U.K. Cryptocurrency Exchange Cubits Shuts Down After $33M Scam

Cubits, a London-based digital asset trading platform, has been forced into administration after fraudsters reportedly stole €29 million (about $32.5 million) from the exchange in February. The company claimed “it fell victim” to an elaborate scam orchestrated in collusion with three of its clients.

The administration means that investors cannot deposit or withdraw funds until further notice. It’s not clear how much worth of bitcoin the exchange was holding on behalf of customers at the time of closure.

Cubits has now appointed Steve Parker and Trevor Binyon of Opus Restructuring & Insolvency as joint administrators. In a statement, the company said it had failed to recover from the “criminal act,” which involved the accounts of three customers.

Cubits, the trading name of legal entity Dooga Ltd., said the “serious criminal act” had crippled business operations and “finally led to the difficult decision to place the company into administration.”

Three Chinese traders allegedly purchased BTC through the platform via Pay Secure Online (Paysec), a payment processor based in Malta. However, Paysec never remitted the funds to Dooga, in an alleged scam. Cubits has now filed a lawsuit in Malta to force Paysec to reimburse the €35 million ($39.2 million it supposedly owes the exchange. The reimbursement claim includes funds from the three Chinese accounts and others.

The company stated:

Dooga stated that it had informed the responsible authorities in the U.K., Malta, China and Germany of the scam. It has also filed several criminal complaints, but nothing has materialized, forcing the exchange to file for administration.

With administration – the U.K. equivalent of bankruptcy – the administrator will seek to restructure the company in financial distress, especially its debt. During this period, investors or creditors cannot make legal claims against the entity, giving it opportunity to recover.

Cubits said it had made “every possible effort to recover” the funds without success. The only other option was to file for bankruptcy.

“This decision secures the current position whilst the administrators seek offers for the business and its assets,” said the exchange. “The role of the administrators will be to work with those who are owed money by the company and to collect monies that are owed. The key objective is to achieve the best possible outcome for creditors and recover as much as possible of the funds owed to the company.”

Parker, who will also be working together with Allister Manson, technology partner at Opus Restructuring & Insolvency, and Nicholas Parton, head of forensic accounting at Opus, said his duties as administrator involve collaborating with those who are owed money by Cubits and to collect money owed to the company. “Dooga’s current position is secure, investigations are proceeding and we will be writing to creditors, formally, this week,” he said.

Users reacted angrily when the Cubits platform suddenly went offline on Monday. The exchange said on Twitter that the blackout was due to “maintenance.”  Later, the website began producing a general error message before subsequently announcing that the company was being placed under administration.

User Jamil Khadem complained on Twitter: “Have we been robbed by Cubits? I’ve been waiting for a withdrawal since the 6th of December and the company won’t give me a straight answer.”

Founded in 2014, Cubits has allowed customers to buy and sell cryptocurrency like bitcoin. It also claimed to act as a bridge between virtual currency and more traditional forms of payment, specifically to the online gaming industry.