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Arrest of Turkey’s failed crypto exchange boss kicks off hunt for answers

Arrest of Turkey’s failed crypto exchange boss kicks off hunt for answers
People & Culture
Faruk Fatih Özer, CEO of crypto exchange Thodex, faces fraud and money laundering charges in Turkey

After his arrest in Turkey on Thursday, Faruk Fatih Özer, the chief of now-defunct Turkish crypto exchange Thodex, faces accusations of managing a criminal organisation, aggravated fraud, and money laundering.

As his lawyer explained the collapse of the exchange, and her client’s innocence, to DL News, victims who lost money hope to find out how the once-promising exchange in Turkey’s vibrant cryptocurrency market mysteriously went dark in April 2021.

Estimates vary widely — but victims may have lost anywhere from $24 million to as much as $2.2 billion.

”Whether the victims can regain their assets will depend on Özer’s attitude and what information the court is able to obtain,” given the uncertainty surrounding the case, said lawyer Oğuz Evren Kılıç. Kılıç was among several lawyers who filed complaints on behalf of clients who lost funds.

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Özer was arrested after arriving in Turkey yesterday, eight months after an Interpol alert and some two years on the run. At the time of the exchange’s collapse, the company blamed complications from outside investment, then later cyberattacks.

It soon became clear that the platform, founded in 2017, had shut down for good, with the fate of funds uncertain.

Mertcan Bayraktar, another lawyer who represents seven investors, including one who had three Bitcoin worth $150,000 at the time locked up in Thodex, told DL News that the case is especially complex since CEO Özer’s business partner is the son of a Turkish Member of Parliament, giving the debacle an uncomfortable political twist.

‘Özer did not simply let the company go bankrupt’

Sevgi Erarslan, Özer’s lawyer, told DL News that the exchange shutdown was meant to be temporary.

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The company at the time “was experiencing numerous security threats and attacks on its servers, which led to a significant deficit in its cash reserves,” Erarslan said. “Fatih Özer did not simply let the company go bankrupt and move on with his life.” Instead, she explained, he solicited investors to bridge the gap in its reserves.

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“The negotiation could not be conducted while the system was open,” she said. “It could easily be hacked again. The last resort was to temporarily shut down the system, conduct the negotiation, make the sale, cover the cash deficit, and then resume business as usual.”

But when Özer left the country, she said, an investigation began — his departure was interpreted as an escape.

Wild estimates

The exact amount lost remains a point of contention, with varying estimates further complicating an already thorny situation.

At first, the scale of the loss seemed staggering, with initial estimates from victims lawyers’ putting the figure in billions and data analytics firm Chainalysis calling it 2021′s “biggest rug-pull” at $2.2 billion.

However, the Turkish prosecutor’s initial indictment offered a far more modest estimate of around $24 million in losses. Meanwhile, the Israeli blockchain analytics firm Whitestream claimed over 5,000 Bitcoin worth $125 million at the time of trading disappeared from Thodex in a “cash-out operation.”

The lack of clarity on the exact amount lost is further complicated by the challenge of calculating the value of cryptocurrencies, which are highly volatile, as well as the Turkish lira that has depreciated by over 50% since the platform’s collapse.

Cryptocurrencies stored in cold wallets aren’t kept by the company, Erarslan told DL News. “So it’s not like Özer withdrew the funds from a bank and emptied the company’s coffers before fleeing,” she said.

“We have been fighting this legal battle for over a year, and in the process, our client has already paid millions to the plaintiffs,” Erarslan said. “In this battle, we are faced with a court that is ignorant about the law.”

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According to a Telegram chat of Thodex claimants seen by DL News, some of the claimants have been made settlement offers by Özer’s lawyers for as little as 10% of the amount they were owed at the time of the collapse. The low-bar offer has sparked outrage among many investors.

Two victims told DL News that the users who had funds worth thousands of dollars trapped in the withdrawal queue at the time of Thodex’s blow-up have received less than a dollar deposited into their banks, with their cases being marked as fully settled.

His extradition was a welcome development for the investors who lost their funds, but the upcoming trial in June is expected to be a long-drawn-out affair, with legal representatives anticipating a lengthy legal process.

Bayraktar, the lawyer representing one group of victims, said: “Although justice may progress slowly, it will eventually reach its destination.”