The liquidation of iCE3 is a watershed moment for SA’s crypto industry

When SA crypto exchange iCE3 shut down trading in March due to “account discrepancies” and a few weeks later announced it had initiated liquidation proceedings, account holders were understandably concerned that a “friendly” liquidator would try to grab their crypto assets and count these as part of the exchange’s assets.


Social media chatter is alive with concerns that liquidators in the iCE3 matter will attempt to gorge themselves on assets that don’t belong to the estate – and commentators on the iCE3 Concerned Telegram Group have pointed to more than a few examples of where this has happened in the past. They are keeping a hawk eye on who gets appointed liquidator of iCE3.

Some iCE3 clients are preparing a potential legal challenge should the court-appointed liquidator attempt to claim their crypto as assets belonging to the exchange.

Legal precedent

They point to a New Zealand court precedent involving crypto exchange Cryptopia, which had more than 900 000 account holders and NZ$170 million (R1.76 billion) in crypto assets at the time of liquidation.

The exchange was hacked in January 2019 and somewhere between 9% and 14% of its cryptocurrency was stolen, equivalent to about NZ$30 million (R311 million).

The New Zealand court was asked by the liquidators to assess the legal nature of the digital assets in the Cryptopia case, and to determine whether digital assets held on the exchange were “property” and whether they were being held in trust for clients. And, if the digital assets are held on trust, was there a separate trust for each account holder or one trust for the benefit of all account holders?

Based on the evidence before it, the court found that all cryptocurrency holdings were held on trust by Cryptopia, meaning these assets could not be counted as part of the property of the liquidated estate.

Account holders in iCE3 are gearing up to make the same arguments before the SA courts, should the court-appointed liquidator try to grab their cryptocurrencies for the account of iCE3.


This is different to Mirror Trading International (MTI), now in provisional liquidation, which was ranked the world’s biggest investment scam of 2020 by Chainalysis.

MTI was a multi-level marketing scheme that roped in bitcoin from tens of thousands of people around the world with promises of returns of up to 10% a month. The Financial Sector Conduct Authority (FSCA) issued warnings on MTI in August last year and urged investors to demand their money back, arguing that the scheme was basing its promises of 10% returns on a computerised algorithm that was claimed to have lost only one day out of 200. When the FSCA investigated, it found no evidence of his algorithm, and declared MTI to be a scam.

In the MTI case, the liquidators recently recovered R1.1 billion in bitcoin and sold this through the Luno exchange.

Why liquidators would have to power to sell digital assets in the MTI case, and not in the cases of Cryptopia and iCE3, is because both these exchanges include terms of service that spell out the nature of the relationship: the digital assets are held in trust on behalf of the client.

In the case of MTI, there are no similar terms of service on which investors can rely.

In New Zealand’s Cryptopia case, the court found that account holders were the owners of their cryptocurrencies, and it was never envisaged that ownership would transfer to the exchange in the event that it went into liquidation.

All the terms and conditions on the Cryptopia website indicated that account holders were the beneficial owners of their cryptocurrencies: “Our mission is to enable the widespread adoption of digital currencies to give people control back of their money through faster, cheaper, and more efficient financial services.”

iCE3’s terms of service

Though iCE3’s terms of service are no longer shown on its website, the Waybackmachine was able to recover this: “All Deposited Currency credited to User’s Account will be maintained in trust in a bank account with a reputable deposit-taking institution under the Company’s name or in the name of a custodian appointed by the Company.”

This is an explicit admission that the exchange is holding clients’ assets on trust, and that these do not therefore form part of the estate of iCE3 in the event of liquidation.

The terms of service is a legal contractual obligation, which is exactly what was determined by the New Zealand court.

There is a provision in the SA Insolvency Act that an insolvent cannot prefer one creditor above another. The implication is that if the clients of iCE3 are creditors of iCE3, then all payments made six months prior to the liquidation must be recovered by the liquidator. This will lead to absurd consequences, hence the need for legal clarity on crypto exchanges and their relationship to clients.

Oddities in the Cryptopia case

There were some oddities about the Cryptopia case highlighted by the New Zealand court: those holding Ethereum lost 100% of their holdings in the hack. “Thus, if the digital assets were divided by currency and in proportion to an accountholder’s holding of each currency, those holders would receive nothing,” reads the New Zealand court judgment.

The court also considered whether the remaining digital assets on the exchange, amounting to some NZ$ 217 million (R2.25 billion), were to be made available to account holders and creditors on an equal basis – in which case each creditor would receive over 85% of their total claims, as against less than 50% if these digital assets were deemed to be held on trust.

In the event that stolen digital assets are recovered, the New Zealand court found that they were to be distributed pro rata to account holders “for the digital asset concerned according to the amounts recovered assessed against the amounts stolen”.

Says iCE3 client JJ van Vlees: “It remains important that one person or a group of assets holders should initiate action in order to gain control/delivery of their assets. This will force the liquidator to oppose the applications and hopefully, this will then play out in the courts and in this manner, all the traders are protected under the outcome of that court case. I will financially contribute towards the legal fees, even more than the value of my holdings on iCE3. This is a pivotal point for digital assets in South Africa and we must get a correct court decision now to establish or confirm the nature of a digital asset and also the relationship between the exchange and the trader on an exchange.”

Pointers for the regulators

As SA readies itself for crypto regulations in the coming months, ownership of exchange assets by account holders – which is governed by common law and is usually spelt out in each exchange’s terms of service – may require some legislative attention from the Consumer Protection Council and the Department of Trade and Industry.

It would be naïve to think hacks and liquidations will not occur in the future.

The legal position of account holders in crypto exchanges must be solidified at this relatively early stage in the development of crypto and digital assets.

Crypto exchanges refer to ‘wallets’ which are supposedly secure accounts for the holding of crypto assets, but this is often no more than an entry in a database or spreadsheet. As we have seen in the case of iCE3, unless you control both the public and private keys to your wallet, you have invested in the hope that the exchange will honour its terms of service.

iCE3 was run out of a house in Klerksdorp

Moneyweb has sent questions to iCE3 founder Gareth Grobler, and iCE3’s technology partner, between whom there appears to have been some dispute giving rise to the aforementioned “account discrepancies”. Neither party responded. Nor have they posted any meaningful updates on the iCE3 website.

This leaves customers guessing as to what happened to their crypto assets, whether they were subject to a hack, admin errors or outright criminal theft.

A closer look at iCE3 shows it was run out of a house in Klerksdorp, which also appears to have doubled as the headquarters for as toilet paper business, and possibly more.

Source: CIPC website

No financial statements were submitted to the Companies and Intellectual Property Commission (CIPC) as required under the Companies Act.

Source: Google Maps

The bottom line when choosing an exchange: check the terms of service to make sure you own the crypto assets you have bought in the event of liquidation.

And does the exchange have proper offices, credible directors and, perhaps most importantly, understand what’s involved in securing your crypto assets?