FCoin shutdown due to poor auditing, asserts founder

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Suddenly last week, Chinese cryptocurrency exchange FCoin turned off the lights, leaving thousands of users panic-stricken and unable to retrieve their funds. The trading platform had been in operation for almost two years and, while concerns had been raised over its solidity, the closure was unexpected. Rumors are circulating about what is going on behind the scenes and the exchange’s founder, Zhang Jian, has issued a statement to try to explain the issues. His comments aren’t doing much to quell fears and are being met with a great deal of skepticism. Contrary to Jian’s position, the consensus is that he has committed an exit scam.

Jian was, before getting his start as the creator of FCoin, the chief technology officer of Huobi. That position apparently didn’t come with any financial training, as he asserts that the demise of the exchange is due to poor internal accounting practices. He adds that the company didn’t properly calculate the payouts it would have to make per its transaction mining model and states, “The internal problems and technical difficulties we face are the result of financial difficulties. It is expected that the scale of non-payment is between 7,000–13,000 BTC.”

That amount is equal, by today’s figures, to around $67 million to $125 million. Jian never took control as CEO of the exchange and never implemented the proper accounting procedures needed for such a significant amount of money. He admits that several months passed without any type of checks and balances being performed. 

Users are scrambling to figure out if they will ever see their funds, but FCoin apparently doesn’t have any money to give. However, the assertion that a failed business model is to blame isn’t holding up with scrutinizing investigators, who say that they can see the exchange’s financial movements. They indicate that the company’s cold wallet shows a number of transfers to other exchanges, as well as the destruction of a massive amount – around $75 million – of its own digital token.

Because of this, users are convinced that Jian conducted an exit scam. One investigation saw 8,009 and 11,107 BTC leave FCoin’s cold wallet, as well as a smaller, 55 BTC transaction. The last transaction occurred just a day before Jian made his statement. In total, 19,100 BTC, around $185 million, was extracted from the wallet. 

Whether an exit scam or accounting ineptitude, Jian is to blame. He was guiding the ship, and everything falls on him. He has said that he will reimburse users; however, how he intends to make good on that claim remains to be seen. He explains that part of the money could come from a new venture, but there’s no guarantee that venture will be successful, and there’s no guarantee that he will make good on his promise.