Beleaguered cryptocurrency lender Hodlnaut had downplayed its exposure to the Terra ecosystem and its sister token Luna (CRYPTO: LUNC) created by fugitive Do Kwon in the run-up to and after its crash and had suffered a nearly $190 million loss as it collapsed, according to the findings of an interim judicial managers’ report.
“It appears that the directors had downplayed the extent of the group’s exposure to Terra/Luna both during the period leading up to and following the Terra/Luna collapse in May 2022,” the report states, according to Bloomberg.
This is the first disclosure of its kind since a Singaporean court gave Hodlnaut protection from creditors in August so that the firm could develop a recovery plan.
Hodlnaut directors made an about-turn
According to the report, the directors of Hodlnaut "made an about-turn" on the implications and told the Singapore police department that digital assets had been converted to TerraUSD (CRYPTO: LUNA) in a letter dated July 21.
The report added that a large portion of the latter was lent out on the Anchor Protocol, a decentralized financial platform created on the Terra blockchain.
More than 1,000 erased documents from Hodlnaut's Google Workspace, according to the judicial report, might have provided insight into the company.
A number of important papers pertaining to Hodlnaut's Hong Kong branch, which owes Hodlnaut Pte in Singapore 82.43 million Singapore dollars ($58.3 million), have not been made available to the judicial managers.
The audit noted that it appeared that certain employees withdrew about 776,292 Singapore dollars between July and the time withdrawals were stopped in August.
It further stated that the Hong Kong division handled the majority of the company's investments in DeFi.
Victims of Terra ecosystem collapse
Hodlnaut, founded in Singapore in 2019, follows in the footsteps of several other victims that had exposure to the Terra ecosystem and its algorithmic stablecoin UST (CRYPTO: USDT), including Celsius (CRYPTO: CEL), Voyager Digital, and Three Arrows Capital.
In July 2022, the company stopped accepting withdrawals, claiming "recent market conditions" and a need to stabilize its liquidity and preserve assets.
Ee Meng Yen Angela and Aaron Loh Cheng Lee, two employees of EY Corporate Advisors, were chosen by the Singapore High Court in August to serve as temporary judicial managers (IJMs).
Immediately after ending withdrawals, Hodlnaut laid off 80% of its personnel, or about 40 people.
Singapore's stand on cryptos
Following the failures of several well-known lenders, Singapore may soon tighten its laws on cryptocurrency lending and staking, at least for regular investors.
In a recent report, the Monetary Authority of Singapore (MAS) suggested that companies that provide services for digital assets "should not mortgage, charge, pledge or hypothecate the retail customer's" cryptocurrency.
Hypothecation is the practice of using an asset as security for a loan.
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