HitBTC refusing to withdrawal $67,000; readers advised to safeguard their HitBTC assets

[Steve Sokolowski]

The HitBTC exchange is refusing to send $67,000 that is owed to Prohashing despite repeated requests to withdrawal the full balance for over eight days. HitBTC has stopped responding to tickets and we have notified them we will be reporting their actions as theft if we do not receive the funds by Friday. We recommend that all readers cease trading with HitBTC and attempt to withdrawal their account balances as a safety measure until more information is available.

The trouble began on May 28 at 12:27am EDT, when Chris noticed that we were unable to issue payouts because the API call to withdraw money from HitBTC failed. He took money from a different wallet and waited to see if the problem would resolve itself. Seeing that it had not, on May 30 Chris submitted a support ticket to the exchange. Chris received the following response to the ticket:



He had already submitted "Know Your Customer" information to HitBTC when the account was first opened, so this response was odd in itself. It is clearly automated and doesn't seem applicable to the situation. We don't use any VPNs to connect to their service, and our twitter and facebook accounts are visible to the world and have thousands of followers. Where our money comes from - mining - is public knowledge. Nevertheless, Chris took an image of himself with identity documents and the other information they required.

A day later, HitBTC then replied with another message:



I've never heard of an exchange requesting specific information on transactions, and it was weird that these transactions were requested in this message. People who look these up in a block explorer will notice that they are simply aggregations of huge numbers of mined blocks into one output. There is no "source" of the funds; they were mined. Chris explained that in a reply ticket.

After that, there was no reply for several days. Chris submitted yet another ticket asking for the status of the account, and requested that HitBTC issue a withdraw for the full balance. He then received a second reply, similar to the first image, requesting for the same identity information that had been provided multiple times already. A further, more forceful ticket telling them to close the account and give us our money back received no response, nor did one final ticket informing them of our intent to publicize this issue.

To see the scale of the problem, here's a summary of just how much money HitBTC has refused to pay:

0x_Protocol 314.2917086
Aeternity 29.7
Augur 0.132
BasicAttentionToken 890.2
Bitcoin 5.74645436
BitcoinCash 0.0000518
BitcoinGold 0.00001841
BitcoinInterest 12.54479711
BitcoinSV 0.00028716
Callisto 12344.24185
Dash 0.00084492
DigiByte 6417.722769
Dogecoin 121980
Electroneum 7670
Emercoin 80.80000085
EOS 35.58
Ethereum 2.09117477
EthereumClassic 163.4224626
GoByte 123.1912765
Golem 479
Happycoin 1564.127434
Horizen 1.9941489
IOStoken 830
Komodocoin 0.04846438
Litecoin 150.0006618
LitecoinCash 2066.055599
Monero 42.44381868
NEM 136
NEO 5.63
NXT 34.07669672
OmiseGO 10.79410497
Peercoin 0.035589
Ripple 1643.3
StatusNetwork 298
Stellar 657.6
VeChain 360
Verge 7.115868
ZCash 0.18101457
Zcoin 1.45
Zilliqa 3034.867157

Of course, no business is required to take anyone as a customer who they don't want to deal with, so HitBTC is well within its rights to close the account if they choose. It is clearly illegal, however, to withhold a former customer's balance if they wish to terminate the relationship. We informed HitBTC that we will be considering their actions as theft if they do not return our money within a week, and intend to call the police if they do not so do.

This entire sequence of events is extremely suspicious to us. We have been using HitBTC for a long time and mining tens of different coins. Nearly every single one of the tens of thousands of transactions that have been sent to them look like these transactions they claim need verification - they all combine hundreds of mined blocks into one output for sale. There's no reasonable explanation why they would suddenly decide that this pattern of activity requires verification now. If a software upgrade had caused a bug, then why has the exchange failed to notify customers of that and apologized for the delays? If HitBTC wanted to retain us as a customer, why didn't they notify us immediately of whatever the problem was instead of requiring Chris to submit a support ticket days later? And why are they failing to provide any explanation or timeframe for when the money will be made available?

No Prohashing customers are affected by this situation; although we now have a reserve of -9 bitcoins, we have $260,000 in a bank account that can be used to cover payouts if necessary. 15 additional bitcoins are owed to customers who have reached "end of liability" due to not entering payout addresses or failing to submit paperwork. Plus, the recent decline in coin prices has already lowered our debt if it develops that HitBTC is in the initial states of an unrecoverable systemic problem.

Perhaps we are just overly worried about the situation and the issue is just overloaded customer service. In that case, we are awaiting HitBTC's reply to explain where the $67,000 is, and we urge them to resolve the situation as soon as possible to avoid unnecessary escalation of the issue. We will update this post if we receive payment. Until then, we thought it prudent to warn everyone as soon as possible so that they can take steps to safeguard their assets.

