Blockchain & Cryptocurrency , Cryptocurrency Fraud , Cybercrime

Turkish Police Probe Thodex Cryptocurrency Exchange

CEO Accused of Fleeing to Albania With $2 Billion in Funds, Vows to Clear His Name
Turkish Police Probe Thodex Cryptocurrency Exchange
Turkish authorities have released a picture of Thodex CEO Faruk Fatih Ozer transiting passport control at Istanbul airport on Tuesday.

Has the CEO of the Thodex cryptocurrency exchange in Turkey exit-scammed, fleeing the country with $2 billion worth of his customers' assets?

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Istanbul police say that Faruk Fatih Özer, 27, the exchange's founder and CEO, left the country on Tuesday, flying to the Albanian capital Tirana, The Associated Press reports.

Critics have accused the CEO of disappearing with up to $2 billion in assets. But in response to allegations that he's fled the country or stolen any funds, Özer says he's been the victim of a "smear campaign" and vows to clear his name after securing additional financing.

Here's what's known: The exchange appeared to experience some problems on Monday, but largely operated normally at the start of Tuesday, with cryptocurrency-exchange tracking site CoinMarketCap reporting that the exchange had been trading more than $585 million in cryptocurrencies. But later that day, users began to report via social media that the exchange had become inaccessible and that they were unable to withdraw funds.

A CoinMarketCap spokesperson tells CoinDesk that the exchange stopped providing trading data around 1 p.m. EDT on Tuesday.

State-run Turkish press agency Anadolu Agency reports that the country's Financial Crimes Investigation Board, known as MASAK, on Wednesday launched an investigation into Özer, and on Thursday, authorities froze the exchange's bank accounts. The agency says the office of Istanbul's chief prosecutor has also appealed for any victims to come forward.

On Thursday, police searched Thodex's Istanbul headquarters, AP reports.

CoinMarketCap reported that before Thodex went offline on Wednesday, it had been trading more than $585 million in cryptocurrencies. (Source: CoinMarketCap)

Attorney Abdullah Üsame Ceran tells Anadolu Agency he filed a criminal complaint accusing Özer of fraud. Ceran says Thodex has about 390,000 active users, and since Tuesday, none have been able to withdraw their funds.

Özer Disputes Allegations - From Albania

In statements issued via Thodex's website and Twitter account on Thursday, the exchange's CEO strongly disputed the allegations.

"Many of the allegations raised are baseless," Özer says in a statement posted to Thodex's Twitter account and website on Thursday.

In the post, which is attributed to Özer, he says his technical team is investigating "an abnormal fluctuation in accounts identified last week" affecting about 30,000 of its users. He said the site remains closed as the investigation continues. Özer adds that he has gone abroad as part of late-stage negotiations with new foreign investors and has not fled with the equivalent of $2 billion in assets. He's also said that the exchange expects to make all customers' funds available by Sunday.

In a post to Twitter from an account in his own name, Özer further disputed reports that he'd fled with users' money.

"If I had an intention to collect the money and run away, I would illegally take the balances of millions of dollars out of our bank accounts and run with them. All your balances are in our bank accounts," he said.

Özer says Thodex's technical team is designing an interface for users to submit personal documents and request that their funds be dispersed to an international bank account number in return for agreeing to not file legal complaints against the company. "These balances will start being sent to the IBAN numbers you request within a few days," he said in a Twitter post on Thursday.

Ongoing Risks: Hackers, Exit Scammers

One ongoing concern with any site that handles large amounts of cryptocurrency is that it remains a target, both for criminal hackers who might gain access and drain users' accounts, as well as for unscrupulous owners, who might do the same via exit scams, in which they literally run away with all of the cryptocurrency (see: Criminals Still Going Crazy for Cryptocurrency).

Hacked Japanese bitcoin exchange Mt. Gox, for example, went out of business after the theft of 650,000 bitcoins, worth around $474 million. Former CEO Mark Karpelès, who maintained his innocence, faced charges of fraud, embezzlement and falsifying data. He was ultimately cleared of all but the latter charge, and received a two-year suspended sentence.

Mt. Gox's users, who sought reimbursement via a Japanese bankruptcy court, got lucky, thanks to Mt. Gox's trustee discovering a number of bitcoins being stored in cold storage. Thanks to bitcoin's value having increased since they lost access to their funds, users appeared set to get a significant portions of their funds returned to them. But users of other hacked exchanges have not always been so lucky.

Turkey Restricts Cryptocurrency Payments

The uncertainty over what's happening at Thodex follows Turkish authorities implementing cryptocurrency restrictions.

On April 16, Turkey's central bank announced that it was banning the use of cryptocurrency for payments. The bank said the decision had been made due to the potential for cryptocurrency to "cause non-recoverable losses" for users and also because "they include elements that may undermine the confidence in methods and instruments used currently in payments."

Press release from the Central Bank of the Republic of Turkey on April 16 announcing a ban on the use of cryptocurrency for payments (click to enlarge)

The news appeared to send the value of bitcoin plummeting, with the cryptocurrency losing more than 4% of its value later in the day, Reuters reported.

By Friday, the value of a bitcoin had dropped 16% from April 16, falling from $62,534 to $52,217, according to CoinDesk.

In recent days, the value of Ethereum and XRP also fluctuated wildly, with both plunging in value on Friday.

"The market has run up quite a bit overall, and it's probably cooling off before the next leg up," Vijay Ayyar, head of business development at cryptocurrency exchange Luno, tells CNBC.


About the Author

Mathew J. Schwartz

Mathew J. Schwartz

Executive Editor, DataBreachToday & Europe

Schwartz is an award-winning journalist with two decades of experience in magazines, newspapers and electronic media. He has covered the information security and privacy sector throughout his career. Before joining Information Security Media Group in 2014, where he now serves as the executive editor, DataBreachToday and for European news coverage, Schwartz was the information security beat reporter for InformationWeek and a frequent contributor to DarkReading, among other publications. He lives in Scotland.




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