B.C. Regulator Accuses Cryptocurrency Exchange of Running Ponzi Scheme

The financial markets authority of British Columbia is bringing forth fraud claims against a trio of defunct companies and their single director, in connection to a supposed crypto asset exchange service.

Details of the case against Michael Ongun Gokturk and his entities—Einstein Exchange Inc., Einstein Capital Ltd., and the Einstein Law Corporation (contrary to its title, not a law practice)—were released earlier in the week by the B.C. Securities Commission via an official notice.

These claims are currently unproven in court.

According to the accusations made by the BCSC, the aforementioned parties are alleged to have deceived their clientele about the authenticity of a cryptocurrency trading platform, while misusing assets clients deposited for their personal gains or speculative trading.

The BCSC specifically points out that the accused companies falsely assured their users that the Einstein Exchange:

• maintained the safety and protection of customers’ funds and cryptocurrency;
• guaranteed same-day transfer of withdrawn amounts into bank accounts;
• secured crypto wallets with encryption and stored most assets in “cold storage,” offline;
• offered a matchless mix of secure and swift financial transactions.

Contrary to these claims, the BCSC maintains that customers’ funds were actually shuffled into several accounts under Einstein’s control, and into Gokturk’s private cryptocurrency wallets on other trading platforms.

The BCSC further alleges that these funds were then misappropriated by the companies and Gokturk, being invested speculatively, used for platform expenses, and to fulfill withdrawal requests from other clients.

As a result, the agency contends that the service was neither safeguarded nor efficient and was incapable of honoring instant withdrawal requests.

The commission remarks that, as of January 2018, the operation had become insolvent, and was continued like a Ponzi scheme—accepting new deposits and paying certain customers with financial resources extracted from communal bank accounts and wallets.

Moreover, the BCSC describes that the customer interfaces were set up with misleading data, insinuating transactions had been executed and assets were accessible.

At a prior point, the companies reportedly had control over customer assets totaling more than US$34 million in cash and cryptocurrencies. However, by July 2019, they accounted for merely US$100,000, while owing US$19.2 million to their customers, according to the commission’s allegations.

Both the dissolved corporate entities and Gokturk, in his capacity as sole director, face charges of fraud.

Those accused have been instructed to present themselves at the offices of the BCSC at 9 a.m. on May 14, should they wish to have their voices heard prior to the setting of a formal hearing date pertaining to these allegations.