[strugmo]

It would appear from their Twitter feed and responses that numerous people have received the same type of response when either trying to withdraw large amounts or trying to withdraw their entire balance. It would also appear that many have attempted to fully comply with the request but never receive their withdrawals.

I have never used their site, nor have I had any interactions or followed any previous threads about their site, so I consider myself kind of impartial. A lot of news lately about KYC and AML, and attempts to further increase regulation and tighten the noose on privacy. I am assuming they are in the EU somewhere, which means shifting regulatory sand. Nevertheless, it smells like a money trap, like from the Egold days. You can put coins in, you can swish them around, but when you try to withdraw things get complicated.

However, it could be a case of the company making every effort to actually comply with regulatory realities wherever they are, and looking very bad for the effort. The exchange niche is the Chicago, IL of the industry. Folks are dropping like flies. Technically savvy attacks by governments and large scale criminal networks are decimating exchanges. They have to be just nervous wrecks trying to keep a lid on it all.

I'm not trying to give them an out. I want you to have your money. But.. seriously, shouldn't a lawyer be handling Prohashing compliance anyway??

[Steve Sokolowski]

It would appear from their Twitter feed and responses that numerous people have received the same type of response when either trying to withdraw large amounts or trying to withdraw their entire balance. It would also appear that many have attempted to fully comply with the request but never receive their withdrawals.

I have never used their site, nor have I had any interactions or followed any previous threads about their site, so I consider myself kind of impartial. A lot of news lately about KYC and AML, and attempts to further increase regulation and tighten the noose on privacy. I am assuming they are in the EU somewhere, which means shifting regulatory sand. Nevertheless, it smells like a money trap, like from the Egold days. You can put coins in, you can swish them around, but when you try to withdraw things get complicated.

However, it could be a case of the company making every effort to actually comply with regulatory realities wherever they are, and looking very bad for the effort. The exchange niche is the Chicago, IL of the industry. Folks are dropping like flies. Technically savvy attacks by governments and large scale criminal networks are decimating exchanges. They have to be just nervous wrecks trying to keep a lid on it all.

I'm not trying to give them an out. I want you to have your money. But.. seriously, shouldn't a lawyer be handling Prohashing compliance anyway??

Since we aren't a money transmission business, we don't need a lawyer to handle these sort of issues. It's up to the exchange to pay their own lawyers to determine if the exchange is in compliance. All we do is provide the information requested, just like other exchange customers do when they want to create new accounts.

This whole area is confusing, but money transmission is defined as receiving money from one person and transmitting it to a different person or location. HitBTC provides money transmission services, and therefore needs to record this data, before conducting transactions that meet that criteria. A type of transaction that clearly meets the criteria is matching up a buyer and seller of a coin, because they are sending the seller's coins to the buyer, who is a different person. Thus, it makes sense if HitBTC discovered some sort of problem with their paperwork and needs to prevent future money transmission until they have whatever they need.

In the case of making a withdrawal, money transmission regulations do not apply. The money is already owned by the customer, so it's not being sent to a different person, and since the same wallets are being used, it's not being sent to a different location. To further demonstrate how what they are doing is illegal, there is even a specific exemption for "escrow services" where a company simply holds funds used in an online transaction like an eBay sale or like Purse.io. Therefore, claiming that money transmission prevents them from issuing a withdrawal is false.

Our current position is that we are refusing to provide them with any additional information, as we have provided them with passports, photos, IP addresses, and all sorts of other data twice and that the information is not necessary for them to process a withdrawal anyway. If they don't send us the money within 6 days, then we will get the police involved.

[strugmo]

"Since we aren't a money transmission business, we don't need a lawyer to handle these sort of issues."
I guess we will see how that turns out. You can believe they will be bringing plenty of lawyers.

"If they don't send us the money within 6 days, then we will get the police involved."
An arbitrary timeline with no teeth. That's why you need a lawyer. What police are you going to call, exactly?? You are a US company. They are located in Hong Kong. You're still going to need a lawyer versed in compliance and crypto to actually win any sort of relief. I would like to be a fly on the wall when you explain - without a lawyer - to an American police officer or FBI agent that you are owed $67,000+ by a foreign company.

I tried the police when I had three foreign companies refuse to pay for regression testing. The police were no help because they could not understand what I was talking about, and quickly relegated my complaints to the "sounds civil, not criminal" bucket. Even after getting a lawyer and successfully suing two of the three companies, and yielding over half a million in judgements, I have never seen a penny. Without a lawyer, you're just another disgruntled guy shouting a the wind.

[Steve Sokolowski]

"Since we aren't a money transmission business, we don't need a lawyer to handle these sort of issues."
I guess we will see how that turns out. You can believe they will be bringing plenty of lawyers.

