2026-07-31 · Illicit Finance
A New Zealand judge held that the cryptocurrency on a failed exchange belonged to the account holders, not to the estate. Two years later a New York judge looked at a different exchange and reached the opposite result. The difference was the paperwork.
Case file
| Field | Value |
|---|---|
| Matter | Ruscoe and Moore v Cryptopia Limited (in liquidation) |
| Court | High Court of New Zealand, Christchurch Registry |
| Citation | CIV-2019-409-000544, [2020] NZHC 728 |
| Judge | Gendall J |
| Hearing | 11 to 14 February 2020 |
| Judgment | 8 April 2020, delivered 3:30pm |
| Applicants | David Ian Ruscoe and Malcolm Russell Moore, liquidators |
| Jurisdiction to give directions | s 284(1)(a), Companies Act 1993 |
| Counsel | S A Barker, M A Harris and A E Cao for the liquidators; J S Cooper KC and J A R Barrow for the creditors; P G Watts KC and S C I Jeffs for the account holders |
| Company | Cryptopia Ltd, formed 2014, into liquidation May 2019 |
| Loss event | January 2019 hack, roughly NZ$30 million of cryptocurrency |
| Holding | Cryptocurrency is property, and Cryptopia held it as bare trustee under a separate trust for each cryptocurrency |
What the record shows
Cryptopia Ltd was formed in 2014 as a cryptocurrency trading exchange in New Zealand. In January 2019 its servers were hacked and a substantial share of the cryptocurrency on the platform was taken. Gendall J put the loss at “some $30 million of cryptocurrency”. The company went into liquidation in May 2019.
That left a question the liquidators could not answer on their own: of the cryptocurrency still under Cryptopia’s control, who owned it? The liquidators applied to the High Court for directions under s 284(1)(a) of the Companies Act 1993 on how to categorise and distribute the assets.
The two sides were the account holders and the creditors, separately represented, and the stakes were total. If the cryptocurrency was held on trust for account holders, it never formed part of the estate and the account holders took it. If there was no trust, then, as the judgment records of the creditors’ case, “the accountholders are simply unsecured creditors of Cryptopia”.
Is cryptocurrency property at all
Gendall J worked through the s 2 Companies Act definition of property and the common law test, quoting Lord Wilberforce in National Provincial Bank Ltd v Ainsworth as “the classic statement of the characteristics of property”:
Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.
He surveyed the emerging authority, including the Singapore International Commercial Court’s decision in B2C2 Ltd v Quoine Pte Ltd, and held that cryptocurrency satisfies the test. It is property.
The trust finding
Having found property, the court turned to whether it was held on trust and in what structure. The account holders argued for one separate trust per type of cryptocurrency. The creditors denied any trust at all.
Gendall J found for the account holders. At [183]:
I conclude that Cryptopia acted as a bare trustee under a separate trust for each individual cryptocurrency held on its platform. All the accountholders for that one particular currency were simply beneficiaries under that one trust.
He rejected the alternative structures on the way to that conclusion. There were not separate pools for account holders under the historic terms and those under the amended terms of 7 August 2018, and it was not necessary to find an individual trust for each individual account holder. All holders of a given currency held “on exactly the same terms as other accountholders of that particular currency”.
At [184] he described the duty: Cryptopia’s principal obligation under each trust was to hold the relevant pool of that currency on behalf of those account holders, dealing with each member’s share in the pool as that member directed.
The consequence is the part that matters. The cryptocurrency was beneficially owned by the account holders. It was not available to the general pool of unsecured creditors.
What I think happened
Put this judgment next to the Celsius ruling and you have the clearest lesson available anywhere on this desk.
Same asset class. Same basic question: when the platform fails, whose coins are they? Two common law judges, two years apart, reaching opposite answers.
In New Zealand, Gendall J found a bare trust and the account holders kept their crypto. In the Southern District of New York, Judge Glenn read the Celsius terms of use, found they “unambiguously transfer title and ownership” of Earn assets to the company, and around 600,000 account holders became unsecured creditors of a bankrupt estate.
Neither judge got it wrong. They were construing different documents and different factual arrangements. That is the whole point. The outcome was not determined by the technology, by the asset, or by anything either set of customers did after trouble started. It was determined years earlier by how the platform documented the relationship and how it actually held the coins.
