Millions in savers' cash goes missing after crypto company collapses
Administrators have discovered a £2m black hole at Ziglu, a British fintech business that suspended withdrawals in May and was put into special administration last week.
The company attracted savers with promises of market-beating interest rates and was once valued at £126m. But many of its 20,000 customers have had their funds frozen for weeks after the Financial Conduct Authority (FCA) forced it to suspend withdrawals.
Directors at the company were last week accused of 'mismanagement' as a court heard that they had used savers' funds to keep the business running until it collapsed.
A High Court insolvency hearing was told that funds saved in Ziglu's high-interest investment product had been 'used in relation to more general cashflow' before the company applied to be put into special administration in June.
Customers' funds have been frozen since May, when the FCA restricted withdrawals related to its Boost product, which offered market-beating interest rates.
The collapse is likely to raise new questions about the high-stakes cryptocurrency industry, which has dangled the promise of huge returns without traditional protections.
'New world of digital money'
Ziglu, founded by the former Starling Bank co-founder Mark Hipperson, allowed users to store and send cryptocurrency. It described its mission as 'empowering everyone to benefit from the new world of digital money, easily, safely and affordably'.
The company's key feature was a 'Boost' investment product that offered returns of up to 6pc. It was launched in 2021, when interest rates were at historic lows, and attracted savers who were desperate for returns.
Ziglu suspended users from withdrawing Boost funds in May. Around 4,000 savers used the investment product, with total balances of £2.7m. The £2m shortfall means that the majority of their funds will be wiped out if they are not recovered as part of a rescue deal.
Millions of pounds in separate customer deposits and cryptocurrency holdings are believed to be accounted for, although it is unclear when customers will be able to retrieve them.
In June customers were given a week to withdraw these funds before the business applied to go into administration.
The Boost product was not protected or ring-fenced like typical savings accounts. Its terms allowed the company to use the funds for day-to-day spending and generate returns by lending it out.
The company is alleged to have dipped into the customer funds earlier this year when an investment deal fell through.
Mr Hipperson, who is no longer at the company, said that Ziglu's board and advisers had been close to securing new funding in the weeks leading up to restrictions being placed on the company and that the investment would have ensured that Boost savers were made whole.
Ziglu's administrators at RSM will now seek buyers for the company with the future of savers' funds unclear.
The company was formally placed into special administration on Monday, after an unsuccessful legal challenge from a secured creditor who had sought to appoint Kroll, a different administrator.
Reuben Comiskey, representing the creditor, FactorTech Funding, said there 'appears to have been mismanagement and misapplication of funds' and that 'we have real concerns about the way the directors operated this company'. Mr Hipperson said this was 'completely false' and claimed that it was 'a misguided attempt' to take control of the administration.
Accordingly, the judge denied their application in favour of RSM.
The US fintech company Robinhood agreed to pay $170m (£126m) for Ziglu in 2022 as part of a plan to enter the UK, but attempted to cut the price amid a major downturn in crypto markets and later pulled out of the deal.
An FCA spokesman said: 'We cannot comment on specific firms. We continue to remind people that while we develop the UK's crypto regulation, crypto remains largely unregulated in the UK and high risk.'
The company has been bombarded with one-star reviews by customers unable to access their funds.
Administrators at RSM must contact customers within eight weeks with details of their proposals for the business, which will include how funds will be returned.
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