The CEO of Turkish crypto exchange Thodex has gone missing at a time when users filed a complaint alleging hundreds of million of dollars have been stolen.
Mehmet, 34, noticed Wednesday the Turkish cryptocurrency exchange Thodex was no longer accessible; an error message was flashing across his screen. Panicking, he tried to access Thodex’s main website and found a troubling message: Thodex had halted all transactions in order to evaluate an unspecified partnership offer. The process would take about four to five business days, it continued, adding that users would be regularly updated.
Before shutting down transactions, Thodex was trading more than $585 million in cryptocurrencies on its exchange, according to data from CoinMarketCap. A spokesperson for the data site told CoinDesk the exchange stopped providing trading data around 17:00 UTC (1 p.m. ET) on April 20.
The exchange also had about 400,000 users, 390,000 of whom were trading actively, according to state news agency Anadolu.
While Thodex’s website said it would be back up shortly, exchange executives are deactivating their social media profiles and the platform’s customer support group is inaccessible. The exchange’s website said “there is no cause for concern” and that “negative news on the internet” is not true. Meanwhile, Thodex founder and CEO Faruk Fatih Özer shut down his Twitter account on Wednesday.
Mehmet alerted the police of the exchange’s sudden closure, telling CoinDesk that being shut out of highly volatile crypto markets for five days could spell disaster for investors.
“Average people invest in crypto in Turkey because they would like to hedge their little funds against inflation here. So people will lose a lot of money, me included, and I had to do something about it,” Mehmet told CoinDesk.
At the same time, according to state news service Anadolu Agency, a lawyer named Abdullah Usame Ceran has filed a criminal complaint against Ozer alleging “aggravated fraud.”
Oğuz Evren Kılıç, chairman of the Ankara Bar Association’s Capital Markets and Finance Law Commission, told CoinDesk via a written statement that he’d learned through local police that Özer had left the country Tuesday night. Özer also did not respond to attempts by Bloomberg to contact him Wednesday morning. The Istanbul Anatolian Chief Public Prosecutor’s Office has launched an investigation into Thodex for “fraud” and “establishing a criminal organization,” according to CNN Turk.
A day later the exchange refuted charges of fraud in an updated statement on its website. The same statement was shared to a new Twitter account attributed to Ozer.
People in Turkey have increasingly been turning to crypto as a hedge against inflation. Inflation in the country has been on the rise this year, reaching as high as 16% in March thanks to a spike in oil prices and the recent volatility of the local lira, according to Bloomberg. Although the crypto space was unregulated in the country, earlier this month, the central bank announced that the republic was banning the use of cryptocurrencies for payments.
Crypto trading remains unaffected by the new law, which is set to go into effect at the end of the month. So Thodex’s sudden disappearance appears to be an isolated incident.
“There may be a scam here because there have been problems with this exchange for days,” Kılıç said.
The dogecoin mystery
Mehmet first thought something wasn’t right with Thodex when he saw certain cryptocurrencies – including dogecoin (DOGE, +31.72%), the cryptocurrency that was created as a joke in 2013 – were trading on the exchange for much lower prices than on other markets on the night before the exchange shut down.
In fact, on April 17, one Twitter user pointed out that dogecoin was selling on Thodex up to 30% below the market price. This was at a time when, a few days later, dogecoin’s price briefly replaced digital asset XRP (+9.69%) as the fourth-largest coin by global market capitalization on Monday.
On April 19, the exchange announced it was carrying out a short-term maintenance on dogecoin transactions.
Right before the exchange went offline, dogecoin accounted for more than 53% of Thodex’s $585 million trading volume, compared to a measly $10 million in bitcoin (BTC, +4.02%).
“This exchange has been experiencing a great deal of traffic over dogecoin for a few days. Tens of thousands of customers flocked to the website of this exchange. In fact, even this price imbalance was suspicious,” Kılıç said.
Company reshuffle or exit scam?
According to the message posted on the Thodex website, transactions have been put on hold while the exchange considers a potential partnership with undisclosed parties.
“World-renowned banks and fund companies, whose name we will announce when the agreement process is completed, have been wanting to invest in our company for a long time and have made a partnership proposal. In order to serve you better, it has been decided to evaluate the partnership offer positively. In order for this process to be completed, the transactions must be stopped and the transfer process must be completed,” the statement said in Turkish.
Ismail Hakki Polat, a blockchain lecturer at the Kadir Has University in Istanbul, said that based on the statement made by the company, the only possible conclusion he could come up with was that Thodex’s shareholder structure will be changed with the new investors.
“Before that, all views can be regarded as speculative comments that will panic the crypto investors and jeopardize the local ecosystem,” Polat said.
Thodex claims to be the “first licensed Turkish Company in the sector globally” with a license “received from the United States of America,” according to its statement.
The firm is referring to its registration as a Money Service Business (MSB) with the U.S. Financial Crimes Enforcement Network or FinCEN. However, the registration of a business on the MSB Registrant Search Web page is neither a recommendation, a certification of legitimacy, or an endorsement of the business by any U.S. government agency. It is also not a license.
Crypto exchanges can operate in the U.S. by securing money transmitter licenses through state government entities. A FinCEN registration does not on its own permit exchanges to commence trading operations.
Meanwhile, Kılıç, who has been offering legal advice to those affected by Thodex’s sudden suspension of operations, says customers have not been able to reach the exchange officials, and no customer has been able to withdraw their money or crypto so far.
Mehmet remains hopeful the exchange’s closure is temporary.
“Apparently, the guys are not running away and this is not a scam or anything. I think what they’ve done is they’ve damaged themselves and also their customers,” Mehmet said.
An update and new Twitter account
On Thursday, the Thodex website updated the statement on display, claiming the allegations against the exchange by users and the media were unfounded. A new Twitter account, claiming to be Özer’s shared the statement.
It appears Özer himself wrote the message, which goes on to say that during partnership negotiations an abnormality was found in the company accounts. Specifically, the message states 30,000 user accounts (out of some 700,000) were found to be suspicious, and are being cleared.
“Thodex Platform has been temporarily closed to determine the reasons and sources of this. While our technical team of our company was conducting this research, I personally went abroad on 19.04.2021 to make final meetings with foreign investors,” the message said in Turkish.
Özer added that as a result of the “smear campaign” against him and his company, it has become difficult to continue its “commercial life.”
“In this way; I kindly submit to the public’s knowledge that the smear campaign against both myself and my company should not be respected,” Özer said.
Meanwhile, Bloomberg reported that a senior official in Turkish president Recep Tayyip Erdogan’s office called for the rapid regulation of the crypto space. Bloomberg also reported that the Turkish government had moved to block Thodex’s accounts and police had raided its head office in Istanbul.
UPDATE (Apr. 22, 2021, 14:17 UTC): The article has been updated to include a new statement released by Thodex CEO Faruk Fatih Özer.
UPDATE (Apr. 23, 2021, 01:08 UTC): The article has been modified to include a new update on government action via Bloomberg.
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