Why Freeway’s investors hope liquidation of crypto lender will reveal $160m in lost assets

Why Freeway’s investors hope liquidation of crypto lender will reveal $160m in lost assets
Freeway investors are hoping for asset recovery at the end of a long road. Credit: Shutterstock
  • Freeway went under in October 2022, leaving investors believing they’d been rugged.
  • Its directors have now ordered its liquidation, according to emails seen by DL News.
  • Dissolution of lender is unfinished business from the last bull market.

Was the collapse of Freeway the result of fraud or trading losses?

The authorities will hope to get a clearer picture of what happened to the distressed crypto lender as its Seychelles entity goes into liquidation.

And, so too, of course, will some 5,000 account holders who are hoping they can recover some of their assets trapped in the doomed platform.

‘Very serious events’

Freeway’s directors have appointed a Cayman Islands-based firm, FFP, to oversee the dissolution of the company, which collapsed in October 2022.

“Very serious events have unfolded at Freeway and other related companies,” Richard Murphy, a senior manager at FFP, said in an email to account holders dated March 20 and seen by DL News.

“It appears that Freeway’s assets, upwards of $150m, are missing, having been taken and dissipated by various parties,” he wrote.

For anyone who’s watched the winding down of lender Celsius, which collapsed in mid-2022 — or even of exchanges like Mt Gox and FTX — the predicament Freeway’s creditors find themselves in will ring familiar.

Retrieving crypto assets and making creditors whole is a years-long process — it’s taken a decade in Mt Gox’s case — and often one where investors regain a fraction of what they put in, if they’re lucky.

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‘Plethora’ of lawsuits expected

The Freeway liquidation now brings the company under the supervision of a court in Seychelles, an island nation in the Indian Ocean, Murphy wrote in the email.

Investigators and law enforcement can pick through its remains, and begin clawing back assets via lawsuits.

Murphy said he expects to spend time dealing with authorities from various countries as they build civil cases, and he expects a “plethora” of suits to ensue against exchanges, brokers, individuals, Freeway management, and others.

‘Freeway doesn’t have any assets so it’s hard to see asset recovery.’

—  Darren Olney-Fraser, Freeway creditor

Freeway co-CEO Sadie Hutton also emailed investors on March 20.

“The Freeway liquidators have been engaged with a directive to recover and distribute stolen assets for the benefit of all creditors and Supercharger holders,” Hutton wrote.

“This includes a responsibility to undertake actions against any party where potentially winnable claims can be made with a view to increasing the recovery pot.”

Asset recovery challenge

She added that she would do everything in her power to assist with the liquidation and asset recovery.

Neither Murphy nor Hutton responded to requests for comment from DL News.

Furious Freeway investors reacted to the news of the liquidation with scepticism.

“I’m not sure that it changes anything,” Darren Olney-Fraser wrote in a post on a Telegram group for the Freeway investor community.

“Freeway doesn’t have any assets so it’s hard to see asset recovery.”

A Storm of Lawsuits

Olney-Fraser is a Freeway creditor and a lawyer in Australia who is leading the community’s efforts to regain their assets via their own lawsuits.

He told DL News that “victims of the AuBit Freeway scam are determined to get recovery, and to make sure the scammers are held accountable.”

The liquidators will have their work cut out for them as they untangle Freeway.

Following the playbook of many businesses in crypto and in finance generally, Freeway and its parent company AuBit International are a confusing knot of corporate entities located in tax havens and jurisdictions with lax rules on disclosures.

Freeway itself is incorporated in the crypto-friendly state of Wyoming. Related entities are located in the Seychelles, Cayman Islands, the UK, and possibly South Africa.

To add to the confusion, AuBit is undergoing a separate liquidation in the Caymans under a company called FTI after AuBit lost a bid to restructure there.

“The background to the Freeway situation is complex and will take time to investigate and untangle,” Murphy said in the email sent to investors.

He added that he has written to FTI to coordinate asset recovery.

Freeway out of road

Like other similar businesses, Freeway had a rewards programme, called Supercharger, that promised investors eye-popping returns of up to 43% annually.

Its directors also told investors it was “safer than most bank accounts” and was profitable with or without its users’ deposits.

But in October 2022, Freeway halted all platform withdrawals.

Investors assumed a massive fraud was occurring, and took to Twitter and the Freeway Telegram groups to vent their rage.

LedgerScore alleged the business was a “scam” that had lied to investors about its funding and reserves.

In a Medium post published months later, Freeway denied it had committed fraud, and told investors the platform had “suffered large unrealised losses” in its main brokerage account.

But in August 2023, a company named LedgerScore that had sustained losses on the platform filed suit against Freeway/AuBit in Wyoming.

LedgerScore alleged the business was a “scam” that had lied to investors about its funding and reserves.

As the pressure mounted and investors continued to rail against Freeway’s directors on social media, they blamed the company’s Athens-based prime broker, Ardu Prime, which they said was refusing to release $60.4 million of Freeway’s assets.

Greek regulators have since revoked Ardu’s trading licence, according to OffShoreAlert, a news site that tracks international finance.

Contact the author at joanna@dlnews.com or Telegram @joannallama.