The Israeli company behind the cryptocurrency exchange DX.Exchange is going through bankruptcy proceedings after 78 of its former and present employees petitioned an Israeli court to wind it up.
The petition, which was filed on October 24, contained several surprising claims and revelations linking the once highly publicized cryptocurrency exchange, promoted by the likes of Bloomberg News, to Israel’s notorious binary options industry.
The petition alleges that the Israeli company, CX Technologies Ltd., developed and ran a cryptocurrency trading platform. Other documents seen by The Times of Israel reveal that that trading platform was called DX.Exchange. According to DX.Exchange’s website, it is owned by a company registered in Estonia, but the petition claims that it was in fact operated by CX Technologies. The petition further claims that CX Technologies is a successor company to SpotOption, which was raided by the FBI in January 2018 over suspicions that it was a central player in Israel’s multibillion dollar binary options scam. SpotOption has denied all allegations of wrongdoing.
DX.Exchange has in the past denied any connection to SpotOption, but the petition claims that most of CX Technologies’ 55 employees are former employees of SpotOption who were hired by the new company in January 2018. CX Technologies and SpotOption were located in the same office, while employees’ pension plans and other funds were transferred without disruption from SpotOption to the new company.
The petition also reveals that a relative of Prime Minister Benjamin Netanyahu, Miriam Mileikowsky, was a senior employee of both SpotOption and CX Technologies starting in August 2016. She received a salary of NIS 40,000 ($11,500) a month. Mileikowsky is the wife of Ory Mileikowsky, the prime minister’s first cousin, who almost went bankrupt in 2013 when a judge ordered him to compensate investors he had advised after losing 90 percent of their funds [Hebrew link]. The Supreme Court later overturned the decision.
In the October 24 bankruptcy petition, employees of CX Technologies claim that they had not been paid their salaries for September or October 2019 and some had not received benefits for even longer.
In addition to the petition by employees, several Israeli suppliers have sued the company in the last six months for allegedly failing to pay its bills. These companies are White Hat Ltd., which provided cybersecurity services to DX.Exchange, and Bee2See Dotan B.S. Solutions, which provided targeted marketing of potential customers using IBM’s Watson system. Malam Team, one of Israel’s largest IT companies, has also sued CX Technologies for allegedly failing to pay for servers the company supplied.
Lawyers for DX.Exchange had not responded to a request for comment at time of writing.
DX.Exchange burst onto the global cryptocurrency stage in January 2019 with glowing media coverage that touted the company’s affiliation with NASDAQ and Bloomberg News.
For instance, TheStreet.com, a widely read financial news website, described DX.Exchange in January 2019 as a “partner” of NASDAQ and proclaimed that the company was set to “bridge the gap between equity and crypto markets.”
“The financial industry itself now feels isolated from the great things happening in crypto,” the article asserted. “Seeing these trends play out, some of the biggest names in traditional finance such as Bloomberg, NASDAQ and MPS Marketplace Securities have put their heads together to offer a solution.”
MPS Marketplace Securities, formerly known as SpotOption Exchange, was a Cypriot company affiliated with SpotOption Ltd.
Meanwhile, Bloomberg News wrote enthusiastically in January that “DX.Exchange plans to offer digital versions of big U.S. stocks. Tokenization of real-world assets is a hot trend in crypto.”
DX.Exchange’s relationship with NASDAQ may not have been as robust as some readers of its media coverage may have been led to believe. Rather than establishing a deep partnership with NASDAQ, DX.Exchange used the NASDAQ “matching engine” technology to build its own cryptocurrency exchange platform. It appears to have been one of many exchanges to pay money to do so.
The company’s touted partnership with Bloomberg appears to have been more substantial. In December 2018, Bloomberg sponsored a “Crypto Summit” in London, for which the news organization said it brought in “subject matter experts and leading industry players to discuss crypto’s future in 2019 and what needs to be done to pique mainstream investor interest in this global disruptive phenomenon.”
At the conference, DX.Exchange’s CEO, Daniel Skowronski, delivered the opening remarks. “The SEC is really coming down on, you know, whether it’s an ICO, whether it’s a security token,” he said, referring to the US Securities and Exchange Commission’s scrutiny of cryptocurrency ventures. “I think there are so many subpoenas that have been sent out. And the reason the SEC is doing that is because they’re out there to protect US customers. And I think with us being here it Europe, it’s really surprising to me how European companies or non-U.S. companies are really scared of the SEC. The only thing you have to worry about with the SEC is if you took US customers,” he said.
