Finance

Binance faces legal claims as traders build $5m war chest for action

Binance is facing legal action from traders who say they were left out of pocket after the exchange crashed during the turmoil in cryptocurrency markets earlier this year.

A group of traders say they lost $20m when the exchange went down on 19 May after China announced a crackdown on crypto, sending the price of bitcoin plummeting by as much as 30%.

Other cryptos also tumbled, with ether down around 30% and smaller coins such as bitcoin cash, stellar, EOS and litecoin all dropping more than 40%.

READ Bitcoin, cryptocurrencies crash as exchanges suffer outages under intense activity

A steering group backed by Swiss litigation funder Liti Capital has been launched to bring claims against Binance for the losses traders say they suffered due to the outage of the platform.

“The trading accounts…of at least 700 and potentially thousands of individuals were effectively untradeable for hours, causing traders to suffer losses that may exceed $100m,” Liti Capital alleged in a 19 August statement.

A Binance spokesperson said the firm does not comment on pending legal matters.

Liti Capital said it will provide an initial $5m to pursue claims against Binance on behalf of traders affected by the outage.

The firm said it planned to file an international arbitration claim against Binance on behalf of affected traders as soon as next month in Hong Kong.

READ Crypto exchange Binance just got banned in the UK — Here’s what it means

Washington DC-based partners Abby Cohen Smutny and Darryl Lew of law firm White & Case have been appointed to represent individuals who say they lost out because of the site going down.

Liti Capital chief executive David Kay said that Binance, which is registered in the Cayman Islands but has no formal headquarters, had created a model which made it difficult for customers to get redress.

“Binance has set up a system where they can’t be regulated and they effectively have no responsibility to their customers, period,” Kay told Financial News.

“Binance is a new kind of company, that is not only without borders, but not subject to any laws anywhere to date. They don’t have offices, they don’t have a headquarters, they have evaded regulation. Now is the moment where we all as a community have to stand up and say what are the rules going to be? Are there going to be rules?” Kay said.

A steering committee of Kay, French lawyer Aija Lejniece and three of the affected traders has been established to coordinate claims against Binance.

The Binance spokesperson said the company compensates users who experience trading losses due to issues with the platform, but said: “We do not cover hypothetical ‘what could have been’ situations such as unrealised profits.

“There are risks associated with any trading environment, and our terms of service discloses those risks, including the possibility of systems-related downtime, to our users,” the spokesperson added.

Binance announced on 18 August that it had hired a former US Treasury criminal investigator as its global money laundering reporting officer.

READ Binance hires ex-US Treasury investigator to combat crypto money laundering

Greg Monahan has more than 30 years of US government service, the majority of which were spent as a US Treasury criminal investigator responsible for money laundering, tax and related financial crime investigations.

Binance has beefed up its compliance function over the past year in the face of scrutiny from international regulators. The company said it had grown its international compliance team and advisory board by 500% since 2020.

UK watchdog the Financial Conduct Authority warned consumers in June that Binance does not have permission to carry out regulated activities in the region. Following the FCA’s warning, banks such as Barclays blocked customers from transacting with Binance.

To contact the author of this story with feedback or news, email James Booth

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