Chinese Police Investigate EtherDelta for Potential Exit-Scam

Chinese police have reportedly initiated an investigation against non-custodial token trading platform EtherDelta after being suspected of participating in an exit scam.

EtherDelta is a DEX that was founded by Zachary Coburn and it is mainly a trading platform for Ethereum tokens (ERC-20). It enables users to trade digital assets by means of an order book and Ethereum blockchain-powered smart contracts.

On Wednesday, August 7th, Dovey Wan – a Founding Partner of blockchain-focused venture investment firm Primitive Ventures, reported in a series of tweets that Chinese police are investigating an alleged exit scam involving a token listed on decentralized exchange (DEX) EtherDelta.

Wan noted through a series of tweets that the alleged exit scam, involving the sale of native exchange asset EtherDelta Token (EDT), took place after EtherDelta had been acquired by unnamed Chinese investors.

“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 a exit scam. Now furious investors of $EDT whistle blowed to local police the case was recently taking into official investigation process.” 

Respectively, the police was informed by the “furious investors”. Wan further added that the Chinese police shows no mercy in instances when any crypto scam involved large amount of retail capital.

In addition to that, Wan also shared a snapshot of the ownership agreement signed between Coburn and the Chinese buyers. She further alluded that the new owners bought it with the intent to use it as a front to issue their initial coin offering (ICO).

Prior to this, the exchange platform had faced legal challenges when the U.S. Securities and Exchange Commission (SEC) filed charges against EtherDelta founder Zachary Coburn for running a securities exchange without a license.

Almost all of the orders placed through EtherDelta’s platform were traded after the Commission issued its 2017 DAO Report, which concluded that certain digital assets, such as DAO tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption,” stated the regulator.

At that time Coburn neither admitted nor denied the charges, however consented to the order and agreed to pay $300,000 in unlawful profits plus $13,000 in prejudgment interest as well as a $75,000 penalty.

Earlier in May, crypto analytics startup Coinfirm found that over 500 of the Ether (ETH), which had been stolen from hacked New Zealand-based cryptocurrency exchange Cryptopia and were worth over $125,000 —  had been moved to EtherDelta.