A Sydney-based fund manager has been tasked with safeguarding millions of dollars in bitcoin as DigitalX and its former chief butt heads over its ownership.
A Sydney-based fund manager has been tasked with safeguarding millions of dollars in bitcoin amid a dispute between jailed Perth tech tycoon Zhenya Tsvetnenko, DigitalX and former chief Alex Karis over its ownership.
Mr Karis, who lives in the US, launched Federal Court action against the West Perth-based blockchain company he once helmed and Tsvetnenko in April, claiming he was owed $1.16 million in remuneration, leave entitlements and termination payments.
He told the court Digital CC, now DigitalX, was his brainchild, formed in early 2014 alongside Tsvetnenko and several others to mine and trade bitcoin between different exchanges.
Around the same time, Mr Karis established seven bitcoin trading accounts for his own personal use.
DigitalX offered Mr Karis the role of chief executive, allegedly promising big bonuses, the costs of the company acquiring his bitcoin trading accounts and equity in DigitalX.
He accepted the role, venturing to Australia to meet with investors, helping to raise capital and receiving DigitalX shares that afforded him 12 per cent of the voting power.
But Mr Karis claims his relationship with the company soured in mid-2016, around the same time criminal charges were laid against Tsvetnenko, and that he was sacked later that year.
In response to Mr Karis’s claim for compensation, DigitalX alleged his shares in the company were payment for its acquisition of the Karis bitcoin trading accounts; a claim Mr Karis rejected.
In March, DigitalX took to a US court seeking a declaration that it was the rightful owner of two Karis bitcoin trading accounts, both of which are held on the collapsed Mt Gox exchange now under the control of a Japanese bankruptcy rehabilitation trustee.
The pair are hopeful the bitcoin in those accounts will be recovered, the value of which reportedly exceeds $10 million.
The trustee accepted Mr Karis's claim to the bitcoin and rejected DigitalX’s; prompting the legal row over who the true legal beneficiaries were.
But Federal Court Justice Katrina Banks-Smith granted an anti-suit injunction, stopping the US litigation in its tracks.
Mr Karis wanted to forward any funds received by him from the trustee to his Australian solicitors to be held on trust.
But DigitalX proposed that the bitcoin instead be held by Sydney-based fund manager Boutique Capital, along with an irrevocable direction pending a resolution of the court matter; arguing that a professional with the capacity to hold bitcoin should be handed responsibility.
Further, it sought orders that Mr Karis’s failure to comply should trigger the vacation of the anti-suit injunction; allowing DigitalX to push ahead with its lawsuit in the US.
In a determination handed down by the federal court, Justice Banks-Smith ordered that the bitcoin and its distribution proceeds be held on trust by Boutique Capital so as to not preference any one party.
Under the order, Mr Karis must notify Mt Gox’s rehabilitation trustee of the transfer of his claims to Boutique Capital, with any bitcoin received to be held on trust until the court can determine the rightful owner.
“The bitcoin is one of the subjects of and is central to the dispute, the rights to it are contested and it is apparently of potentially significant value,” Justice Banks-Smith said.
“It seems to me that the sensible course is for an AFSL licensee with experience in dealing with cryptocurrency to assume that role. Cryptocurrency is not simply money.
“It might be said that if the bitcoin are simply held on trust, any such expertise is not particularly relevant.
“However, it may be that particular issues arise which may be dealt with in the interests of all parties more efficiently by a specialised trustee.
“Boutique Capital is well placed to communicate with the rehabilitation trustee about any intricacies of the proposed distribution of the bitcoin, respond to any question of the rehabilitation trustee, and address any issues that might arise...”
Business News understands the rehabilitation trustee has not yet distributed the bitcoin.
The matter is expected to go to a further case management hearing next month.
