Binance

Sequoia Capital has sued Zhao Changpeng, founder of Binance, for breaching an exclusivity agreement.

According to a report by Bloomberg, Sequoia Capital filed suit against Zhao Changpeng on April 24th, 2018. The filings reveal the interactions Zhao and Binance had with some of the most prominent venture capital firms in finance.

There are many remarkable growth stories in the cryptocurrency industry, but Zhao and Binance’s meteoric rise is likely the current pinnacle. Zhao has become a cult figure in the industry, gracing the covers of popular tech magazines such as Forbes and amassing a personal fortune which he values at $2 billion.

Zhao and his company have not only attracted popular finance magazines from all parts of the world, they have also drawn scrutiny from regulators.  Citing claims that they may be disregarding securities laws, regulators have been clamping down on crypto exchanges worldwide.

According to the Bloomberg report, Zhao and Sequoia Capital began negotiating terms for an investment in Binance in August, which would have given Sequoia an 11% stake in the exchange and valued Binance at about $80 million.

Talks advanced for some months, in which time prices of cryptocurrency also soared to all-time highs. However, negotiations between the two parties broke down in mid-December, around the time that Bitcoin peaked at a record $20,000 exchange rate.

On the 14th of December, Zhao’s team told Sequoia that Binance’s existing shareholders felt their offer hugely undervalued Binance.

From the Bloomberg report:

Around the same time, Zhao was approached by another Venture Capitalist firm, IDG Capital, with an offer that valued Binance at a higher valuation of $400 million and $1 billion respectively, after the injection of two rounds of funding.

The issue in court now is whether Zhao’s talks with IDG Capital violated the exclusive agreement he signed with Sequoia. While Sequoia and Zhao have been trying to settle their dispute through arbitration, the case became public when Sequoia secured a temporary injunction to bar Zhao from talking with other investors.

 

hong kong

Hong Kong securities regulators are ramping up the rhetoric on initial coin offerings (ICOs).

Speaking last week at an investment industry event, Julia Leung, deputy chief executive officer of Hong Kong’s Securities and Futures Commission (SFC) warned that many ICOs violate securities laws.

“While we acknowledge that innovative technologies such as blockchain have the potential to improve efficiency and financial inclusion, that does not entitle anyone to conduct fundraising from the public in violation of securities law,” she said, adding that most ordinary investors are not equipped to evaluate these investments.

That in itself was not out of the ordinary. Most countries loop this nascent fundraising model under current their current securities frameworks and expect startups issuing security tokens to operate accordingly.

However, Leung then went a step further, stating that many ICOs are dubious while others are outright frauds.

“Further complicating matters, many of these fundraisings are dubious, if not downright frauds,” she said. “The issuers escape the scrutiny of the police or securities regulators because of their cross-border nature and the way the crypto assets are structured to fall outside any regulator’s perimeter.”

This is not the first time the SFC has sounded the warning bell on ICOs, and it has matched those words with action on several occasions.

Last month, the SFC shut down the ICO for cryptocurrency startup Black Cell Technology, alleging that it had engaged in “unlicensed regulatory activity” and was not registered with the government.

Previously, the SFC had sent letters to seven cryptocurrency exchanges warning them to delist tokens the agency considers to be securities.

Recently, three Hong Kong-based exchanges — Binance, OKEx, and Bitfinex — have announced plans to move their operations overseas, to Malta in the first two cases and Switzerland in the third.

While they did not explicitly cite Hong Kong’s regulatory environment as a reason for the move, all have lauded the cryptocurrency-friendly climates in their new locations. Switzerland’s canton of Zug has been nicknamed “Crypto Valley” for the large number of cryptocurrency startups and ICOs that have relocated there, while Malta is seeking to establish itself as Europe’s “Blockchain Island.”

Featured Image from Pixabay

hong kong

Hong Kong authorities have said that while they won’t ban the trading of cryptocurrencies, they will educate people on the risks involved instead.

According to the Financial Services and the Treasury Bureau, the public education campaign will highlight that the crypto market is not regulated, is subjected to hacking, and fluctuates in price, reports the South China Morning Post. The campaign is being run together with the Investor Education Centre, a subsidiary of the Securities and Futures Commission.

It’s expected to be rolled out from March via print, digital, and broadcast media in addition to the Mass Transit Railway (MTR) stations, a major public transport network serving Hong Kong.

Joseph Chan Ho-lim, the Treasury’s undersecretary, said that investors in Hong Kong may not know about the risks surrounding cryptocurrencies and initial coin offerings (ICOs).

Julia Leung Fung-yee, executive director of the intermediaries division of the commission, explained by saying:

When we asked some young people why they bought cryptocurrencies, many of them cared less about the projects mentioned in the [ICOs’] White Paper … they just wanted to make quick money by speculating on the cryptocurrency exchange.

Interestingly, while the volatility of the digital currency market remains a concern to policymakers in Hong Kong, that doesn’t mean they’re about to tell investors what they should and shouldn’t invest in.

These comments come at a time when the cryptocurrency market is experiencing heightened attention from traders and authorities concerned about rising prices. At the end of 2017 bitcoin saw its value soar by nearly 2,000 percent before losing half its price at the start of 2018. Speculation that the sector is in a bubble remains; however, this doesn’t appear to have dampened interest in it. Raising funds through ICOs has also increased, which saw crowdsourced fundraising bringing in between $4 billion and $7 billion.

However, unlike Chinese and South Korean authorities, which are cracking down on cryptocurrencies and trading platforms, Hong Kong’s government has indicated that it doesn’t plan to follow suit anytime soon.

One of the measures that authorities have implemented to protect consumers is that ICO issuers are required to follow existing laws and regulations if the coin they are offering falls within the remit of a security or investment.

Yet, according to Leo Weese, chairman of the Hong Kong Bitcoin Association, this is a topic that needs to be talked about.

“We should know the difference between what makes a good ICO [and what doesn’t] and how we differentiate between scams and legitimate projects.”

Featured image from Shutterstock.