According to Dovey Wan, founding partner at blockchain-focused investment firm Primitive Ventures, non-custodial token trading platform EtherDelta is under investigation by Chinese police for a suspected exit scam.

The exchange was bought out by unnamed Chinese investors in December of 2017 which led to an ICO for a native exchange asset EtherDelta Token (EDT). Now, annoyed investors have reported the ICO to the police as the belief is that it was all part of an exit scam.

An exit scam usually involves a cryptocurrency company, like an exchange, running some form of fundraising mechanism - often an ICO - and then instead of delivering on the promise of the project, taking the money and running. 

According to a Reddit post form over a year ago, EtherDelta has been laying nearly dormant with little to no activity visible on the website which leads many to believe the Chinese investors have fled with the money. 

Harsh Chinese police

EtherDelta was founded by American Zack Coburn but was sold onto unnamed Chinese investors who have since been identified after police obtained the stock ownership agreement as part of their official investigation.

It is alleged that the investors used EtherDelta as a front to issue their own ICO in order to take a payout and run. It was only when investors in EDT realized they had been duped that they whistle blew to the Chinse police. 

Basically Zack Coburn sold EtherDelta to a group of Chinese who later issued exchange token EDT and turned out to be a exit scam,” Wan explained. “Now furious investors of EDT whistle blowed to local police the case was recently taking into official investigation process.”

China is well known for being anti-ICOs because of their financial risk and the frequent fraud that is tied to them.

“FYI Chinese police shows no mercy if any crypto scam involved large amount of retail capital, which I mentioned in my recent Coindesk Oped too,” explained Wan in a Tweet. “Previously PlusToken founding team were caught not even in China, but in Vanuatu.”

Cracking down

The case of PlusToken has similar roots to this investigation as once again it is China-based and a classic exit scam. With the PlusToken case, a whopping $3 billion was alleged to have been stolen which led to Police tracking down and arresting six Chinese nationals on the small pascific Island of Vanuatu.

If the owners of EtherDelta are found to be guilty of this exit scam they will more than likely face massive punishment as ICOs are illegal in China, but even more so, they are alleged to have operated a classic scam. 

Bad reputation

EtherDelta has had dodgy dealing tied to it for some time now. Last year, its founder Coburn was under investigation from the SEC for operating an unregistered securities exchange. Additionally, the exchange was hacked in 2017 and it was then that the same hacker used EtherDElta to move more stolen funds, months later, from hacked New Zealand-based cryptocurrency exchange Cryptopia — worth over $125,000.