Crypto lender Hodlnaut facing police probe, cuts 80% of jobs

Hodlnaut said its business has been hurt by losses at its Hong Kong subsidiary during the TerraUSD stablecoin crash. PHOTO: REUTERS

SINGAPORE - Cryptocurrency lender Hodlnaut, which is mired in financial woes, said there are “pending proceedings” between the firm and the Singapore authorities, although it did not reveal more.

In a statement issued on Friday, it said the proceedings involve the Attorney-General’s Chambers and the Singapore Police Force, adding that it is unable to disclose any further information on the matter.

In response to queries, the police said they are "unable to comment on the case as the matter is before the courts".

Hodlnaut also said it has laid off about 40 people, or 80 per cent of staff. The remaining team is needed to help with key functions.

The update comes after the lender said in a statement on Tuesday that last week, it filed for judicial management - a form of debt restructuring - with the High Court.

A firm under judicial management is under financial distress and will have an independent judicial manager appointed to manage its affairs, business and property. A company under judicial management is temporarily shielded from legal proceedings by third parties so that it can rehabilitate.

An interim judicial manager could be appointed as soon as next Monday (Aug 22), when the hearing is due.

Hodlnaut has applied for Kairos Corporate Advisory’s Tam Chee Chong to be its interim judicial manager and, subsequently, judicial manager.

Mr Tam has more than 37 years of corporate and financial advisory experience, including as judicial manager in various companies that underwent restructuring.

The judicial manager will have to decide whether to approve Hodlnaut’s proposal to allow users to withdraw their entire account balance, including interest accrued, but with a haircut. 

After this, the user’s account with Hodlnaut will be closed. 

In the light of the judicial management process, users cannot withdraw their assets at this juncture.

“No user will receive any priority in withdrawals,” the lender said, adding that if the firm is liquidated, all assets of the company will be sold first before being distributed to users equally in proportion to their holdings. 

“What this would mean is that even users who hold stablecoins would likely get back only a fraction of what was initially deposited,” it said. 

Hodlnaut on Aug 8 froze withdrawals and withdrew its application for a licence to provide digital payment token services in Singapore, citing recent market conditions and the need to focus on stabilising its liquidity and preserving assets. 

The Monetary Authority of Singapore on Aug 9 rescinded Hodlnaut’s in-principle approval to offer token swaps under the Payment Services Act.

Hodlnaut is one of many crypto firms battered by the crypto market rout that was triggered by the collapse of stablecoin TerraUSD and sister token Luna.

Brokerage Voyager Digital and exchange Zipmex have also filed for bankruptcy protection.

Zipmex on Wednesday said the High Court has allowed all five Zipmex entities to continue their restructuring in Singapore, and also granted an extension of the moratorium shielding the group from potential creditor lawsuits until Dec 2. 

Hodlnaut said it would provide further updates on the judicial management process on Aug 23.

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