A federal judge in New York has ruled to postpone the release of assets on crypto wallets worth $63 million in stolen USD Coin (USDC), lending support to efforts by Singapore-based liquidators of collapsed crypto bridge Multichain, who are looking for recognition of their case in the United States.
The temporary order was issued on Thursday by Judge David S. Jones of the Southern District of New York, mandating stablecoin issuer Circle to keep assets in three Ethereum wallets frozen and preserve the dollar reserves that back the stolen USDC.
The court said the order was necessary to prevent the potential loss or misappropriation of assets while cross-border liquidation proceedings continue.
US federal court takes over the case
Multichain Singapore’s liquidation case was initially filed in New York state court, but was moved to federal court last week after Circle invoked the Class Action Fairness Act.
The Class Action Fairness Act of 2005 broadened the authority of US federal courts to oversee class action lawsuits initially filed in state courts. The law permits defendants to transfer such cases to federal jurisdiction if specific criteria are met, including a minimum number of class members and a monetary threshold for the dispute.
For a federal district court to hear a case, it must hold jurisdiction over both the parties and the subject matter, known as personal and subject matter jurisdiction, respectively.
The transfer automatically paused a separate class action brought by a group of US investors asking courts to hand control of the same $63 million to them through litigation against Circle. That case had been proceeding in state court before the federal move changed the jurisdiction.
Judge Jones’ order is provisional under Section 1519 of the US Bankruptcy Code, which allows courts to grant temporary relief to protect assets before formally recognizing a foreign bankruptcy or liquidation case.
Singapore-appointed liquidators insisted to Judge Jones lifting the freeze could cause “immediate and irreparable harm,” particularly if the assets were moved or claimed outside the two jurisdiction’s coordinated legal proceedings.
The next step for the liquidators will be to convince the US court to recognize the Singapore proceeding as a “foreign main proceeding” under Chapter 15 of the Bankruptcy Code. The Singapore liquidators can act within the US jurisdiction if the recognition is granted, and will likely proceed with recovering funds under joint supervision with American courts.
Multichain’s collapse led to missing funds
Multichain, formerly known as Anyswap, was one of the most used cross-chain asset bridges in the crypto industry. Through the bridge, users could transfer tokens between blockchain networks Binance Chain, Avalanche, Polygon, and Ethereum, without necessarily selling or converting their holdings.
As reported by Bloomberg, the entity’s chief executive officer, Zhaojun, was apprehended by Chinese authorities in July 2023. After news of his arrest broke, users almost immediately started lodging complaints of delays, failed transactions, and pending transfers.
The company disclosed that approximately $121 million worth of digital assets had been “abnormally” transferred to an “unknown address” within the same month. Multichain asked users to stop using the protocol and revoke all contract approvals immediately.
The Multichain hack profoundly affected several ecosystems using its bridging infrastructure, particularly Fantom, a Layer 1 blockchain now known as Sonic Labs, that had endorsed the protocol as its primary bridge.
After the exploit happened, Sonic Labs estimated that the total value of assets lost had ballooned to $210 million. According to data from DeFiLlama, Multichain held about $1.25 billion worth of assets in its smart contracts at the time of the breach.
Sonic Labs filed a lawsuit in Singapore against Multichain, “after months of failed communication and recovery efforts,” Cryptopolitan reported. The former accused the bridge protocol’s leadership of refusing to cooperate with victims and investigators.
On May 9, the Singapore High Court ruled in favor of Sonic Labs and ordered the forced liquidation of the Multichain Foundation, alongside appointing accounting firm KPMG as the official liquidator.