According to Israel’s corporate registry, CX Technologies Ltd., the Israeli company behind DX.Exchange, is 10 percent owned by Skowronski, a soft-spoken American who was previously a director at several retail forex firms, and 90 percent owned by Malhaz Pinhas Patarkazishvili, who also goes by the name Pini Peter, the former owner of the now-defunct binary options platform provider SpotOption. The Estonian company that officially owns DX.Exchange, Coins Marketplace Technologies OU, is owned by Patarkazishvili’s wife, Limor Patarkazishvili.
In most of DX.Exchange’s marketing material, Skowronski is the public face of the company, while the Patarkazishvilis’ role is not mentioned.
According to the company’s white paper, which is a kind of prospectus for cryptocurrency companies, the website DX.Exchange allowed users to convert fiat (regular) currency into cryptocurrency and vice versa, to buy and sell different cryptocurrencies, to store cryptocurrencies, and to buy tokens that represented parts of shares of NASDAQ-listed companies.
DX.Exchange was licensed in Estonia and Cyprus and made money, it said, by charging fees for trading (fiat currency into cryptocurrency, or one cryptocurrency to another), and for listing cryptocurrencies on its exchange so people could buy and sell them, as well as membership fees. In addition, the company raised funds from investors through private token sales. The company does not appear to have disclosed in any publicly available material how much money it raised from token buyers around the world.
On September 24, 2019, the Cypriot company associated with DX.Exchange, MPS Marketplace Securities Ltd, had its Cypriot license suspended for allegedly violating Cypriot securities laws. MPS Marketplace Securities Ltd was formerly known as SpotOption Exchange Ltd and S.O. SpotOption Ltd.
On October 24, 78 employees and former employees of CX technologies filed a petition in Israeli court to wind up the company, saying it had no money left in its bank accounts. A few days later the company’s owner, Pinhas Patarkazishvili concurred with this assessment and agreed to allow the bankruptcy proceedings to go forward.
In a November 3 blog post, DX.Exchange announced that it was shutting down, unless it could find another company to buy it or merge with it.
“The costs of providing the required level of security, support, and technology is not economically feasible on our own,” the company announced.
On November 4, the court-appointed trustee for CX Technologies, attorney David Forer, wrote in a court filing, “In a meeting I held with the company’s controlling shareholder, Mr. Pinhas Patarkazishvili, Mr. Moshe Avrahami and their lawyer, I was told that the company has reached the end of the road due to purported business failure. I was told that the company has no available sources of money and that it is even in overdraft of NIS 5,000, that there are no debts from customers to be collected and that the company has no assets it owns, that even the office equipment is not owned by the company but was leased from another company owned by [Patarkazishvili].”
The petition shows that the employees of CT Technologies included Chinese speakers, Japanese speakers, a large number of engineers, and a high proportion of first-generation immigrants from the former Soviet Union. Most employees appear to have been in their 20s and 30s. Some of them began working for SpotOption as early as 2011 and have shown remarkable loyalty to the company.
A former employee of SpotOption who spoke to The Times of Israel on condition of anonymity said that unlike some of the employees of the binary options call centers SpotOption helped set up, who came from backgrounds where their career prospects may have been limited, employees of SpotOption tended to be highly credentialed mainstream Israelis who could have worked anywhere but chose to work at SpotOption.
The salaries and benefits were extremely generous, this former employee said, and most employees shrugged their shoulders at the fact that the company was raided by the FBI in January of last year.
“The FBI’s values weren’t their values,” the employee surmised. “A lot of employees were like, It’s a jungle out there, I’d better grab as much as I can while I can.”
Israeli police had raided SpotOption in 2013, but not because they suspected the company of any wrongdoing. The purpose of the raid was to arrest an employee, Yaron Labin, who had allegedly been embezzling money. Labin was indicted a year later and in 2017 he was sentenced to 42 months in prison and a fine.
The CX Technologies’ trustee’s job over the coming months is to locate sources of funds that the CX Technologies can use to pay off its creditors. There is a possibility that more creditors may come forward.