A Russian exchange WEX is the successor of the scandalous BTC-e platform, which was closed by the FBI last summer. Having started paying debts to users, WEX enjoyed the trust of traders and an excellent reputation for some time. The events of recent months show, however, that WEX became the heir of not only the infrastructure and debts but also the infamous dark history of its predecessor.
Once upon a Time, There Was BTC-e . . .
BTC-e became the first crypto exchange for Russian-speaking users, having successfully existed from 2011 to 2017. At one time, the exchange even entered the top five, and the daily trading volume back in June 2017 was $66 million.
At the same time, the exchange could always be called a “dark horse” because of the anonymity of the owners, who were hiding behind the nicknames dev and support. While things were going uphill, however, the users preferred to ignore such “gaps.”
One of the unfavorable episodes for BTC-e took place three years before its collapse, and it was the attack on another dead exchange, Mt.Gox. As you know, the gradual withdrawal of funds from the exchange carried out by the hackers went unnoticed for several years. The investigation into the attack features the name of Alexander Vinnik, a technical expert of the BTC-e exchange (as he calls himself), who was wanted by the U.S. Department of Justice and arrested in Greece on July 25 last year on suspicion of laundering $4 billion. From this point on, in a few days, the exchange was erased from the cryptocurrency world:
On the morning of July 25, FBI agents invaded the data center where the BTC-e servers were located and seized all the equipment on which the databases and wallets were stored.
In the afternoon, BTC-e went off-line.
On July 26, BTC-e announced on Twitter that “work was underway to restore the service” and promised to resume service in 5 to 10 days.
On July 27, the Financial Crimes Enforcement Agency (FinCEN) imposed a $110 million fine on BTC-e for violating the U.S. anti-money laundering laws and separately a fine of $12 million to Alexander Vinnik for his role in the violations.
On July 28, the FBI arrested the BTC-e domain.
On August 3, BTC-e reported that the U.S. authorities had arrested fiat flows entering the exchange through Mayzus Financial Services Ltd. and confirmed that this had been the main gate of fiat to the exchange (company owner Sergey Mayzus denied any connection to the exchange and its management and later filed a €1.4 billion lawsuit against Vinnik).
From October 2017 to September 2018, various courts of Greece, including the Supreme Court, granted requests for the extradition of Vinnik received from Russia and the United States (including all appeals made during this time). Another pending request is from France. After several transfers, the decision was postponed to November 5. It is the Minister of Justice of Greece who should make the final decision on Vinnik's extradition to one of the countries. “There are two decisions [on the extradition of Vinnik], to Russia and the United States, of equal value. The decision on the [final] extradition is not likely to be made, because the Greek side is still waiting for a decision on France,” explained Vinnik’s lawyer Timofey Musatov.
Despite the cycle of seemingly fatal events, BTC-e quickly “rose” from the world of dead exchanges, but in a different guise: as the WEX exchange. It once again found itself in the world of the living, and the site changed its place of residence, registering in Singapore. The official operator is stated to be the company World Exchange Services, the founder of which is Minsk businessman Dmitry Vasilyev. He is also the CEO of WEX.
According to anonymous sources of RBK, a Russian news outlet, in the last months of BTC-e’s work, Vasilyev was one of the largest clients of the exchange: up to one-third of the daily trading volumes passed through him. After the closure of BTC-e, Vasilyev contacted one of the founders of the site, a programmer named Alexey, who was hiding under the nickname of support. “He wrote to him and offered his services to restart the exchange,” said a man who knows Vasilyev. The condition put forward by Alexey was the payment of debts to BTC-e clients and assistance in releasing Vinnik.
The lawyer of the BTC-e founder confirmed the information on the “hereditary” nature of WEX. He noted that after the FBI had shut down the platform, the business quickly recovered, restarting first on the BTC-e.nz domain (at the end of August 2017), and then on WEX.nz (in September 2017).
The new exchange, which resembled BTC-e in terms of interface and functionality, indeed undertook to pay off BTC-e clients by restoring user databases from backup copies. 60% of the lost funds were credited to customer balances in the original currencies, and 40% in debt tokens. The exchange has pledged to gradually buy back the debt tokens from customers in one to two years. By the end of 2017, the daily turnover on WEX was about $80 million, and it was in the top 20 cryptocurrency exchanges.
According to RBK, Vasilyev fulfilled the second condition of the founder of the exchange by coming into contact with Vinnik’s lawyer Timofey Musatov. Vasilyev acted as an expert during the trial in Thessaloniki, which tried to extradite Vinnik to the United States.
Something Went Wrong
In July 2018, the tale of the revived exchange ended when some assets traded on the platform underwent significant inflation. For example, Bitcoin was trading at 30% above the average market rate. Along with that, fees for withdrawing fiat money increased (fiat could only be withdrawn with a 10-percent loss), and a message about scheduled maintenance was published on the site’s official Twitter account at the time.
