Vauld, the beleaguered Asian crypto lender that abruptly halted client withdrawals this month, owes $363 million to retail investors, according to legal documents obtained by The Block.
The affidavit, filed by Vauld co-founder and CEO Darshan Bathija in the High Court of Singapore on July 8 and shared with the firm’s customers in an email on July 18, reveals that the crypto lender owes a total of $402 million to creditors. Of that sum, $363 million — or 90% — comes from individual retail investors’ deposits.
The document outlines that Vauld owes a total of $125 million to its 20 largest unsecured creditors — all of whom appear to be individuals, except one unnamed “Party A.” Three creditors are owed more than $10 million each, with the largest owed $34 million. Unsecured creditors have one of the lowest priorities in an insolvency situation, ranking after secured and preferential creditors, and do not have a security interest in any debtor asset.
Singapore-based Vauld suspended client withdrawals on July 4 as it fought to stave off insolvency. The next day, London-based rival Nexo started a process to potentially acquire Vauld by signing a term sheet that granted a 60-day exclusive exploratory period to conduct due diligence.
Apart from the unsecured creditors, Vauld has two secured creditors — an unnamed “Counterparty 1” and FTX Trading Ltd. — owing them $35 million and $4.1 million, respectively. FTX, a crypto exchange giant, declined to comment to The Block when reached.
Vauld’s assets are given as $287.7 million in the affidavit, consisting of various coins, including bitcoin, ether and XRP. But Bathija told The Block that Vauld’s total assets are actually worth around $330 million because the affidavit doesn’t include “bank balances.” That means Vauld has a shortfall of around $70 million, which it disclosed earlier this month.
Vauld woes
Vauld has also explained in detail what caused its financial difficulties in the affidavit.
The first factor was May’s collapse of the algorithmic stablecoin TerraUSD (UST). Vauld had staked around $28 million in UST, per the affidavit, which caused its net asset position to decrease sharply.
Then the broader crypto market downturn that followed UST’s implosion led to further losses for Vauld. The firm had taken “long positions in cryptocurrencies such as Bitcoin, Ethereum, Matic and XRP, that are currently valued at ~US$37m,” per the affidavit.
The third driver was several debtors defaulting on their loans due to the market slide.
“A number of Vauld debtors which had borrowed cryptocurrencies on the Vauld Platform without providing collateral collapsed and defaulted on their loans,” reads the affidavit. As a result, the unexpected bankruptcy of Vauld’s borrowers led to outstanding debts of “about 85 BTC (~US$1.7m) owed to it with little to no hope of recovery.”
Fourthly, Vauld had made several significant investments, including sponsorships agreements with Alfa Romeo and Crystal Palace Football Club from the English Premier League totalling $6 million. These were signed in September 2021 and March 2022, respectively, per the affidavit.
“While these were entered into while the Vauld Group was having relatively stable financial health, the lack of immediate returns has exacerbated DeFi Payments’ short-term financial difficulties,” the affidavit reads.
DeFi Payments is the name of Vauld’s Singapore entity. The firm has various entities, including in India, the US, the UK, Turkey, Lithuania, Ireland and the Seychelles, per the affidavit.
A final factor that led to Vauld’s financial difficulties is a software bug in its platform that caused a loss of about $4.5 million in August 2021, according to the affidavit.
Moratorium hearing
To get some breathing space, Vauld on July 8 applied to the Singapore High Court for a moratorium, which is a suspension of the commencement or continuation of any legal proceedings against the company while it explores its restructuring options.
Under Singapore law, an automatic moratorium for 30 days arises upon filing the application, Vauld told its customers in the email sent on July 18. The court will determine whether to extend the moratorium at a hearing scheduled for August 1, according to the email seen by The Block. Bhathija confirmed that the hearing will take place on August 1 and said Vauld is seeking an extension for 6 months.
If Vauld doesn’t get the extension, then the company will have “lesser time to evaluate our options,” said Bhathija. Asked if insolvency proceedings will begin if the extension isn’t granted, Bhathija said, “not necessarily. We are not going down that route. We are committed to closing a transaction with Nexo.”
It remains to be seen how Nexo’s due diligence goes. If it fails and Nexo doesn’t make a deal with Vauld, the latter could take other paths it has previously highlighted. These include raising more venture capital, converting debt to equity, issuing its own token and developing a payment plan tied to future revenue.
In the meantime, legal teams of creditors have already reached out to Vauld with letters of claims. These letters are from Lions Chambers LLC, Covenant Chambers LLC and Spice Route Legal, according to the affidavit, claiming a total of more than $2 million.
“We anticipate that more demands and threats to commence legal action are to come,” Bhathija says in the affidavit.
Vauld is ultimately seeking the support of creditors as this is one factor that would determine whether the troubled crypto lender gets an extension of the moratorium, per the email.
© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
