Why Are Many Digital Currency Exchanges Troubled by Lawsuits?

    2018/05/09 11:58 Molly lv Created with Sketch.

Cointime (May 9)— Four big digital currency exchange lawsuits have occurred one after another in April. These lawsuits are like the Sword of Damocles over the blockchain industry. So what exactly have happened in April?

If you take an overlook of April's market, you can see that the market is gradually picking up. There were 96 currencies rose in the top 100 currencies. The global market value has returned to $419.3 billion dollars, which was equivalent to the market value of March 8th. It looks like that the bear market was slowly over, however, the local government's attitude towards the digital currency market has not been zealous as it could be, and the digital currency exchanges started to suffer lawsuits.





Recently, Coinbase, the U.S. digital currency exchange, has been accused of conducting money laundering for Paul Vernon, the CEO of Cryptsy, a bankruptcy cryptocurrency exchange.

In July 2017, Paul Vernon was found guilty of stealing user's cryptocurrency and ordered to pay $8.2 million in damages. Before he fled, Vernon had converted the stolen Bitcoins into legal currency by using his Coinbase account between 2014 and 2016. Therefore, Coinbase was sued for oversight and class action for assisting money laundering of about 8.2 million U.S. dollars worth Bitcoin.

As early as January 17 this year, Sigal Mandelker, the U.S. Treasury Department’s Deputy Minister of Terrorism and Financial Intelligence, stated that perfecting anti-money laundering/anti-terrorist financing laws is an important part of regulating digital currency exchanges.


In the event of an abnormal account transaction, if the exchange does not complete its supervision obligations in a timely manner, and the criminal is allowed to purchase a large amount of Bitcoin in a short period of time, it is regarded as oversight. However, it is still remain unknown whether the prosecutors of Coinbase can win or not.




Binance, The world’s largest digital currency exchange, also got into trouble in April. It received a lawyer's letter just like Coinbase. The difference was that the prosecutor was the investment company Sequoia Capital, not regulatory institutions.


On April 25, according to the lawsuit documents submitted by Hong Kong courts between March 26 and April 24, Sequoia Capital sued the founder of Binance, Zhao Changpeng due to failure of investment.

According to the documents of the Hong Kong courts, Zhao Changpeng and Sequoia Investment began negotiating on investment of Binance since August last year. The transaction would allow Sequoia to obtain nearly 11% of the shares, and to conduct a valuation of approximately 80 million U.S. dollars for Binance. They continued to negotiate until the main contradiction appeared because in the mean time, the price of digital currency and the value of transactions soared to the highest level in the history.

In mid-December, Bitcoin soared to nearly 20,000 U.S. dollars and Zhao Changpeng team told Sequoia Capital that the shareholders of Biance argued that have underestimated the value of the exchange.

In addition, Zhao Changpeng received higher valuation from another venture capital firm, IDG Capital. It planned to invest two rounds of funds to Binance with a much higher valuation of 400 million and 1 billion U.S. dollars, respectively.

At present, the litigation dispute point is whether Zhao Changpeng's communication with IDG Capital violated his exclusive agreement with Sequoia.


The latest update about this case was on April 26th. In response to the prosecution of Zhao Changpeng by Sequoia Capital, Binance announced that Zhao Changpeng denied all accusations of Sequoia China, and that substantive issues between the parties were in the process of confidential arbitration, Zhao Changpeng will not further comment.


The main reason accounted for the dispute is the ever-changing of the digital currency price. It has led to rises and falls of the valuation of digital currency exchanges.




In addition to cases such as Coinbase and Binance, CoinRecoil was also involved in lawsuits, but the difference is that it is the accuser. Kali, an Indian digital economy system company, intends to launch CoinRecoil, a digital currency exchange soon. However, on April 20, the company appealed to the Delhi High Court to sue the central bank for prohibiting banks from providing services for bitcoin companies.


The reason why CoinRecoil had such "big move"is because Indian is a new place for digital currency market. The domestic public in India is eager to encrypt digital currency, but the local government and regulatory agencies do not seem to be so excited.




Lastly, Coinnest, South Korea's sixth-largest trade exchange in terms of trading volume, which was sued since the corruption and fraud of its principal.


On April 9, Kim Ik-hwan, co-founder and CEO of Korean portal Naver, was detained in Seoul, South Korea, and was charged by the local prosecutor's office with allegations of corruption and fraud. He was also detained with two senior executives and one unnamed head of the digital currency exchange.

It is said that these executives transferred their digital assets worth billions of won to their personal accounts. This is also the first time that the responsible person of the South Korean Cryptographic Exchange has been sued.


Although the South Korean digital currency regulators made some strict statements, they are still not strict enough for the digital currency exchange to overlook them.


The Korea Blockchain Association (KBA) has released a self-regulatory framework for members of the digital currency exchange in the association. It aims to increase the transparency of transactions and prevent money laundering, terrorist financing, insider trading and other illegal activities. This is also the first digital currency exchange review program in Korea.


    Adapted from: CoinTime Executive editor: Marie
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