Australian-founded bitcoin exchange Igot appears on the verge of collapse, with dozens of customers and clients claiming to be owed hundreds of thousands of dollars.
The company, which buys and sells bitcoins on behalf of customers, has for months been unable to completely deliver on those bitcoins or refund their money.
Its owner Rick Day admitted to the ABC that he was struggling to pay customers.
“I am well aware that customers are affected and customers are really unhappy with this but I would like to show each and every one that we have not lost their money. We have not run away with anything and we will return the money,” Mr Day told the ABC.
That, according to bitcoin investors, is little comfort.
Egyptian-born Akram Bekzada invested with Igot in 2014.
He has been trying to withdraw $13,000 worth of bitcoins since October last year.
“I think Igot are not being transparent. They are not really speaking up about what is the issue that’s holding our money back,” he said.
“A lot of times they give reasons that don’t stack up. A lot of times they say we have a problem with cash flow and then they say we cannot transfer bitcoins or we cannot cancel the transaction and transfer bitcoin.”
Perth millionaire Zhenya Tsvetnenko’s company Digital CC is owed $180,000. Digital CC is taking action in the WA Supreme Court to windup 13th Pty Ltd — the business entity of Igot.
Mr Day dismissed the court action as “merely a commercial dispute”.
“Our lawyers are working with theirs to have it resolved. I’m confident it will be resolved,” he said.
Igot is an international bitcoin exchange which claims to have several offices around the world.
It was founded in 2013, with Rick Day moving to New York shortly afterwards to work on the business with American co-founder Patrick Manasse.
Mr Day told the ABC that Igot has been doing “really well” since it was founded in 2013. He said it had only been the last few months where the company had struggled.
What is bitcoin?
Can’t tell a bitcoin from a blockchain? Read our explainer to see how the cryptocurrency works.
Bitcoin essentially is internet money, and a bitcoin exchange works in a similar way to a foreign currency exchange.
A person makes a bank deposit to the exchange in a supported currency to buy bitcoins. You use these balances to trade in bitcoins with other users of the exchange, and then you are meant to be able withdraw that money.
Transfers are almost instant, with far fewer fees, and the risk is minimal unless the actual exchange itself commits a fraud, becomes insolvent or withholds the money.
Igot ‘was insolvent’ a few years ago: former advisor
American entrepreneur Jesse Chenard, who worked with Igot as an advisor in 2014, was excited by the prospect of working in the emerging space of bitcoin.
In a media release picked up by the Australian media in June 2014, Mr Day trumpeted that they had “managed to secure prominent US entrepreneur” Mr Chenard as both a major investor and company advisor.
But Mr Chenard told the ABC a different a story. Before he invested any money, he looked into Igot’s finances and found things were not quite right.
“I think at that time Igot was insolvent but because Rick claimed to have other assets and because everything was murky and in his name and what have you, he claimed that he was able to cover it and it was a small accounting thing,” he said.
“So as to whether the company was insolvent? I would say the balance sheet looked pretty crappy.”
Bitcoin: A waste of energy?
Vast amounts of electricity have gone into mining Bitcoin. But as John Quiggin writes for The Drum, it’s unlikely that the digital currency will survive long enough to create substantial environmental problems.
According to Mr Chenard, Igot was not buying enough bitcoin for the amount of money it was taking in.
“What people thought that they had bought with their Australian dollars or Indian rupees or US dollars or whatever currency they were dealing in — they hadn’t been actually bought. It hadn’t been bought for them,” Mr Chenard said.
Mr Chenard stopped advising Igot and decided against investing. He told his friend Patrick Manasse to bail — which he did in 2014.
The pair went on to form their own company that works with the technology underpinning bitcoin.
Mr Day told the ABC that there was a falling out with Mr Chenard because Mr Chenard wanted more equity in Igot.
Mr Day maintains the company was — and is — solvent.
“[Jesse Chenard] saw our system, how it worked, and he went and started his own thing. So as far as Jesse Chenard is concerned I am making no further comment,” Mr Day said.
Customers take to social media demanding refunds
Whether the pair had a falling out or not, it still does not account for the investors who have not been paid by Igot.
There are a multitude of complaints on Reddit, Facebook and other social media from people claiming they have been “robbed” by Igot. But there is one person who recently received half his money back.
Owen Champion, a software developer from the NSW Central Coast, had been trying for months to withdraw his $7,000 worth of bitcoin. He was recently made redundant and is desperate for his money.
Mr Champion posted online that he had been interviewed by the ABC, and soon after Mr Day paid half his money back.
“It pisses me off. It took me forever to save up that money and I just assumed that since they’re in Australia there would be some sort of safety net or regulation or something like that — bare minimum — where he could be accountable for his actions and it seems like no-one’s really helping,” Mr Champion said.
There is very little government regulation around bitcoin.
Akram Bekzada has lodged complaints with Australian regulators such as the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).
All organisations told Mr Bekzada they were powerless to act.
“To be honest, regulators should be ahead of this game rather than waiting to decide on who should be in charge of this after problems start erupting,” he said.
Barrister and bitcoin academic Dr Philippa Ryan agrees.
“As always the law is really struggling to keep up with innovation. And that’s not a new problem, it’s just a bigger problem than ever.”
Until regulations are tightened, people like Mr Bekzada and Mr Champion could still be waiting for their money.