Cryptocurrency exchange operated as Ponzi scheme, B.C. regulator alleges

Cryptocurrency exchange operated as Ponzi scheme, B.C. regulator alleges

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BC’s financial markets regulator is charging three now-dissolved companies and their sole director with fraud related to the “operation of an alleged cryptoasset trading platform.”

The BC Securities Commission published his accusations against Michael Ongun Gokturk and his three companies – Einstein Exchange Inc., Einstein Capital Ltd. and Einstein Law Corporation (which, despite the name, was not a law firm) – earlier this week.

The accusations have not been proven.

According to the BCSC, Gokturk and the Einstein companies “committed fraud by lying to customers about a crypto trading platform and misappropriating customers’ deposited assets for their own speculative investments and personal use.”

Specifically, the commission alleges, the companies claimed that Einstein Exchange:

  • provided secure storage for users’ money and crypto assets;
  • allowed customers to withdraw funds the same day from their banks;
  • kept crypto wallets encrypted and kept most of its assets offline in “cold storage”;
  • and “provided an unparalleled combination of secure and responsive currency management.”

In reality, according to the BCSC, the companies transferred their clients’ deposits to various accounts controlled by Einstein and to Gokturk’s personal crypto wallets on other third-party trading platforms.

The BCSC alleges that Gokturk and his companies then misappropriated those funds by making speculative investments, using them to pay for the platform’s operations, and pay for other clients’ withdrawals.

Because of this, the commission alleges, the platform was neither secure nor responsive and could not facilitate same-day withdrawals.

“After becoming insolvent in January 2018, (respondents) operated the platform as a Ponzi scheme by continuing to accept deposits and pay some clients with money and crypto assets withdrawn from bank accounts and pooled wallets,” the BCSC says in its notice. . hearing of the case.

The commission also alleges that Gokturk and his companies “populated customers’ dashboards with information falsely suggesting that orders had been processed and assets were available.”

At one point, the companies held more than $34 million in cash and crypto assets on behalf of their clients, according to the BCSC.

However, as of July 2019, they only had $100,000 in assets and owed clients a total of $19.2 million, the commission alleges.

Both the corporate entities and Gokturk, as its sole director, are accused of committing fraud.

If they wish to be heard before a date is set for a hearing on the allegations, respondents must attend the BCSC office at 9 a.m. on May 14.

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