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CoinFLEX Begins Proceedings to Regain $84M Losses from Rogue User

CoinFLEX co-founders, Sudhu Arumugam and Mark Lamb have issued a release revealing plans to move forward with arbitration. After two weeks of near silence, the troubled crypto trading company now seeks to recover $84 million worth of debt from a client. 

CoinFLEX Founders Proceed With Legal Action

Last month, CoinFLEX put withdrawals on hold after one user’s account entered negative equity. The company became the umpteenth in a series of crypto outfits that had done the same thing. In a similar fashion, outfits like Celsius, Three Arrows, and Voyager ran into debts amid the harsh crypto winter. While Celsius and Voyager have both sought legal advice to upend their situations, CoinFLEX is only just taking a similar route.

Recently, the founders addressed a letter to the CoinFLEX community, informing users they were taking action already. The pair started the release with an apology for the situation and the lack of communication on their end. 

We aim to be as transparent as possible in this post and going forwards,” the company promised. 

In their release, the platform’s founders stated that they were taking legal action against the delinquent user. Arumugam and Lamb said they had kickstarted the arbitration process at the Hong Kong International Arbitration Center (HKIAC). The move aims to recover the funds which CoinFLEX claims the user is liable to pay.

Although the process could take up to a year the founders echoed their lawyer’s certainty regarding judgment. A successful case would grant them access to the user’s global assets. Notably, the legal team is sure they could enforce the award. 

What Exactly Happened?

According to the founders, the client in question reportedly failed to hand over $47 million in margin calls. This was despite a legal obligation under an earlier agreement; a written manual margin agreement with the company. Users with this deal have a grace period to further collateralize their positions to evade liquidation. They wrote:

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.”

However, having this advantage means the customer has to compensate the company for losses following liquidation. The client in this case simply failed to honor the agreement. In the release, the founders declined to reveal his name but earlier Lamb had stated it was BitcoinCash supporter Roger Ver.

The user’s initial debt was about $47M, however, after he liquidated his FLEX positions it swelled to $84M. Notably, he has ardently denied the company’s claims. Also, the publication stated that the defaulting customer had caused a delay by promising to fund his account but never doing so.

As stated earlier, CoinFLEX paused withdrawals as the situation unfolded. The debt tipped the scales on their balances, and restarting transactions would destabilize FLEX prices. Furthermore, the token’s volatility would impact customers by disturbing their collateral positions.

The “Locked Funds Plan”

Arumugam and Lamb explained their 2-week silence as part of efforts to resolve the issue. The CoinFLEX team has been in talks with investors to raise a large quantity of funds. Some of these discussions had called for non-disclosure agreements, however, the founders shared that they were “extremely encouraged.”

The platform is also working on its  “Locked Funds Plan” which entails creating temporary liquidity. Through this, they might be able to open 10% of balances for withdrawal. However, this plan has a few shortcomings.

To start with, users can view the 10% on their balances as locked funds but cannot access them for withdrawals. Additionally, the funds do not count as collateral. Once CoinFLEX puts this plan in motion, they will briefly stop trading.

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Furthermore, they will close off all long and short futures positions against each other. The platform will reopen trading once they have completed verification.

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