The market responded accordingly, and the price of the debt tokens collapsed.
Dmitry Vasilyev announced his position on Facebook, urging users to file complaints with the police and blaming the current state of affairs on the new management of the site—in particular, on Dmitry Sutormin, the RACIB vice president for the development of organized trading in digital financial assets.
In July, the situation around BTC-e/WEX was commented by the exchange founder Dmitry Svetleyshiy’s lawyer, who wished to remain anonymous. According to him, the operation to “liquidate” the exchange was launched by the FBI around July 2016, and the special agent of the FBI, known since the time of the Silk Road case, took part in it. The fact that the proceedings against BTC-e were conducted long before its collapse in July 2017 is evidenced, in particular, by a document registered by the U.S. Department of Justice on January 17, 2017. In it, BTC-e and specifically Alexander Vinnik were accused of laundering Bitcoins that were stolen from the Mt.Gox, Bitcoinica, and Bitfloor exchanges.
According to the lawyer, Vinnik is a former BTC-e administrator and has access to offshore accounts that hold $1 billion. “Vinnik knows who actually owns $1 billion offshore. If we talk about the likelihood of his extradition to the United States, then this question has already been resolved. He will be sent there, and this is 101%,” he said this summer (when a firm decision had not yet been made to surrender Vinnik to Russia).
According to the lawyer, the former leaders of the platform deliberately turned Mayzus—whose company, in the opinion of the United States, was involved in the fraud on the exchange—against Svetleyshiy to divert the blow from themselves. And although after a personal meeting, the disagreements were resolved, Mayzus did not want to act on the side of Svetleyshiy and, according to the lawyer, decided to participate in the game as a separate party, defending his reputation.
The lawyer also said that at the time Vinnik was already kept in a Greek prison, one of the “influence groups” appropriated 45% of user accounts and allegedly organized two failed assassinations against Vinnik and Svetleyshiy.
The opposing group, the real owners of the exchange, according to the lawyer, had no relation to business management until 2017 and were not originally going to fight for that $1 billion. They were asked to pay 500 BTC compensation to reach an agreement on the amount missing from the accounts. That is, by spending $1 million at the time, those responsible for the theft of 45% of the user balances could have gotten rid of a competitor in the fight for offshore companies, but they refused the deal. “Everything went too far because of banal greed. Now the real creators of the business, the only ones according to the documents, are laying claim to everything except for what the U.S. authorities will have seized. This is not the case of the Winklevoss brothers against Zuckerberg; the founders are clearly known,” the lawyer said.
The next person that appeared in the WEX era is the failed buyer of the exchange, the former DPR militant Dmitry Khavchenko, known by the call-sign “Moryachok” (Sailor). His intention to acquire the exchange was announced at the beginning of July 2018. On July 26, however, the media reported that the deal had not taken place, due to unsuccessful negotiations with Dmitry Vasilyev, according to Khavchenko. “[The representatives of the DPR], by the way, were also deceived and handed the exchange after 45% of the user balances were pilfered. Thus, those responsible for the theft wanted to escape being torn to shreds,” as the anonymous lawyer commented a few days before the failed purchase of the exchange.
“My client invites all the parties to a meeting. The ‘Sailor,’ those responsible for the theft of the balances, and other stakeholders. The aim is to reach some consensus. But those who ordered the assassination attempt on Vinnik are simply afraid to make contact,” the lawyer says.
On October 25, a new bomb was dropped on the BTC-e/WEX “battlefield,” when Binance froze several accounts, which received more than 93,000 Ethers from two wallets indirectly linked to WEX.
Binance spokeswoman Liah Lee said that such a measure was taken in response to complaints from WEX users, who noticed an overflow of funds through the Ethereum blockchain, which stores the wallet of the WEX exchange. The data on the explorer reveals that two wallets controlled by the parties related to WEX sent the Ethers to Binance in 25 transactions from the end of July until the end of October. Given that WEX has suspended withdrawals in Bitcoin and Ether in July, the traders suspect that in the event of a successful transfer of funds to Binance, they will no longer be able to return their assets.
At the current exchange rate, the funds transferred to Binance in Ether amount to about $18 million, but the total debt of the exchange is likely to be much higher. Judging by the size of the Telegram groups devoted to the discussion of the return of funds stuck on the exchange, hundreds of users are listed as victims. One of the chats has 1,000 members, the other, which discusses the submission of complaints to the police, numbers more than 400.
“Help us get our money back,” trader Maxim M. wrote to Binance tech support on October 20. “If you do not want to follow the path taken by BTC-e, which was closed by the authorities because of the involvement in the laundering of cryptocurrency stolen from Mt.Gox, you should freeze all WEX wallets and accounts.”