"If they don't send us the money within 6 days, then we will get the police involved."
An arbitrary timeline with no teeth. That's why you need a lawyer. What police are you going to call, exactly?? You are a US company. They are located in Hong Kong. You're still going to need a lawyer versed in compliance and crypto to actually win any sort of relief. I would like to be a fly on the wall when you explain - without a lawyer - to an American police officer or FBI agent that you are owed $67,000+ by a foreign company.

I tried the police when I had three foreign companies refuse to pay for regression testing. The police were no help because they could not understand what I was talking about, and quickly relegated my complaints to the "sounds civil, not criminal" bucket. Even after getting a lawyer and successfully suing two of the three companies, and yielding over half a million in judgements, I have never seen a penny. Without a lawyer, you're just another disgruntled guy shouting a the wind.

The timeline isn't arbitrary. It's necessary to give them a deadline because there could be customer service or technical issues.

I'm also not convinced by your argument that the police won't be interested in such a case. Remember, btc-e was shut down by a taskforce of agencies after they discovered it was involved in fraud connected to Mt. Gox.

We need to wait until the deadline to see whether this is a miscommunication or whether they are involved in illegal activity. In addition to the police, I'll also ramp up the negative publicity, bringing this to the attention of media outlets next week.

[strugmo]

Here's just a few items from their various terms of service that are likely to give you trouble:

From "Terms of Service"
Section 2.2
d. use our Technology Platform with your own e-mail and for your own benefit and do not act on behalf and/or to the interest of any other person;

Section 8 (In its entirety - limits liability)
Section 10 (In its entirety - forced arbitration in Hong Kong)
Section 13.6 (Indemnifies against withdrawal problems)

From "AIA Policy"
Sections 2.4 & 2.5 (Gives company sole discretion over what they deem "suspicious")

Steve, I totally respect and admire you. I was just trying to make the point that navigating international law is much more complicated than filing a complaint.

[Steve Sokolowski]

Here's just a few items from their various terms of service that are likely to give you trouble:

From "Terms of Service"
Section 2.2
d. use our Technology Platform with your own e-mail and for your own benefit and do not act on behalf and/or to the interest of any other person;

Section 8 (In its entirety - limits liability)
Section 10 (In its entirety - forced arbitration in Hong Kong)
Section 13.6 (Indemnifies against withdrawal problems)

From "AIA Policy"
Sections 2.4 & 2.5 (Gives company sole discretion over what they deem "suspicious")

Steve, I totally respect and admire you. I was just trying to make the point that navigating international law is much more complicated than filing a complaint.

I think you're misunderstanding the purpose of contacting the police.

The law itself isn't going to get any action. Maybe someone will raid their company, but I doubt it. The police spend their resources arresting drug dealers while Nicehash is allowed to continue operating after losing millions of dollars. I know I wouldn't want someone contacting the police about me, but maybe they don't care.

The purpose of the report is to generate fear amongst customers. Posting a police report on facebook, twitter, reddit, and everywhere else will impact their bottom line. How many people will use hitbtc if the front page of Google results returns an image of a police report for theft? In this paranoid industry, few people would even read the article and just be scared away by the headline. A single police report that our high-traffic site links to will show up high in the results and cost them millions of dollars in trade revenue.

They can avoid all of this by simply returning the money, which is why we are giving them 6 days.

[strugmo]

I get it, and I sincerely hope that approach works. I appreciate your thoughts, and the chat, as always. Don't mind me anyway... I get a few days downtime from the road here and there in the summer, and I just like to debate something other than guitar string preference or who was the best songwriter or if we know someone in the next town who can sell us weed. LOL

As you know I am a huge proponent of Prohashing, and desire only one outcome... that you get paid, as you rightly should.

[Steve Sokolowski]

I get it, and I sincerely hope that approach works. I appreciate your thoughts, and the chat, as always. Don't mind me anyway... I get a few days downtime from the road here and there in the summer, and I just like to debate something other than guitar string preference or who was the best songwriter or if we know someone in the next town who can sell us weed. LOL

As you know I am a huge proponent of Prohashing, and desire only one outcome... that you get paid, as you rightly should.

I love people who like to debate things. It would be great if we could get more people here who would post debates instead of the constant low-value posts about new deals at exchanges and similar things. Definitely keep posting your thoughts.

Let's hope that HitBTC is not insolvent, sees sense, and avoids escalation. I want to spend time improving the system, not pursuing HitBTC.

[hobospices]

They made a recent post about complaints of this nature on their website https://blog.hitbtc.com/proof-of-silenc ... on-matter/ They signed the bottom with " Please do not hesitate to contact me at joan@hitbtc.com with any enquiries regarding our values.

Joan Gald
Board Member, HitBTC "

Why not reach out directly?