Police in China are investigating a token trading platform over allegations surrounding a so-called initial coin offering (ICO) exit scam, according to reports emerging today.
Initially reported on Twitter by Primitive Ventures founder Dovey Wan, authorities have opened investigations into EtherDelta, a local non-custodial token trading exchange.
JUSTIN and 🤦🏻♀️🤦🏻♀️🤦🏻♀️
EtherDelta is involved in a major scam in China, police officially take legal action against it
The actual beneficiaries of EtherDelta are all Chinese after ownership transition in 2017
Highly recommend western media to follow up @coindesk @Cointelegraph pic.twitter.com/eGPm8wor8k
— Dovey "Rug the fiat" Wan (@DoveyWan) August 7, 2019
According to the tweets, the alleged scam involves the issuance of native tokens by the platform, known as EtherDelta Tokens, after the exchange was acquired by anonymous local investors.
Wan wrote, “The actual beneficiaries of EtherDelta are all Chinese after ownership transition in 2017 […] Basically [the founder] Zack Coburn sold EtherDelta to a group of Chinese who later issued exchange token $EDT and turned out to be an exit scam. Now furious investors of $EDT whistle blowed to local police the case was recently taking into official investigation process.”
Noting the severity of the allegations, Wan said the police were known to take a tough line on crypto scams defrauding consumers: “FYI Chinese police shows no mercy if any crypto scam involved large amount of retail capital.”
FYI Chinese police shows no mercy if any crypto scam involved large amount of retail capital, which I mentioned in my recent Coindesk Oped too.
Previously PlusToken founding team were caught not even in China, but in Vanuatu 🇻🇺… pic.twitter.com/UgxySzLCA3
— Dovey "Rug the fiat" Wan (@DoveyWan) August 7, 2019
EtherDelta is a marketplace set up to facilitate trade in digital assets, namely ERC20 tokens, including through the use of smart contracts.
The investigation is not the first time the exchange has found itself at odds with the authorities. Back in 2018, investigators from the U.S. Securities and Exchange Commission (SEC) charged the firm’s founder, Zachary Coburn, over the platform, with the regulator describing it as an “unregulated securities exchange.”
Without accepting liability, Coburn reached a settlement over the matter worth $300,000, plus pre-judgment interest and penalties totaling a further $88,000.
EtherDelta was also in the headlines in May, after it was revealed some 500 ETH stolen in the high-profile hack of New Zealand-based crypto exchange Cryptopia had been moved through the exchange, worth over $125,000 in stolen funds.
With police now looking into the details of the token issue, and the allegations that this amounts to an exit scam being pulled by its investor owners, it looks like EtherDelta is set for further tough questions. It serves as yet further reminder of the need for investors to exercise caution when speculating on digital tokens and cryptocurrencies.
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