Embattled exchange CoinFLEX sues Roger Ver for $84 million
CoinFLEX alleges the debt owed by Roger Ver has almost doubled since first being reported. Stakeholders, including the SmartBCH Foundation, are closely monitoring to ensure the interests of all involved are being protected.
Troubled crypto exchange CoinFLEX confirmed it had filed legal action in Hong Kong to recover $84 million from Bitcoin Cash (BCH) proponent Roger Ver.
On June 24, the company announced it had paused withdrawals and halted perpetual and spot trading due to “extreme market conditions” and “continued uncertainty involving a counterparty.” The notice failed to give details of the counterparty, only that it wasn’t 3AC.
Ver was later “outed” on social media as the counterparty at the heart of the storm.
CoinFLEX alleged the financial black hole it now faces was caused by Ver’s refusal to pay his margin trading debt. Ordinarily, if the value of a margin trader’s account drops below a certain level, the open position is automatically closed to stop further losses from accruing.
However, in this case, CoinFLEX said it had an agreement with Ver, backed by “stringent personal guarantees,” which meant the exchange would not close his losing trades.
In a recent update on the situation, Ver said his legal team had advised him to speak no more on the matter. But he reiterated a previous statement that he doesn’t owe money to CoinFLEX. Instead, he maintains the embattled exchange owes him money.
CoinFLEX is looking for investment
CoinFLEX co-founders Sudhu Arumugam and Mark Lamb apologized to users, saying this situation was not what they had “envisioned.”
They further apologized for the lack of updates since the withdrawal freeze. Explaining that this was due to non-disclosure agreements in respect of investment talks that are currently taking place. The pair also said the firm aims to roll some customer deposits into company equity as an additional source of capital.
“We are looking to raise a significant amount of funds from new investors. Additionally, we are speaking with CoinFLEX depositors who are looking to help the business by rolling some of their deposits into equity.”
The company initially estimated the financial blackhole amounted to $47 million. However, its most recent update said further costs were incurred, resulting in a final loss of $84 million. Which they now seek from Ver in legal proceedings.
The near doubling of cost resulted from Ver’s assurance that he would top up his account. But those funds never arrived, leaving the position open and accruing further losses.
Once it became clear Ver was “wasting time,” hoping for a market bounce that never happened, CoinFLEX liquidated his account but incurred high slippage costs in doing so.
“We tried to liquidate his account in a prudent manner using counterparts on the exchange but as the positions were so significant, they involved slippage as any large or series of large orders would reasonably create.”
The SmartBCH Foundation has its say
Another uncertainty of this situation lies in the SmartBCH sidechain, which CoinFLEX maintains the bridge. SmartBCH users are concerned that if the exchange goes bankrupt, the value locked in the sidechain will be distributed among priority creditors first.
CoinFLEX confirmed that they are in talks with a SmartBCH representative, but until more is known, the bridge will remain closed.
The SmartBCH Foundation contacted CryptoSlate by email, stating that CoinFLEX incorrectly treats SmartBCH deposits as client funds. The organization confirmed talks are ongoing, but they “reserve the right to pursue all courses of action.”
“Unjustifiably, CoinFlex has also locked up the BCH that backed the wrapped sBCH on the bridge and has stated that these are the same as client funds.”
To drive the issue forward, the SmartBCH Foundation asked CoinFLEX to hand the bridge over to the SmartBCH community. With the tokens resulting from any restructuring being made available on the sidechain, and any liquid distributions are made available in BCH only.