Binance denies WazirX ownership, can’t deny CZ’s ownership

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Binance denies any responsibility for making WazirX customers whole, while questions remain about how much responsibility Binance’s founder will have for its actions once he’s released from custody.

On September 18, the suspected North Korean hackers behind the July 18 exploit of the Indian digital asset exchange WazirX moved their latest tranche of 5,000 ETH tokens through the Ethereum-based coin mixing service Tornado Cash. The fiat value of this ETH is around $12 million, a fraction of the roughly $235 million worth of tokens stolen via the heist. There have been three such transfers this week and eight overall since the hack occurred.

WazirX has struggled to regain its footing following the hack, which stole around 45% of its digital assets. Lacking the funds to restore customer accounts to their pre-exploit levels, the exchange proposed a “socialized loss strategy” that would allow partial recovery of customers’ balances. This understandably left customers asking why they should be made to suffer for WazirX’s security lapses.

On August 27, WazirX’s Singapore-registered parent company Zettai Pte Ltd applied to the High Court of Singapore for a six-month moratorium on creditors taking legal action against it, seeking more time to restructure its liabilities. Under Singapore law, the filing automatically grants a 30-day moratorium while the court considers the application.

WazirX’s announcement claimed there is “an ongoing dispute between Zettai and Binance” regarding the latter’s obligations as the purported owner of WazirX. WazirX further contended that “[o]nly after this dispute is resolved can there be clarity over the ownership of the Platform and its cryptocurrency tokens (which Zettai now holds albeit under protest after Binance relinquished control of these tokens).”

The ownership question dates back to 2019 when Binance announced that it had acquired WazirX. This claim was supported by Binance founder/then-CEO Changpeng ‘CZ’ Zhao, who in 2021 tweeted that WazirX was a “Binance-owned Indian crypto exchange.”

But Binance/CZ refuted their ownership statements in August 2022 after WazirX had its assets frozen by Indian authorities under suspicion of money laundering violations. CZ said the acquisition was never completed, a claim refuted by WazirX CEO Nischal Shetty, who released emails showing Binance pressuring him to deny any affiliation. The matter remains unresolved.

Finger pointing

On September 17, Binance issued a blog post accusing WazirX and Shetty of continuing to “mislead WazirX customers and the market regarding the relationship between WazirX and Binance. Binance has not owned, controlled, or operated WazirX at any time, including before, during, or after the July 2024 attack.”

Binance added, “There is no legal basis, in any scenario, to the claim that Binance would be liable for claims against Zettai.” Binance accused Shetty of claiming Binance is liable “because Binance requested that the WazirX user funds be removed from Binance wallets.” Binance claims it “gave fair notice that WazirX user funds should be removed from Binance’s wallets long before the attack occurred, which Mr. Shetty’s team did.”

Binance went further by appearing to allege some kind of inside job, claiming it “has not been able to verify the alleged cyber-attack” and that WazirX has failed to respond to Binance’s request for the release of WazirX’s internal reports on the incident.

But on September 10, Indian media outlet MoneyControl paraphrased George Gwee, a director at the Kroll restructuring firm, who reportedly said the “majority of the revenues, cash flows or profits of WazirX parent Zettai goes to Binance’s books.”

WazirX says it’s looking for a capital partner to restore its balance sheet, but no such white knight has been identified. Gwee claimed the best-case scenario for customers was a return of “between 55% and 57%” of their pre-hack funds.

Binance isn’t the only entity with which WazirX is warring. Digital asset custodian Liminal, which assumed custody of the assets WazirX withdrew from Binance, issued a statement on September 9 citing an independent report that concluded “the attack has originated outside of Liminal’s infrastructure.”

On August 28, rival Indian exchange Coinswitch claimed to be pursuing “legal action” against WazirX to recover nearly $10 million in tokens it had on WazirX at the time of the exploit. Coinswitch assured its customers that this apparent loss would not impact their account balances.

What will CZ’s role be?

