Second cryptocurrency exchange under court protection in Canada

Book a Consultation

Einstein Exchange Inc. joins QuadrigaCX as the second cryptocurrency exchange to fall under court protection in 2019.

In early February, 2019, the Quadriga group sought protection under the Companies’ Creditors Arrangement Act (the “CCAA”) following the death of the founder, Gerald Cotton. Mr. Cotton had sole responsibility for the wallet storage protocols and wallet passwords for Quadriga’s cryptocurrency inventory. When he died, the Quadriga group was unable to access reserves, which may have had a value of approximately $180 million. The CCAA proceedings were short lived, and the Quadriga group assigned into bankruptcy in mid-April.

On November 1, 2019, the Supreme Court of British Columbia, on application by the British Columbia Securities Commission (the “BCSC”), appointed Grant Thornton Limited as interim receiver of Einstein Exchange Inc. and Einstein Capital Partners Ltd. (the investment vehicle to acquire Einstein Exchange) as well as interim receiver of Einstein Law Corporation and Michael Ongun Gokturk, the sole director of each of the companies.

According to the affidavit of Sammy Wu (BCSC’s Lead Investigator) that was filed in support of the application, the BCSC commenced an investigation into the Einstein group in early May, 2019, following multiple complaints that customers were not able to access their funds. In addition, the BCSC had a complaint from a shareholder regarding improper use of funds and potential money laundering.

The Einstein Exchange business model was apparently to operate an online trading platform for the purchase and sale of 19 types of cryptocurrencies. Customers would provide Canadian or US currency and cryptocurrency for trading in cryptocurrencies. The BCSC concluded that the business that was being operated involved trading in securities, thus falling under the BCSC’s regulation.

Mr. Wu, as a result of the investigation, believed among other things, that Einstein Exchange improperly used their customers’ assets and was deficient in both currency and cryptocurrency holdings. Einstein did not answer Mr. Wu’s requests for current financial information, including information on currency and cryptocurrency balances.

On October 31, 2019, Einstein Exchange through its counsel, advised Mr. Wu that it was planning to close down the business. Later the same day, Einstein Exchange’s counsel advised Mr. Wu that they no longer represented the company.

When on November 1, 2019, Mr. Wu found the elevator to the Einstein Exchange offices locked off and that he was unable to contact Mr. Gokturk, the BCSC proceeded with the application for the interim receiver to protect and preserve the cryptocurrency and other assets.

Given the loss of access to cryptocurrency in the QuadrigaCX proceedings, the BCSC’s initiative to protect investors should be applauded. It is, of course, too early to say whether Einstein Exchange’s customers will be able to recover their investments.

On November 8, 2019, news of another cryptocurrency trading platform,, apparently going off-line hit the press. Whether that closure will lead to further court protection proceedings is yet to be seen.

The Einstein and Quadriga situations, and perhaps, reemphasizes the risks associated with unusual investments, such as cryptocurrencies, and the activities of companies such as Einstein Exchange and QuadrigaCX, which may be operating with little or no government oversight on a limited track record. Investors in cryptocurrencies should not only take care in their research of the cryptocurrencies, but also the exchanges through which they are making their investment.

Go to top

Book A Consultation

Thank you for contacting us. The information requested on our form is required to carry out a conflicts check to make sure that we do not already act for a party which would prevent us from acting for you. We will respond once we have confirmed there are no conflicts.