$2 000 000 000 USD

APRIL 2021

TURKEY

THODEX

DESCRIPTION OF EVENTS

"Thodex was part of the cryptocurrency boom that has drawn in legions of Turks seeking to protect their savings from rampant inflation and an unstable currency. Inflation hit 16.2% in March, more than three times the central bank’s target of 5%. The Turkish lira has weakened 10% against the dollar this year, its ninth consecutive year of losses." "A survey by the World Economic Forum published in February found that 16 percent of Turks said they used or owned cryptocurrency – level pegging with Peru which, along with Turkey, ranked fourth globally after Nigeria, Vietnam and the Philippines, where the currencies are used for overseas remittances." "Thodex announced on its website that it would be unavailable for several days to handle a sales process. The vague message didn’t reveal details such as when it would be back and if the users’ funds were safe, prompting investors to start voicing their frustration." "Trading at the platform stopped and investors started to contact the authorities. Complaints against the crypto exchange skyrocketed by more than 1,160% compared to the previous week." "Thodex clients and investors were left with unanswered questions about when they would be able to recover their money." "In a statement, the exchange claimed that it had found an ‘abnormality’ in its accounts and that it shut down the exchange to investigate this."

 

"Rumors have since been rife that Thodex owner Faruk Fatih Ozer has fled the country with the intent of defrauding users of their estimated $2 billion total in crypto." "Has the CEO of the Thodex cryptocurrency exchange in Turkey exit-scammed, fleeing the country with $2 billion worth of his customers' assets?" "Thodex stopped trading on April 22, coinciding with the disappearance of its chief executive officer (CEO) Faruk Fatih Özer, who is reported to have fled to Thailand with more than US$2 billion." "Özer also closed all his social media accounts, and the customer service line of the Turkish exchange is said to have been disconnected." "Users and media reports had claimed Ozer could have run off with $2 billion but Soylu said the company’s portfolio totaled $108 million."

 

"Turkish security officials then released a photo of the Thodex founder going through passport control at Istanbul Airport on his way to an undisclosed location. Security sources cited by Turkish broadcaster HaberTürk said earlier he was in Albania’s Tiran." "Police raided the company's headquarters on the Asian side of Istanbul and seized computers and digital materials, press reports revealed." "Turkish police ... detained 62 people as they continue to investigate into the cryptocurrency trading platform Thodex, which is accused of defrauding investors after thousands of users filed criminal complaints saying they had been scammed." "Local authorities detained over 83 individuals suspected to be involved in the case amid growing concerns that Thodex was a scam after the platform halted money withdrawals." "The suspects were apprehended in raids carried out in eight cities including Istanbul, AA reported on Friday."

 

"Before fleeing Turkey, Ozer reportedly contemplated suicide or giving himself up to the authorities." “I was born as one of the three siblings of a civil servant,” Ozer said in his statement, adding that he’s a high-school dropout. As the company ran into financial trouble, he said he thought about either committing suicide or giving himself up to authorities, but both of those options meant clients’ assets would never be retrieved. “So I decided to stay alive and fight, work and repay my debts to you. The day I repay all my debt, I will return to my country and give myself in to justice.” "Thodex added that a previously undisclosed "cyberattack" impacted roughly 30,000 users causing a "suspicious situation."" "[I]t’s still impossible to say conclusively that this situation is an exit scam. The exchange has gradually been reducing the volume of outgoing transactions since October 2020. The only time the exchange had an increase in the outgoing transaction volume was in March of this year."

 

"The Turkish Central Bank has recently announced a ban on cryptocurrency payments in the country." "Turkey's central bank says the payment restrictions are necessary due to a lack of a regulatory, "central" authority." "From 30 April, residents in Turkey will be unable to legally pay for goods and services with digital assets." "The Turkish crypto market remains unregulated despite growing scepticism from President Recep Tayyip Erdogan's government about its safety." "In light of the fallout, the Turkish government moved to enforce stricter regulations on cryptocurrency exchanges." "Several government offices are involved in drafting the regulatory framework, including the financial crimes watchdog Masak, the Treasury & Finance Ministry as well as the Capital Markets Board. They expect a draft to be completed within a few weeks." "Orkun Godek, an investment researcher based in the capital Istanbul, remarked, “This market looks like a bottomless pit and regulation is absolutely needed. Risks may trigger new risks. People may close positions elsewhere to counter their crypto losses.”" "Meanwhile, hundreds of thousands of Turks are left gazing at the ruins of their savings and retirement plans, wondering if they will ever recover."

While The Thodex matter is still ongoing, it would appear that the vast majority of people involved have been released at this point. There is also no suggestion that others conspired to assist him in leaving the country with user funds. There is suggestion that Thodex was already in a challenging position, and may have in fact been operating fractionally for some time, and the timing of the closure aligns strongly with a regulatory crackdown that sought to ban cryptocurrency usage as a means of payment in the country.

 

The impression left is of a vulnerable platform, and of a desperate CEO forced through lack of alternatives to flee. There was no visibility or oversight into the backing of funds, and at least 643 bitcoin sat in a single "hot" wallet, without any indication of multi-sig being set up.

HOW COULD THIS HAVE BEEN PREVENTED?

Thodex violated all three principles of fund safety. Funds were stored online, funds were accessible to one person (the CEO), and the platform continued to operate without a full backing of customer assets. Any level of regulation would have easily prevented what happened.

 

Our specific framework proposes additional training which would have provided Ozer and associates with additional knowledge about the safety of fund storage, mandated that all funds be stored in a multi-signature wallet which would prevent any one person from taking the funds, and prevented the specific fleeing of the majority of fund holders. In addition, platform backing is subject to periodic review, made available to all users of the platform, and include a proof that all customers are included. A comprehensive collective insurance fund exists to cover any shortfalls and assist long before the platform were to collapse.

 

Check Our Framework For Safe Secure Exchange Platforms

Sources And Further Reading

 For questions or enquiries, email info@quadrigainitiative.com.

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