Crypto lender Freeway runs out of road as court orders liquidation of business

In a ruling that appears to end Freeway’s efforts to remain viable, a judge in the Grand Court of the Cayman Islands this week ordered the liquidation of AuBit, the parent company of the troubled crypto lender.

Acting on a petition filed by AuBit, Justice David Doyle ruled that “the affairs of the company and its management cry out for a thorough independent investigation.”

He rejected AuBit’s request to restructure Freeway instead of liquidation.

At its peak in 2022, Freeway had $160 million in assets. Now it has become the latest cautionary tale in a sector — crypto lending — littered with the wreckage of Celsius and other failed ventures.

Freeway, which used to be called Aubit Prime, is a centralised crypto lending platform that attracted users with promises of high yields.

Under its rewards programme, called Superchargers, customers expected to earn annual returns of up to 43%. It was one of many platforms with similar business models.

But in October 2022, Freeway halted withdrawals, citing trading losses.

Unable to withdraw

Some 5,000 retail investors who had deposited more than $160 million into the Supercharger programme were unable to withdraw their funds.

A Supercharger customer, an investment firm called LedgerScore, responded by suing AuBit and a handful of associated companies in Wyoming in August 2023.

The plaintiffs in that suit alleged that AuBit is “a scam” domiciled in the crypto-friendly American state, and supported by an opaque network of shell companies based in the Caymans and the Seychelles Islands, which are well-known tax havens.

Moreover, the lawsuit contended AuBit sent customer funds to a Greek brokerage, Ardu Prime, assuring customers that they would be kept in segregated accounts.

As problems mounted, AuBit blamed Ardu for refusing to cooperate with its auditors and failing to release more than $60 million of its funds.

Ardu has been having its own legal troubles — Greek authorities suspended its trading licence last week, according to local media reports.

Later in August, and separately from the Wyoming suit, AuBit went to the court in the Caymans saying it could not pay its debts. AuBit asked for approval to bring in Grant Thornton, an asset recovery firm, to restructure the company.

If Freeway was allowed to restructure, Grant Thornton could begin to recover its assets, Freeway said in a Medium post published on August 25. Meanwhile AuBit/Freeway made plans to raise capital and fund new business lines, such as an asset tokenisation platform and a stablecoin.

Independent liquidators

“We believe that both asset recovery and restructuring and revenue generation from new products are capable of funding recovery separately,” Freeway wrote.

But in September, LedgerScore asked the Caymans court to wind up Freeway under independent liquidators, as opposed to allowing AuBit to restructure. And the judge agreed.

“The company has failed to maintain any proper reliable accounts (audited or otherwise) that accurately set out its financial position,” Doyle wrote in his decision on Thursday. “There has been a real absence of proper accounting.”

Now the liquidation will enable independent experts to pick through Freeway’s remains and discover what happened to creditors’ funds, say sources who still have money tied up with the business.

At the same time, AuBit is trying to distance itself from the Freeway brand. Matt Oxborrow, a business development officer at Freeway, tweeted in March that AuBit was distinct from South Africa-domiciled AuBit Prime.

LedgerScore, however, rejected that pitch in its Wyoming suit and argued the companies are functionally the same. And now the battle to recover $160 million in lost funds will enter a new phase.

Have a tip on crypto legal cases? Contact the author at joanna@dlnews.com.