Vancouver-based cryptocurrency exchange latest to shutter with millions owing to clients
Credit to Author: Matt Robinson| Date: Wed, 06 Nov 2019 23:33:31 +0000
When clients of Einstein Exchange discovered last weekend that the website of the Vancouver-based cryptocurrency trading platform had gone dark, many feared they had fallen victim to the latest QuadrigaCX.
The distressed customers were referring to the case of another B.C.-based exchange that earlier this year left some 115,000 clients out of pocket for $260 million in cryptocurrencies and cash in what some termed an “exit scam” by its late founder and CEO.
This latest case of a crypto exchange leaving millions of its clients’ dollars in question has investors, regulators and experts warning people to be careful when using exchanges, and calling for clearer oversight of the industry.
This week Einstein clients learned interim receiver Grant Thornton Ltd. had “entered and secured” the company’s premises on Friday to preserve and protect the assets of the company, which owes customers more than $16 million, according to the B.C. Securities Commission.
Kyle Dulay counts himself as lucky among Einstein’s customers. The Vancouver man only had “a couple hundred dollars” in bitcoin on the exchange at the time its site went down. Dulay told Postmedia he had the bulk of his cryptocurrencies in cold storage — safely held offline on a piece of hardware — rather than held at the exchange.
Lisa Lan, a Burnaby resident, said she had intended to transfer about $3,250 in cryptocurrencies from Einstein to cold storage on the very day the company’s website went down. “I just missed it by hours,” she said.
Lan recommended people do their research and due diligence and remove their cryptocurrencies from live exchanges. Dulay said there should be regulations that govern how exchanges store and use their customers’ digital assets.
The Securities Commission opened an investigation into Einstein in May after it received complaints that people were unable to access their funds, according to court documents filed by the commission on Nov. 1.
Among those documents was an affidavit that alleged Einstein had improperly used its customers’ assets. That affidavit, sworn by Sammy Wu, a lead investigator for the Commission’s enforcement division, also stated the commission had received complaints that raised concerns about potential money laundering.
The claims have not been tested in court.
Chris Rowell, a post-doctoral research fellow at the University of B.C.’s Sauder School of Business, said that crypto assets were initially intended to exist and be used outside of the traditional economy. But they eventually came to be viewed as investments that people buy and sell. It is at the intersection of these two worlds, where there is a regulatory grey area, that problems are being seen, he said.
When asked about the regulatory picture in this province, Peter Brady, the executive director of the Securities Commission, said the lack of clarity around cryptocurrencies is a fundamental issue and said more needs to be done.
“B.C. residents need to be really, really careful in this space. It is high risk. Not one of these exchanges has yet been recognized by BCSC or any other securities regulator. Their assets may not be protected. They cannot be assured that their transactions are going to happen,” he said.
On Oct. 31, counsel for Einstein told the commission that the company planned to shut down “due to lack of profit,” but that it had sufficient crypto assets to fill withdrawal requests from its customers, according to Wu’s affidavit. That same day Wu demanded Einstein, through its lawyer, provide information on the location of its cryptocurrencies.
“Two hours later, Einstein counsel notified me that they no longer represent Einstein,” read the affidavit.
Einstein Exchange did not respond to a request for comment and Michael Gokturk, the company’s director, could not be reached. Christine Duhaime, a Vancouver-based financial crime lawyer who has served as the exchange’s lawyer, said she could not discuss the file without the company’s consent. It is unclear whether Duhaime was the counsel referred to in Wu’s affidavit.
In the QuadrigaCX case, company founder and CEO Gerald Cotten had died, taking with him the passwords to the company’s cold wallets.
Cotten’s widow, Jennifer Robertson, recently entered into a voluntary settlement agreement that includes the transfer of about $12 million in assets from Cotten’s estate to the company.
With files from Bloomberg.