A speaker for Binance said that the exchange “was not aware of the special situation on the WEX,” but “always examines user complaints in detail and will freeze access to accounts if any unusual activity is detected.”
“We encourage users who may have suffered to submit an application to the local law enforcement agencies and ask them to send us case numbers or official notifications/letters about the progress of the investigation. At the moment, we have not received any notifications,” the speaker added. At the same time, Lee noted that the current freeze is temporary since the exchange has the right to freeze accounts only for a short time, whereas a notification from law enforcement agencies is needed for a longer-term freeze.
The Privileges of a Public Blockchain
Since the data on the Ethereum blockchain is in the public domain, anyone can become an “investigator.” Thus, the Etherscan explorer makes it clear that the two wallets used to send the Ethers to Binance eventually lead to an address that was controlled by BTC-e.
Further analysis shows that this address is associated with a wallet belonging to WEX through a set of branched transactions.
Exchange platforms often ask Etherscan to secure their name to their wallet, and if they can prove that they really own it, their name is assigned to it—for example, the Binance addresses follow the same principle. And while the BTC-e address was openly tied to the exchange, none of the more than ten addresses involved in the transaction between BTC-e and Binance was bound in this way.
The series of transactions began on July 29, 2017, when 485,705 Ethers were transferred from the BTC-e address at a time to another address, which, according to users, is a WEX wallet.
Subsequently, this address sent another 480,000 Ethers during 32 large-volume transactions from September 2017 to January 2018 to the same address.
CoinDesk confirmed that the wallet shown below belonged to WEX because six users provided screenshots of their withdrawals from WEX, and all of them included the address 0xb3AAAae47070264f3595c5032eE94b620A583a39.
But this WEX wallet was not the only recipient of the Ethers from BTC-e. Another 184,772 Ethers were transferred to the address 0x95cDdecd01856aA896426bd1ee021D87F3A5c199, and from there, in smaller amounts, to several other addresses.
In the end, the two addresses, both associated with the BTC-e wallet through a chain of six addresses, funneled a large amount of Ethers to an address that, as recorded on Etherscan, belongs to Binance.
The first wallet sent 78,581 ETH to Binance in approximately 24 transactions from August to October. The other, 14,794 ETH in three transactions taking place on October 15, October 18, and October 22.
Trader Maxim M. said that Binance’s first response to his complaint was unsatisfactory: “They replied that they could not do anything but would closely monitor these wallets.” “We are thankful for the information, and we want to cooperate with you. But, at the moment, it’s hard for us to check all WEX accounts and take action. In any case, we will monitor this situation, and if any new information appears, please contact us,” the support e-mail reads.
The affected users also did not know anything about the suspicious accounts being frozen until they turned directly to Binance CEO Changpeng Zhao on Twitter. “WEX cold wallets are moving funds through @binance. Meaning Binance may potentially help launder millions of dollars worth of stolen funds from WEX users. We have proof too. @cz_binance [Changpeng Zhao’s handle],” Twitter user John James wrote on Monday night.
Zhao promptly replied that these accounts had been frozen and asked to report the problem to local law enforcement agencies and get the case number: “This is part of centralization we hate too, dealing with other exchanges’ mess (we don’t even know the details). But we will do what we can,” writes Zhao.
What Is Clear so Far
It is clear that the names of those who control WEX today remain a mystery. The official Twitter account has been silent since August. The website of the exchange demonstrates BTC/USD at $8,817, while the market average is $6,450 at press time.
Judging by the information on dedicated forums, half a billion dollars worth of cryptocurrency is stuck on the exchange. Disappointed crypto traders blame Dmitry Vasilyev for everything. In one of the Telegram chats, the victims of the scam claim that he personally transferred more than 200 million, and now he is buying up WEX balances for 20% of the nominal price. In turn, Dmitry Vasilyev said that for some time he did not have access to the crypto exchange’s servers and was only a nominal owner. Recently, contact with the CEO of WEX has been lost. Vasilyev did not respond to a request for comment from CoinDesk, either.
The circle of sides revolving around WEX/BTC-e can be designated as:
Founders of BTC-e, including Dmitry Svetleyshiy;
WEX founder and CEO Dmitry Vasilyev;
“Sailor” Dmitry Khavchenko;
An “influence group” controlling the funds that disappeared after the arrest of Vinnik;
Sergey Mayzus and his company Mayzus Financial Services Ltd.;
Several other names, including Artem Karyanov, chairman of the board of directors of the Tsargrad group of companies owned by Konstantin Malofeev, and Dmitry Sutormin, pop up in the investigation of the RBK journalist. Trying to find out who is behind the exchange, the reporter introduced himself as a trader that urgently needed to buy $250,000 worth of Bitcoin and met with the representatives of the exchange at Tsargrad office in the Novinsky Passage.