On September 29, CZ is scheduled to be released from the halfway house he currently calls home, which followed his stay in a federal prison in California. Last November, CZ pleaded guilty to violating the U.S. Bank Secrecy Act as part of a $4.3 billion settlement with federal authorities to atone for Binance’s years of flagrant money laundering, sanctions evasion, and terrorist financing.

While the 47-year-old CZ retains majority ownership of Binance, his settlement sought to bar him from “managing or operating” Binance, but some legal observers fear the settlement contained enough wiggle room for CZ to continue influencing the company’s decisions.

Earlier this month, a Binance spokesperson told Axios that CZ was barred from “day-to-day” activities, which doesn’t seem to bar more strategic input. Current CEO Richard Teng clarified that CZ “will retain all shareholder rights” and “will be looking at the performance of the company, and if things are not up to what he expects, as an investor, it’s always his right to replace, nominate a new board of directors, or a new CEO … shareholders can also always table a resolution.”

Columbia Law School professor Daniel Richman told Axios that the Department of Justice (DoJ) could have used more precise language that would have allowed the feds to claim a breach of its settlement should it obtain evidence that CZ continues to call the operational shots. The ‘operating/managing’ language was a “consideration” of the settlement, not a formal obligation.

However, Vanderbilt University law professor Yesha Yadav said it would be “very risky for Zhao to try and start to assert himself.” Yadav cited the settlement’s requirement for two external monitors to ensure Binance complies with the rules. Yadav called this “a tripwire” that should act as “a check and balance to support” Binance’s board of directors—which was only installed following CZ’s settlement—from bending the knee too readily.

Once installed, the two U.S.-appointed monitors—Forensic Risk Alliance and Sullivan & Cromwell—will have 3 to 5 years to keep their eyes peeled for signs of impropriety. Last month, Teng told Bloomberg that the monitors were currently assessing Binance’s financial statements and its capacity to track transactions on the exchange.

Teng also claimed that Binance’s total spending on regulatory compliance will hit $200 million this year, up from $158 million two years ago. This is partly due to the addition of 200 new compliance-focused staff, which would (allegedly) bring its compliance team to 700 people.

It’s not you, it’s us

Last month, Teng claimed, “I don’t speak to [CZ]” but singled out Yi He, Binance co-founder and mother of CZ’s children, as a “critical part” of Binance’s management team who is “involved in various aspects of the business.”

This week, Yi He issued a blog post (English translation here) that failed to mention CZ but addressed several other subjects, including denying allegations that Binance staff profit off advanced knowledge of new token listings.

Among the sentiments expressed in this post are Yi He’s belief that Binance “is no longer a child, so we need to make peace with the world, comply with regulations, ensure anti-money laundering measures, and follow the established rules of the traditional financial industry.”

Yi He also offered more insights into the process by which Binance chooses to list a token on the exchange. This four-stage process involves “business development, research team evaluation, committee review, and compliance audit.”

Yi He claims that past committees “didn’t take MEMEcoins seriously enough,” which resulted in Binance “miss[ing] out on many opportunities.” The lesson Binance took from this experience was that it “cannot decide what’s good—our users should decide that.”

But Yi He says that Binance “appreciate[s] projects with a solid business model and revenue streams.” This is a puzzling statement, considering that such criteria would seem to eliminate nearly all memecoins. Regardless, Yi He says Binance prioritizes “projects that empower their tokens because if you stand with your users, they will stand with you.”

Yi He appears unaware of just how hollow these noble sentiments sound to users of the BSV blockchain, given Binance’s leading role in the mass delisting of the BSV token in April 2019.

This action by Binance and three other exchanges—Kraken, ShapeShift, and Bittylicious—led to the filing of a £9.9 billion class action lawsuit. The suit seeks redress for the BSV token holders who saw the fiat value of their holdings fall as a result of this anti-competitive delisting. The suit was recently granted certification by the U.K.’s Competition Appeals Tribunal and will proceed to trial.

Yi He summed up her post by saying, “If we disagree, maybe you are right.” Speaking for the BSV community, we couldn’t agree more.

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