Two details from Cryptopia are worth pulling out because they show how close-run this can be. The first is that the trust analysis turned partly on the SQL database. Cryptopia’s records identified, currency by currency, which account held what. That is what gave the trusts certainty of subject matter and certainty of objects. A platform with worse records might have failed the same test on the same facts.
The second is that the amended terms of 7 August 2018 could have fractured the estate into two classes. Gendall J held they did not, because at no point were there separate sets of trust assets for holders under the old and new terms. Had the drafting been slightly different, some customers would have been beneficiaries and others creditors of the same company, holding the same asset.
I would not read this as “New Zealand is safe and America is not.” I would read it as: the question of whether you own your coins or merely have a claim to them is a documentary question, it is decided before anything goes wrong, and almost nobody reads the document that decides it.
What would have changed the outcome
Cryptopia’s account holders got a good result. They got it because a court found a trust in an arrangement nobody had written down as a trust in so many words, and because the company’s records happened to be good enough to support it. That is a fortunate outcome, not a plan.
The plan version is to make the answer unambiguous before you need it.
Three things decide which side of this line you are on:
- What the agreement says about title. Words like “transfer”, “title” and “ownership” are what Judge Glenn relied on in Celsius. Their presence or absence is the single highest-value thing you can check, and it takes minutes.
- Whether there is a per-customer record, and whether it reconciles. Pooling by itself decides very little, and Gendall J said so at 157: mixing one party’s fungible property with another’s in a single pool is not a significant indicator against a trust. Cryptopia’s own terms said coins “may be pooled in our internal accounts with other users’ Coins at any time”. Its account holders kept their coins anyway, because the SQL database showed who held what. The Prime Trust estate pooled the same way with no record a court could rely on, and every customer became an unsecured creditor.
- Which court would decide. Same facts, different jurisdiction, potentially different answer. That follows from where the entity is incorporated, which is set long before the failure.
The arrangement that makes this a non-question is holding assets in your own name with a third-party qualified custodian, where the custodian holds for you and the trading venue never takes title in the first place. There is then no terms-of-use clause capable of moving ownership, and no court required to infer a trust after the fact. DAG coordinates independent custody arrangements of that kind.
Being straight about the limits: this addresses ownership in an insolvency and nothing else. It does not touch market risk. It would not have prevented the January 2019 hack that put Cryptopia into liquidation in the first place, and it does not stop a holder from authorising a transfer they should not have made. As DAG’s own disclosure puts it, custody arrangements with third-party independent qualified custodians reduce certain risks but do not eliminate them.
Sources
- Ruscoe and Moore v Cryptopia Limited (in liquidation), CIV-2019-409-000544, [2020] NZHC 728, High Court of New Zealand, Christchurch Registry, Gendall J, 8 April 2020. Full judgment published by Grant Thornton New Zealand.
- Companies Act 1993 (NZ), ss 2 and 284(1)(a).
- National Provincial Bank Ltd v Ainsworth [1965] AC 1175 (HL), per Lord Wilberforce.
- B2C2 Ltd v Quoine Pte Ltd, Singapore International Commercial Court, considered in the judgment.
- McIntosh v Fisk and Chapman v Effective Fencing Ltd, on the width of the s 2 definition, cited in the judgment.
- For the contrast: In re Celsius Network LLC, No. 22-10964 (MG), Bankr. S.D.N.Y., memorandum opinion on Earn assets, ECF No. 1822, 4 January 2023.
Related on this desk
- Celsius: the ruling that turned 600,000 depositors into unsecured creditors — the same question answered the other way, on a different set of terms.
- Prime Trust: the custodian that could not open its own wallets — and answered a third way, where commingling defeated tracing before the contract mattered.
Disclosure. Max Avery is affiliated with Digital Ascension Group (DAG). Investment advisory services are offered through DAG Wealth, an SEC-registered investment adviser (CRD No. 328627). Registration does not imply a certain level of skill or training. DAG is not a law firm and does not provide legal or tax advice. Custody arrangements with third-party independent qualified custodians reduce certain risks but do not eliminate them. Nothing here is investment, legal, or tax advice, or a recommendation to buy or sell any asset. This article describes matters of public record.