On July 25, the Department of Justice (DoJ) showed its interest in Poloniex — a Delaware-based cryptocurrency exchange platform — in a rather unexpected fashion: Chief Special Investigator of the Investor Protection Unit (IPU) Craig Weldon emailed a number of Poloniex users, asking them to respond if they have any difficulties with their account.
The request wasn’t unjustified as, over the past few months, the exchange’s social media and support center accounts have been besieged by users who have been locked out of their accounts. Now, the DoJ has reached out to Delaware-based investors for further action.
Brief introduction to Poloniex
Poloniex was founded in 2014 by Tristan D'Agosta, an entrepreneur of whom scarce information can be found about online. Currently, the exchange is headquartered in Wilmington, Delaware. According to the Coinmarketcap database, Poloniex is currently the 30th largest crypto exchange in the world, with a daily volume trade of around $54 million and around 98 tokens available for trade. As of February 2018, the exchange ranked considerably higher: By the end of that month, it was the 14th largest crypto exchange globally, trading a total of almost $140 million on a daily basis. Poloniex doesn’t work with fiat currencies and allows users to perform margin trading — i.e., trading with borrowed funds instead of your own.
In February 2018, Poloniex was acquired by Dublin-based payments technology company Circle for $400 million. Notably, Circle is backed by Goldman Sachs, a Wall Street powerhouse which invested $50 million in it back in 2015, among other venture capital groups.
Announcing the deal, Circle co-founders Sean Neville and Jeremy Allaire emphasized that they plan on growing the Poloniex platform into more than a crypto-only exchange:
“We envision a robust, multi-sided distributed marketplace that can host tokens which represent everything of value: physical goods, fundraising and equity, real estate, creative productions such as works of art, music and literature, service leases and time-based rentals, credit, futures, and more.”
“Firstly and immediately, you can expect Circle to address customer support and scale risk, compliance, and technical operations to bolster the existing product and platform,” they also wrote.
In March, Allaire revealed Poloniex’s plans for expansion to the Asian market: the company is going to hire up to 100 people in the region.
Poloniex’s KYC woes
So far, the exchange has been signaling that it aims to achieve full regulatory compliance with U.S. authorities. In an open letter that D’Agosta sent to exchange users in May 2015, he revealed that Poloniex is a Money Services Business (MSB) and, therefore, is “bound by the rules and regulations defined by the Financial Crimes Enforcement Network (FinCEN).” Consequently, the exchange introduced the first signs of Know Your Customer (KYC)/Anti-Money Laundering (AML) procedures: Since May 2015, Poloniex users were required to state their name and country for any withdrawals. To withdraw tokens equalling more than $2,000 within a 24-hour period, they had to specify their address and phone number, while withdrawing more than a $7,000 equivalent within 24 hours required ID verification.
In December 2017, Poloniex announced that the KYC/AML procedures were going to become more rigorous, urging legacy account holders to undergo a verification processes before a deadline in order to “avoid any potential interruptions in your ability to trade on the platform.” A specific deadline was not outlined, however, stating that it was coming during “Q1 2018.” There have been no public announcements regarding the deadline ever since, while — in late May — a number of customers reportedly began receiving emails in which Poloniex asked them to verify their account within 14 days — after which the unverified accounts were frozen, leaving some customers puzzled. Complaints were voiced even by Poloniex users who obliged to complete mandatory verification procedures: Some account holders claimed that, even after confirming their identity and receiving notifications assuring that they may now continue trading, their accounts remain blocked.
The Poloniex terms of use that is listed on their website confirm that they are registered as a MSB with FinCEN and specifies the registration number. Moreover, the exchange warns about data confidentiality: “Poloniex may be required to file details of Account activity to FinCEN from time to time. Poloniex may also be required to provide information to government agencies as required by law to other state or federal agencies.”
More customer complaints and DoJ intervention
Unofficial Poloniex reddit channels are swamped with various threads of alleged-user complaints over their accounts being frozen — even after submitting the required documents. A significant amount of such account holders claim that the Poloniex support has been ignoring their complaints for weeks. For instance, recently, the user bethonpl announced a one year anniversary of his support ticket. Similar accusations are frequently featured in replies to Poloniex’s Twitter account.
On July 9, a Reddit user PoloniexSuit shared a change.org petition against Poloniex — allegedly after contacting his attorney — urging affected customers to sign it, although only a modest 12 people have done so, as of press time. Long prior to that, in summer 2017, another affected Poloniex user reportedly contacted FinCen, although the outcome of that report is unknown. Earlier this year, users would also take to the official Poloniex Subreddit to voice their concerns regarding long transaction and withdrawal times: One user reported a withdrawal ticket that’s been open since early January, while another user claimed that they have been waiting for a withdrawal for more than seven weeks — and both have remained unanswered by Poloniex’s Subreddit admins.
On July 25, Cointelegraph obtained details of an email that suggests that Poloniex has attracted the Investor Protection Unit (IPU) of the Delaware Department of Justice’s (DOJ) attention. As shown in an screenshot of said letter, Chief Special Investigator of the Investor Protection Unit (IPU) Craig Weldon wrote to a broad list of individuals (the email CCs around 100 people), asking them to contact him should they, in case, experience any difficulties with their Poloniex account.
When contacted by Cointelegraph, the Public Information Officer for the Delaware Department of Justice Carl Kanefsky confirmed that the DoJ has reached out to “Delaware-based” investors, stating that the agency learned of them “based on [their] research.” The DoJ confirmed that “a number of cryptocurrency investors” contacted their agency, albeit without mentioning any particular platform — the agency cited “open investigation” as the reason for not disclosing details:
“While we cannot comment on the status of open investigations, we can confirm that a number of cryptocurrency investors have complained to our office about frozen accounts and poor communications with cryptocurrency exchanges that have hindered the investors’ ability to make withdrawals of cryptocurrency in a timely fashion, if at all. This can be problematic for investors who are seeking to withdraw their investments and are unable to do so within a timeframe that permits them to get the price they seek.”
The Public Information Officer of the Delaware DoJ also urged local investors to continue contacting their agency with any complaints about their investments.