Cryptopia Ex-Employee Theft

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Cryptopia

Cryptopia had poor security policies, and one of the employees was able to access the private keys for the wallets. After Cryptopia went into liquidation, they therefore still had access to the hot wallets. Some users erroneously deposited funds there, and this employee was able to take them. After Grant Thompson started to dig around, he decided to come forward and admit what he'd done. All the funds involved were returned.

This exchange or platform is based in New Zealand, or the incident targeted people primarily in New Zealand.

About Cryptopia

"Cryptopia Ltd (Cryptopia) was a New Zealand cryptocurrency exchange basedin Christchurch. It delivered custodial services and operated as a full-featured spot trading platform for major cryptocurrencies, requiring users first to register their membership by opening an account and making a deposit. On completion of the registration process, Cryptopia would provide users with a positive coin balance in their online account and enable them to trade."

"Start trading the world's largest range of cryptocurrencies. Find out why over 2 million users love trading with Cryptopia." "Trading cryptocurrencies has never been easier. Our exchange is simple to use, fast and secure. Deposit, trade or withdraw all major coins, trading pairs and new currencies within minutes. With access to dynamic charts, live coin information, world class service and the world’s largest range of coins, Cryptopia offers users the best global transparent exchange platform to trade cryptocurrencies." "We deliver a high quality service for our users with premier support and fast response times." "Get early access to all the new and innovative coins that are listed on Cryptopia first." "We are ethically run from New Zealand, regulated by New Zealand law and a leading trusted exchange."

"While the number of registered users at Cryptopia remained relatively modest from 2014 to 2017, it grew exponentially with the rise in the price of bitcoin and in late [2018] it surpassed 900,000. The business was global with investors in over 230 countries (New Zealand had the 26th largest number of account holders in Cryptopia) and more than 900 different cryptocurrencies traded on the exchange."

"At its height, the New Zealand-based exchange, now in liquidation following a disastrous hack in 2019, employed more than 80 staff while servicing 1.4 million customers globally." "At the date of liquidation, it had over 2.2 Million registered users worldwide and employed 37 staff. The rapid growth of Cryptocurrency in early 2018 meant the Company scaled up to manage the increased level of trading. To manage this the Company entered into a number of long term, high cost contracts to provide the infrastructure necessary to trade at this level. Unfortunately trade volumes, from which the Company earned its revenue, reduced significantly through late 2018. Accordingly, the Company then took steps to reduce its expenses in an attempt to minimise trading losses."

"Private keys of purchased cryptocurrencies would be stored in omnibus accounts held by Cryptopia in virtual self-hosted wallets, in the proportions recorded in the booksof the same exchange. For security reasons, most of the cryptocurrencies were stored off-line in a ‘cold storage unit’ and managed via a separate address using different secret keys from a ‘hot storage unit’ connected to the blockchain network, primarily kept in order to meet the trading requirement each day. This holding structure facilitated the circulation of cryptocurrencies as transfers effected directly on the exchange by crediting and debiting the users’ accounts were instant and never affected by blockchain congestion."

"As of June 2021, over 55,000 users had completed the claims registration step. This was the first step required by former users of the Cryptopia exchange for regaining funds. The process further entails much bureaucratic red tape from the court system in New Zealand."

"A former employee has reportedly pleaded guilty to embezzling NZD 245,000 (USD 172,000) worth of cryptocurrencies and stealing customer data from the now-defunct New Zealand-based crypto exchange Cryptopia." "At the time of the transactions, the bitcoin was worth about $235,000."

"The hack was noticed after someone told the exchange’s liquidators they had accidentally deposited some bitcoin into an old Cryptopia wallet and requested the funds be returned. After reviewing Cryptopia’s wallets, the liquidators saw 13 bitcoins had been illegally withdrawn from various wallets in a series of transactions, some of which had been laundered via a mixing service. At the time, the laundered bitcoin totalled about NZD 235,000 (USD 165,000). Then the man stole more cryptocurrency, worth about NZD 10,000 (USD 7,000)." "At the time of the transactions, the bitcoin was worth about $235,000."

"The ex-employee reportedly had issues with management about the handling of private keys for many wallets held by the exchange. At one point, the employee made an unauthorized copy of private keys from Cryptopia’s wallets and saved it on an external storage device, transferring the information to his personal computer."

“The defendant admitted that he was frustrated with Cryptopia but also motivated by the belief that he could get away with the theft as he thought nobody would ever check the old deposit wallets,” the summary of facts said. "At some point during his employment, the employee made an unauthorised copy of private keys from Cryptopia's numerous wallets and saved it on a USB storage device, taking it home and uploading the information to his own computer."

"[H]e admitted to police he had copied and removed the keys from Cryptopia’s premises, stolen the bitcoin and other cryptocurrency and put it through a mixing service."

"Grant Thornton, upon reviewing a number of transactions, found that 13 bitcoin had been siphoned off from a number of wallets. The liquidator also discovered two of those bitcoin had been put through a crypto mixer in attempt to conceal their provenance." "When informed by an associate that Grant Thornton was reviewing the old deposits, he confessed to the liquidators what he had done."

"On September 10, the employee emailed David Ruscoe and Tom Aspin of Grant Thornton and admitted stealing the bitcoin, as well as another cryptocurrency worth about $10,000." "He said he had returned some of the stolen currencies and offered to repay the remainder." "The following day he emailed again saying he had returned six of the stolen bitcoin and sought an assurance that if he returned the remaining bitcoin he would not be charged or accused of wrongdoing."

"The man, whose charges are unrelated to the 2019 hack, then told Cryptopia’s liquidators, Grant Thornton, in September that he had deposited bitcoin into an old Cryptopia wallet and requested they be returned, Stuff reported." "Later that day he returned the six bitcoin and immediately messaged his partner to tell her he had “given it all back”."

"He then sent her and his business partner another message to say he thought he would “be OK”, and that “they said ‘thank you for returning it’”."

"The ex-employee said he had returned some of the stolen currencies and offered to pay back the remaining amount." "This employee pled guilty to charges in New Zealand courts in July of this year and is expected to be sentenced sometime this month." "The hack was not related to the former employee's charges."

"Detective Sergeant James Simpson previously said police were keeping an open mind as to who was behind the Cryptopia hack."

"He said the “unique, complex investigation” had posed challenges for police, and that they had not dealt with such a crime before.""

"According to a report by local news outlet Stuff, the ex-employee has admitted to two charges: theft by a person in a special relationship, and theft of over NZD 1,000 (USD 700). He will receive his official sentence on October 20. The Christchurch district court has granted the man interim name suppression." "Through his lawyer, Allister Davis, he admitted two charges – theft by a person in a special relationship, and theft of more than $1000. He was convicted and remanded on bail until sentencing on October 20."

This exchange or platform is based in New Zealand, or the incident targeted people primarily in New Zealand.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Cryptopia Ex-Employee Theft

Date	Event	Description
September 10th, 2019	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $235,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.