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Traders seeking Binance compensation during the crypto market turmoil earlier this year have secured financial support to initiate one of the most important legal battles against the exchange to date.
Swiss litigation financing company Liti Capital has pledged to provide at least US$5 million in funding for an international arbitration case against Binance in Hong Kong, and has hired New York law firm White & Case to represent investors.
The first six investors from countries including Ukraine, Australia, France and the United States stated that their total claims on the exchange exceeded 20 million U.S. dollars, and they hoped to sign hundreds of traders.
The case will examine whether a huge cryptocurrency exchange that operates through a complex network of global legal entities and lacks a formal headquarters will be forced to face legal complaints from customers.
“In any case, this case will eventually become a milestone,” said David Kay, Liti’s executive chairman. “We will find out the limits of what these huge organizations can and cannot do, if any.”
This company registered in the Cayman Islands is one of the largest players in the digital asset industry. After financial centers including the United Kingdom, Hong Kong and Japan have conducted a series of regulatory condemnations mainly around their anti-money laundering practices, it is facing increasing pressure.
When the customer filed a claim, Binance and its CEO Changpeng Zhao vowed to strengthen the company’s compliance procedures and work more closely with the financial regulators where it operates.
Binance declined to comment on pending legal proceedings.
The planned legal actions focus on losses Crypto derivatives traders They claimed that they suffered losses on May 19, when the digital asset market collapsed after Chinese regulators issued a signal to crack down on the use of digital coins. As the market plummets, Binance’s futures platform continues to be disrupted globally, and traders can use high borrowings to make over-stakes on various digital tokens.
If a customer’s loss exceeds a certain threshold, Binance will automatically liquidate the customer’s futures transactions, and many of the company’s customers stated that this ultimately led to the loss during the power outage on May 19.
Usually, traders manage their positions by adding collateral to reduce the risk of being liquidated or closing positions when the market starts to deteriorate. However, traders stated that they were unable to perform these operations when Binance’s platform was stuck.
“No matter what button I press, I will encounter malfunctions,” said a Japanese trader who requested anonymity. A few minutes later, he began to receive email reminders from Binance that his position was being liquidated. “Seeing that I lost $74,000, I feel numb,” he said.
Traders who have suffered losses have established contacts on social media sites such as Reddit and Discord to develop strategies on how to seek compensation. Several customers claimed that Binance offered to compensate them at most a small part of their losses.
“There is a deep sense of injustice among these people,” said Aija Lejniece, a Paris lawyer who helped organize the work after contacting a friend who was losing money.
Given that the jurisdiction of national courts or regulators over offshore exchanges is not clear, it is a daunting prospect for individual traders to fight against exchanges for compensation.
High-pressure bets sparked strong opposition from Binance
Binance is the leader in crypto derivatives called Perpetual Futures, which tracks the price of digital currencies, from Bitcoin and Ethereum to more esoteric tokens (such as Dogecoin). The potential rewards and risks are magnified by the very high borrowing levels that users can afford. The higher the leverage, the greater the risk that a trader’s position and collateral will be erased through automatic liquidation.
Read more about The mechanism of this market And how users can quickly make up for losses in the market turmoil on May 19th.
Binance stated that it “immediately takes measures to contact users affected by the power outage”, but it “only accepts compensation claims from customers when users suffer actual losses due to system problems or errors, and not due to market fluctuations.”
“We don’t cover hypothetical’What could have been‘Unrealized profits, etc.,” Binance said. It has said that some of its users may “ignore[ed] The inherent risks of all trading activities”.
The exchange has since stated that it will Stop providing derivatives Under the review of regulatory agencies, multiple jurisdictions including Europe and Hong Kong. The exchange also cut the amount that retail traders are allowed to borrow to increase their bets.
Binance’s terms of service restrict clients from taking legal actions at the Hong Kong International Arbitration Center, which rarely hears consumer cases and charges high fees to adjudicate disputes. However, the trader’s lawyer stated that under the 1958 New York Arbitration Convention, awards made at this location can be enforced globally.
Prior to the imminent legal action in Hong Kong, the Italian law firm Lexia announced last month that it planned to initiate a lawsuit against Binance on behalf of European investors who claimed that they lost money during the power outage, including May 19. Binance declined to comment on this matter. Specific allegations, but stated that “we are still happy to talk to anyone who has contacted us and is concerned about the power outage.”
Angelo Messore, head of Lexia’s financial services business, said: “What makes this case different is that Binance is everywhere.”
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