Bitcoin Trader Goes Belly-Up

Jayanand Sagar | October 19, 2014 | 12:15 pm

Bitcoin Trader Goes Belly-Up

Jayanand Sagar | October 19, 2014 | 12:15 pm

Yet another bitcoin company has gone belly-up. This time we’re talking about Bitcoin Trader, a service that billed itself as a means for users to earn passive bitcoin income online (via arbitrage).

On the 6th of October, users began reporting the inability to withdraw funds from the service, the owner of the company — John Carley — was nowhere to be found.

Thomas Opperman, speaking on behalf of the company, said that issues relating to the withdrawals were expected to be resolved relatively soon, but of course, that did not happen.

Statement from Carley

Last week, Carley finally issued a statement on the happenings at Bitcoin Trader, and it wasn’t what any of the site’s customers were expecting to hear.

A failure of the system. Bitcoins gone. As you can imagine, the company is no longer continuing operations. Here’s a letter from Carley to the client base (copied from Reddit):

Dear Clients

Regrettably I have to announce the failure and closure of Bitcoin Trader.

While preparing for the final audit results, a task we were working on for weeks now, our bitcoin wallet has been hacked and emptied, just after exchanging our fiat holdings within the exchanges to bitcoin and transferring our entire holdings to our wallet, in order to proof our solvency.

It is a known fact that I personally opposed any proof of solvency, but agreed to conduct it for the sake of a few dozen small and medium investors.

The hacker contacted me shortly after he took advantage of our holdings and demanded a ransom in order to transfer the coins back. I have agreed to a 25% ransom of the entire sum, but haven’t heard back from him for several days now.

My aim was to create something based on trust, just as bitcoin itself is based on distributed trust. Unfortunately I must admit today, I have failed. All left to do now is to declare bankruptcy with the Panamanian authorities and to hand over all relevant files and information for further investigation.

Sincerely, John Carley

And while the statement seemingly said everything it needed to, it raised so many questions about the validity of Carley’s statements.

Why would a hacker make such demands? Why weren’t financial audits published previously?

Many in the community are declaring Bitcoin Trader to be a HYIP (high-yield investment program), a type of Ponzi scheme (Charles Ponzi, pictured).

As for losses, there’s no exact tally at this point, though Bitcoin Trader previously noted on their website that they had managed upwards of $2 million in client funds.

Disclosure: Bitcoin Trader has previously sponsored NEWSBTC, along with a number of other publications and bitcoin-related events. When I learned about the questionable activities of the company, I immediately pulled their banner ad.

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