Home / Companies / News /  Crypto exchange CoinFlex plans to recover $84 mn from an investor. What co-founders said

Crypto exchange CoinFlex plans to recover $84 mn from an investor. What co-founders said

According to the founders, a large individual customer had a written manual margin arrangement with CoinFLEX. (CoinFlex Youtube )Premium
According to the founders, a large individual customer had a written manual margin arrangement with CoinFLEX. (CoinFlex Youtube )

  • CoinFlex plans to recover $84 million through legal proceedings against this individual. The founders expect the arbitration process to take at least 12 months for completion. Further, CoinFlex is planning for a joint venture with a large US-based exchange/ATS platform.

Cryptocurrency exchange, CoinFlex is in dismay, and all because of one investor. The crypto trading platform's co-founders Sudhu Arumugam and Mark Lamb on Saturday released a detailed statement in which they said CoinFlex plans to recover $84 million through legal proceedings against this individual. The founders expect the arbitration process to take at least 12 months for completion. Further, CoinFlex is planning for a joint venture with a large US-based exchange/ATS platform.

In their statement, CoinFlex founders said, "We have commenced arbitration in HKIAC for the recovery of this $84m as the individual had a legal obligation under the agreement to pay and has refused to do so. His liability to pay is a personal liability which means the individual is personally liable to pay the total amount, so our lawyers are very confident that we can enforce the award against him."

The CASE:

According to the founders, a large individual customer had a written manual margin arrangement with CoinFLEX. Unlike normal users who are automatically liquidated when their margin ratio goes below the minimum requirements, users on manual margin have a grace period to send more collateral in support of their positions before it being liquidated.

"The customer’s privilege came with a requirement that the customer personally indemnifies us for shortfalls in his account following the liquidation of his positions," the founders said.

However, CoinFlex alleges that the customer failed to honor his obligations according to this written agreement.

CoinFlex founders said, "there still remains a significant deficit of about $84 million so we have commenced an action to recover this debt."

The first estimate was $47 million, which, CoinFlex said, "we communicated did not include the significant loss in liquidating his significant FLEX coin positions.

After founding a bid for that size, CoinFlex stated that the liquidations have created a final deficit of $84m for the account.

CoinFlex claimed that the individual asked to liquidate his account, however, stalled the process.

The founders revealed that the individual had asked the exchange to liquidate his account, adding, "but then for some considerable time afterwards that he wanted to send significant funds to the exchange to take physical delivery of the futures positions."

"It is clear to us now that he was wasting time and hoping for a bounce in the market that never materialized," the founders added.

Further, they said, "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."

CoinFlex founders stated that they kept the individual fully informed and he had cooperated with them and even promised to pay or increase collateral to cover the shortfall but at the end, "the promise proved empty."

On the completion of the process, the founders said, "The arbitration process is not a quick process and we estimate that it will take approximately 12 months prior to getting a judgment in Hong Kong. Thereafter, we will be able to enforce that judgment against his worldwide assets."

As per media reports, the accused investor is allegedly an early investor in Bitcoin and also the promoter of Bitcoin Cash, Roger Ver. However, Ver who is also referred to as 'Bitcoin Jesus' has denied the allegations.

The IMPACT:

Currently, CoinFlex's primary assets are in FLEX Coins and it holds more than 26 million units in the inventory.

The price of FLEX will be impacted if the trading resumes. Last month, CoinFlex halted withdrawals on its platform after a big investor defaulted on paying $47 million from a margin call.

"We are concerned that as trading resumes, the price of FLEX Coin may be volatile which may have implications on the value of the collateral of our other customers," the founders said.

Further, they said, "We believe recovery of the debt will help build confidence in and will help shore up the trading price of FLEX Coin. In the interim, we hope that by providing a fuller picture, and raising capital our customers will regain confidence in the prospects of FLEX Coin."

The vast majority of the receivables in CoinFlex's balance sheet are from the debtor, however, there are also many other accounts that Sudhu and Mark believe "will, unfortunately, become receivables due to the sharp drop expected in FLEX Coin price when trading resumes. These are accounts using FLEX Coin as collateral."

"We will be publishing our balance sheet as soon as we are allowed to," the duo said.

To fix the problem, CoinFlex is mulling raising a significant amount of funds from investors. The exchange is in talks with depositors who are looking to help the business by rolling some of their deposits into equity.

"There are a number of investors in this group of large depositors who have indicated that they may be in a position to help the business move forward if we can all find a workable solution. We remain extremely encouraged by these conversations," the founders said.

Recovery Value USD (rvUSD) will most likely be used to improve liquidity in either the original or modified format, they added.

FUTURE PLANS:

CoinFlex founders revealed that they are in close discussions with a large US exchange/ATS platform that intends to enter into a formal joint venture with the company as soon as financing is achieved.

The duo said, "We are excited about this possible joint venture arrangement as this would result in the launch of a stock (US equities) repo markets and deliverable perpetual futures platform, leveraging CoinFLEX’s unique IP and technological platform."

Securities lending is a $2.5 trillion market controlled by a small handful of prime brokers, and the founders said, "we see great potential as there is no exchange platform for securities lending today."

The company expects the joint venture to be initiated through their partner’s already established offshore license with the intent to migrate to the USA using the multiple licenses that our partner already has in place. The JV will eventually commence using the offshore license. And, CoinFlex expects to migrate to the USA (onshore) using multiple licenses over time.

The deal will also provide a source for securities holders to earn yield the same way flexUSD earns yield, the founders said.

 

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