currency providers registered and enrolled with AUSTRAC.
ACX relied on a digital currency registration held by Peak Trading Group Pty Ltd to meet its compliance requirements. Peak Trading shares a director with Peak Hong Kong.
Peak Trading’s digital currency registration with AUSTRAC was cancelled two days before Christmas on December 23, 2020, or almost a year after ACX was frozen.
Screenshots of conversations held between Mr Lee and furious ACX customers reveal Mr Lee saying he too was an innocent victim of ACX’s collapse. He maintains that Blockchain Global merely provided services to ACX and was not the beneficial owner, and that Blockchain Global never held investor funds.
This isn’t the first time Mr Lee has lost money in a bitcoin swindle.
In 2014 when Mr Lee was the CEO of Bitcoins Reserve – a forerunner to Blockchain Global – and was the target of hackers who he says stole 100 bitcoins then worth around $70,000, he discussed his plight with the ABC. Today those same 100 bitcoins would be worth $6.3 million.
Mr Lee has in fact encountered numerous other setbacks on his path to becoming an influential player on the cryptocurrency scene. After several attempts to list a bitcoin mining operation on the ASX, Mr Lee and his associates pulled the float of Bitcoin Group in 2016.
Among the missteps made by the company was a statement about revenue that had “no reasonable basis” and a claim made on Chinese social media platform WeChat that then prime minister Malcolm Turnbull personally invested in the group. Both claims were recanted in corrective statements made to the ASX in 2015.
Despite this hiccup, the company still managed to raise $5.9 million from a $20 million target before it was forced to return the money to investors, after the ASX expressed concerns it did not have sufficient working capital to get through its first year.
Mr Said wasn’t aware of the attempts to list Bitcoin Group and or its claim that Malcolm Turnbull was an investor.
“If I knew this there’s no way I would have invested with ACX. I would have put my trust in someone else,” Mr Said said.
Investors say the collapse of the platform has been reported to the Australian Securities and Investments Commission, the Australian Competition and Consumer Commission, the Federal Police, multiple state police, the Australian Signals Directorate’s Cyber Crime Unit and various members of Parliament.
Mr Said said he personally reported it to ASIC in August 2020. He was sent a few links to fact sheets and has not heard anything since.
“Nobody is willing to take our case which is really concerning,” Mr Said said.
ACX Mark 2
Despite the problems with ACX, Mr Lee appears to have set his sights on a new venture after a series of videos promoting another crypto-based business chaired by Sam Lee known as the Hypertech Group began appearing on YouTube.
The videos spruik the businesses links to Blockchain Global and another ASX listed company that specialises in blockchain-based software solutions, Digital X. Digital X has issued cease and desist letters to Hypertech to stop using its brand in its promotional material.
“DigitalX is not affiliated, associated, or connected with HyperTech Group Co Ltd in any way, or any of its directors, related entities, affiliates, businesses or products,” the company said in a statement.