Canadian regulator accuses Einstein crypto exchange of fraud

In a significant development within the cryptocurrency sector, the British Columbia Securities Commission (BCSC) has accused the now-defunct Einstein Exchange of operating as a Ponzi scheme following its insolvency in 2018. This announcement brings to light the precarious nature of the operations behind the Canadian cryptocurrency trading platform, which had promised to offer a reliable service for its customers.

Einstein exchange allegedly operated as ponzi scheme

The BCSC’s allegations are primarily directed at Michael Ongun Gokturk, the sole director of Einstein Exchange Inc., Einstein Capital Ltd., and Einstein Law Corporation, all of which are now defunct. According to the regulatory body, after the exchange became insolvent in January 2018, it continued to accept deposits from new and existing customers. In what the BCSC describes as a classic Ponzi scheme maneuver, the exchange reportedly used these new funds to pay out withdrawals to other customers, creating a facade of solvency and operational efficiency.

The BCSC’s investigation reveals that despite claims of facilitating customer trades directly, Einstein Exchange failed to secure the corresponding cryptocurrency assets necessary for these transactions. This mismanagement was further compounded by the manipulation of customer dashboards, which presented misleading information regarding order processing and the availability of assets. The BCSC estimates the total financial impact on customers due to Gokturk’s actions to be around $19.1 million.

Impact and regulatory response

Einstein Exchange was launched in 2017 to provide a secure and accessible cryptocurrency trading platform. At its zenith, the combined assets of the three associated companies exceeded $34 million in cash and cryptocurrency held on behalf of their customers. This substantial figure underscores the magnitude of the operation and the level of trust placed in Einstein Exchange by its users.

The situation took a decisive turn in 2019 when the Supreme Court of British Columbia intervened at the behest of the BCSC. The court granted an order to appoint Grant Thornton as the interim receiver tasked with taking control of the assets of the Vancouver-based exchange. This legal action represented a critical step towards addressing the grievances of affected customers and attempting to recuperate lost funds.

The case of Einstein Exchange serves as a cautionary tale within the cryptocurrency industry, highlighting the risks associated with digital asset platforms and the importance of diligent regulatory oversight. As the investigation continues, the BCSC’s findings underscore the need for transparency and accountability in the fast-evolving cryptocurrency market.