Ziglu Faces £2 Million Shortfall After FCA Suspends Withdrawals

British crypto fintech firm Ziglu has faced significant turmoil, resulting in a cumulative loss of $2.7 million in user funds. The firm, which operates as an investment platform, encountered a substantial shortfall worth millions of pounds. Administrators revealed a £2 million deficit at Ziglu, which had suspended withdrawals in May and was subsequently placed into special administration. The company, once a prominent figure in the investment community, attracted users with its market-beating rates and was valued at around £126 million at its peak.

However, the situation took a dramatic turn when approximately 20,000 users on its platform found their funds frozen. This action was mandated by the Financial Conduct Authority (FCA), the regulatory body overseeing financial integrity in the United Kingdom, which ordered the suspension of withdrawals. The directors of the company were accused of mismanaging user funds, using them to sustain the business until its eventual collapse. This revelation came to light during a court hearing where it was disclosed that user funds saved in Ziglu's high-interest investment product were utilized as general cash flow rather than for their intended purpose.

Ziglu, founded by former Sterling Bank co-founder Mark Hipperson, allowed users to store, save, and send cryptocurrencies. The platform aimed to empower users to benefit from the new world of cryptocurrency, offering easy, safe, and affordable digital money transactions. The main feature of the company was its Boost investment products, which promised returns of up to 6%. Launched in 2021 when interest rates were low, the product attracted savers seeking returns on their investments. However, in May, Ziglu suspended withdrawals from its Boost funds, raising concerns among its users.

About 4,000 users utilized the investment product, with a total balance of up to £2.7 million. The £2 million shortfall implies that if the funds are not recovered as part of the rescue deal, the majority of users' funds will be wiped out. Millions of pounds in separate deposits and withdrawals belonging to users are still accounted for, but the timeline for regaining access to these funds remains uncertain. In June, customers were given a week to withdraw their funds before the company went into administration. However, the Boost Product did not offer the same protections as a typical savings account, allowing the company to use the funds for day-to-day operations and generate returns by lending them out.

Ziglu allegedly used customer funds earlier this year after an investment deal fell through. Mark Hipperson, who recently left the company, mentioned that Ziglu’s board and advisers were close to securing new funding before the restrictions were imposed. He stated that the investment would have ensured that Boost savers were compensated. The administrators of the firm are now searching for new buyers as the future of savers’ funds remains unclear. United States Fintech firm was close to securing a deal for Ziglu in 2022 as part of its plan to enter the United Kingdom. However, the downturn in the crypto market led to the deal's collapse.

The collapse of Ziglu raises new questions about the high-stakes crypto industry, which promises significant returns without traditional protections. The FCA has reminded the public that while the UK is developing its crypto regulation, crypto remains largely unregulated and high risk. The future of Ziglu and its users' funds hangs in the balance as administrators work to find a resolution.