A federal judge in New York has ruled to postpone the release of $63 million worth of stolen USD Coin (USDC) assets in a cryptocurrency wallet, aiding efforts by the Singapore-based liquidators of failed cryptocurrency bridge Multichain to seek recognition in their U.S. lawsuit.
The interim order was issued Thursday by Judge David S. Jones of the Southern District of New York, ordering stablecoin issuer Circle to freeze the assets of three Ethereum wallets and preserve dollar reserves backing the stolen USDC.
The court said the order was necessary to prevent potential loss or misappropriation of assets while the cross-border liquidation process continues.
US federal court takes over the case
Multichain Singapore’s liquidation lawsuit was initially submitted The case was tried in New York state court, but was transferred to federal court last week after Circle invoked the Class Action Fairness Act.
The Class Action Fairness Act of 2005 expanded the authority of U.S. federal courts to oversee class actions originally filed in state courts. The law allows defendants to transfer such cases to federal jurisdiction if certain criteria are met, such as a minimum number of class members and a monetary threshold in dispute.
For a federal district court to hear a case, it must have jurisdiction over both the parties and the subject matter, referred to as personal jurisdiction and subject matter jurisdiction, respectively.
The transfer automatically halted a separate class action lawsuit brought by a group of U.S. investors who had asked the court to transfer control of the same $63 million through a lawsuit against Circle. The case had been heard in state court before the federal government moved to change jurisdiction.
Judge Jones’ order is interim under Section 1519 of the U.S. Bankruptcy Code, which allows courts to provide temporary relief to protect assets before formal certification of foreign bankruptcy or liquidation cases.
Singapore-appointed liquidators argued to Mr Justice Jones that lifting the freeze could cause “immediate and irreparable harm”, particularly if assets were moved or claimed outside the scope of coordinated legal proceedings in both jurisdictions.
The next step for the liquidators will be to persuade a U.S. court to recognize the Singapore case as a “foreign principal action” under Chapter 15 of the Bankruptcy Code. If approved, the Singaporean liquidator would be able to act within US jurisdiction and would likely proceed with the recovery of funds under joint supervision with US courts.
Lack of funds due to multi-chain collapse
Multichain, formerly known as Anyswap, is one of the most used cross-chain asset bridges in the cryptocurrency industry. Through this bridge, users can transfer tokens between blockchain networks Binance Chain, Avalanche, Polygon, and Ethereum without having to sell or convert their holdings.
Bloomberg reported that Zhaojun, the company’s chief executive officer, arrested After news of his arrest broke, users almost immediately began filing complaints about delays, failed transactions, and held transfers.
The company revealed that approximately $121 million worth of digital assets were “abnormally” transferred to an “unknown address” within the same month. Multichain asked users to stop using the protocol and immediately revoke all contract approvals.
The multichain hack had a major impact on several ecosystems using its bridge infrastructure, especially Fantom, the layer 1 blockchain now known as Sonic Labs, which had endorsed the protocol as its primary bridge.
After the exploit occurred, Sonic Labs estimated that the total amount of assets lost had grown to $210 million. According to DeFiLlama data, Multichain held approximately $1.25 billion worth of assets in smart contracts at the time of the breach.
Sonic Labs has filed a lawsuit in Singapore against Multichain “after months of failed communications and recovery efforts,” says Cryptopolitan reported. The former accused Bridge Protocol’s leadership of refusing to cooperate with victims and investigators.
On May 9, the Singapore High Court ruled in Sonic Labs’ favor, appointing accounting firm KPMG as official liquidator and ordering the compulsory liquidation of Multichain Foundation.
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