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The CEO of Turkish crypto exchange Thodex has gone missing with users filing a complaint alleging that hundreds of million of dollars have been stolen.
On Wednesday, April 21, Mehmet, 34, noticed that 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 there, he saw a troubling message. Thodex had halted all transactions in order to evaluate an unspecified partnership offer, the message read. The process would take about 4-5 business days, it continued, adding that users will 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 that the exchange stopped providing trading data around 17:00 UTC 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.
The founder and chief executive officer of Thodex, Faruk Fatih Ozer, 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.
According to state news service Anadolu Agency, a lawyer named Abdullah Usame Ceran has also filed a criminal complaint against Faruk Fatih Ozer alleging “aggravated fraud.”
Oguz Evren K?l?c, 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 the CEO of Thodex, Ozer, had left the country Tuesday night. Ozer 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.
“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.
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,” K?l?c said.
The dogecoin mystery
Mehmet first thought something wasn’t right with Thodex when he saw certain cryptocurrencies – including dogecoin, 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 the cryptocurrency dogecoin was selling on Thodex up to 30% below the market price. A few days later, dogecoin’s price surged again, briefly replacing digital asset XRP 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.
“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,” K?l?c said.
Company reshuffle or exit scam
According to the message posted on the Thodex website, the transactions have been put on hold while it 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, Turkey, 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’s statement also states that it is the “first licensed Turkish Company in the sector globally” with a license “received from the United States of America.”
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, K?l?c, 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 that the closure of the exchange 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.
“Still, no statement has been made from this exchange. The silence is terrifying,” K?l?c said.