Bitcoin Trader Customers Face Losses After Management Disappears

The bitcoin arbitrage website, once prominent, has been shut down amid accusations of fraud.

AccessTimeIconOct 19, 2014 at 3:11 p.m. UTC
Updated Sep 11, 2021 at 11:15 a.m. UTC
Bitcoin Trader
Bitcoin Trader

A popular bitcoin arbitrage service has collapsed, resulting in the loss of customer funds and the dissolution of a company that had a notable presence in the industry.

The news marks the second time in recent weeks that the future of a well-known company in the bitcoin ecosystem has fallen into jeopardy, following the revelation that digital currency exchange Moolah would file for bankruptcy amid financial troubles.

Questions about the platform’s solvency began to emerge in June, when users asked for the Bitcoin Trader leadership to publish financial audits, though such a disclosure has not been issued. Finally, on 6th October, users began reporting that digital currency withdrawals were no longer working.

Bitcoin Trader soon stopped providing earnings information for both its trading and mining operations, telling customers that owner John Carley would soon release a statement on the status of the company. Thomas Opperman, representing the company in a series of posts to users, said that Carley had fallen out of communication but server work was continuing and issues were close to resolution.

Later, a statement from Carley was released claiming that the company had fallen victim to a debilitating hack following the conversion of all funds – including those belonging to customers – to bitcoin. Carley claimed that negotiations to recover the bitcoins had failed and subsequently declared his intent to file bankruptcy:

“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.”

Buildup of customer complaints

Though its collapse was sudden, Bitcoin Trader had long been a divisive company in the bitcoin industry.

In conversations with CoinDesk, a number of Bitcoin Trader customers said that, despite this, for many months, payouts were consistent with the expectations set by the company. As a result, many of their concerns were brushed aside.

Customer Josh Reighley said that Bitcoin Trader issued an announcement in early October stating that an audit had been conducted by a third-party would not be released. This, he said, stirred up even more concerns about the platform.

Then, users began reporting issues with withdrawals, which heightened concerns.

In emails provided to CoinDesk, Bitcoin Trader customer service representatives cited server issues and complications arising from the simultaneous processing of both fiat and bitcoin payments as reasons for the delay. A message dated 9th October suggested that the problem had been addressed, but according to customers, withdrawals were still not working.

CoinDesk reached out to both Carley and Opperman, but neither responded.

One company representative who wished to remain anonymous said that he had no direct contact with Carley and had no current affiliation with the platform.

Public presence eased concerns

Bitcoin Trader had been operating since October 2013, offering investment opportunities in both bitcoin trading markets as well as an in-house mining operation. Through its products, investors purchased shares and received daily payouts based on their investment.

In statements on its official website, as well as in advertisements and sponsored articles, Bitcoin Trader boasted a London-based team of professional traders and a bitcoin mine with at least 10 terahashes in mining capacity. Bitcoin Trader projected a positive image in the broader bitcoin industry, leveraging both event sponsorships and online content and advertising purchases to reach new markets.

Additionally, Bitcoin Trader sponsored several events in the bitcoin space, including the Bitcoin 2014 conference in Amsterdam, the The North American Bitcoin Conference in Chicago and the North American Bitcoin Car Giveaway Tour 2014.

Kryptoz CEO and co-founder Robbie Davidson, whose company is co-sponsoring the tour, said that Bitcoin Trader became involved after he met some of their North American representatives at a conference earlier this year.

Davidson explained that he thought Bitcoin Trader to be a professional, community-oriented business, and that he invested funds in the platform. However, he eventually grew concerned about information he received about the company, which prompted Kryptoz to cut sponsorship ties.

He explained:

“We didn’t know what was going on, but there were major problems with the site – people were able to put money in but not get money out. So we instantly pulled all banners because we didn’t want people just walking into a trap because they weren’t in the Facebook group.”

Censorship foretells problems

Customers told CoinDesk that until recently, the company appeared to be unusually profitable, but that timely payouts were awarded to customers. Others suggested that the Bitcoin Trader leadership actively suppressed dissenting voices in social media channels it controlled, leading to accusations that the company was hiding something.

Bitcoin trader Michaela Juric-Donlan said that she was banned from the company's official Facebook group after raising concerns about the status of customer funds.

“Apparently I was 'causing chaos' when I asked why withdrawals weren’t being processed,” she said.

Juric-Donlan and other customers began gathering in a new group for disenfranchised Bitcoin Trader customers, which has since served as an information hub for customers seeking recourse.

Cashout suspension triggers crisis

Though digital currency withdrawals were effectively disabled on 6th October, some customers were able to process fiat withdrawals while the company was citing server and bitcoin block chain connectivity problems as the reason for the issue.

Bitcoin Trader suspended the ability to review transaction histories on 13th October, according to customers. Juric-Donlan said that by 14th October services like EgoPay and PexPay were no longer available to most customers. One customer said that withdrawals had been possible as late as 15th October, but by then relations between the company and its user base had been strained.

Bitcoin Trader representatives on Facebook said that Carley, who was supposedly in sole control of the bitcoin funds, was located in an area affected by Typhoon Vongfong. This, they said, kept them from processing bitcoin withdrawals or answering the growing chorus of customers demanding answers.

One day later, staff member Opperman released a statement saying that many of Bitcoin Trader’s employees were resigning in the wake of Carley’s disappearance. He added that the site’s customers – himself included – may need to “move on” and suggested that calls be made to authorities where Carley was supposedly staying.

Picking up the pieces

What comes next is unclear for those involved. Former customers of the site said that they will begin the process of filing criminal complaints, but some who had thousands of dollars in both bitcoin and dollar-denominated credits on the site face the loss of their investments.

An effort has begun to use the block chain to try to trace transactions containing customers' bitcoins. Davidson said his company is cooperating fully with the investigation, calling it an operation “that could take months, even years for investors”.

A number of users have begun building a working document to compile all the information available about the now-defunct platform and all those associated with it. Estimates on how much was lost vary, but Bitcoin Trader claimed it held $2.2m in investor funds on its website. According to those involved with the recovery process, between $250,000 and $500,000 has been accounted for in customers polls.

Former customer Reighley told CoinDesk that his losses were minimized by his long-standing belief that Bitcoin Trader may have been a risky investment, but he provided one hypothesis for why others may not have been as lucky:

“We live in an ‘everyone find the truth that works for you’ age – and people have a strong tendency to believe what they want to be true. When someone pays you a lot of money, you really want to believe it is true.”

Image via Bitcoin Trader; Shutterstock


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