Sequoia Capital Venture Capital Firm sues Binance CEO Changpeng ZhaoCalifornia-based Sequoia Capital venture capital firm has filed a lawsuit against the CEO of Binance cryptocurrency exchange, Changpeng Zhao, for breach of an exclusive rights agreement. According to Bloomberg, the lawsuit was filed in Hong Kong.
According to court documents dated March 26 and April 24, negotiations on investing $80 million in Binance, which began in August 2017, were the subject of the proceedings. If they were successful, Sequoia would have gained almost 11% of the business.
However, in mid-December, when the price of bitcoin surged above $20,000, Zhao allegedly told Sequoia that the exchange was seriously undervalued in the context of the negotiated deal, and the proposed amount "did not meet shareholders' expectations." A similar situation happened at Binance with traders as well, when after the conclusion of the NDA Agreement Binance refused the concluded agreement.
At the same time, Zhao was negotiating with another potential investor which was the IDG Capital venture capital firm, which offered to invest $400 million and $1 billion in Binance over two rounds, respectively.
Thus, Sequoia accuses Zhao of violating the exclusive rights agreement and demands to establish whether negotiations with IDG Capital violate the terms of their deal. To prevent Binance from further negotiating with potential investors, Sequoia went to the Hong Kong Supreme Court. According to so far unconfirmed information, the court has already limited the possibility of negotiations of the Binance management pending a decision on the case.
The case participants refuse to comment. However, Bloomberg recalled Zhao's recent statement that "the crypto-platform does not need external investment, and cooperation with venture capital funds helps the exchange obtain licenses and successfully interact with regulators."
Zhao claims Binance is valued at $3 billion, although he declined to provide any financial statements regarding the exchange.
Binance CEO Changpeng Zhao Denies Sequoia Capital Allegations
Changpeng Zhao, founder and CEO of Binance cryptocurrency exchange, has denied allegations by Californian venture capital firm Sequoia Capital of violating an exclusive investment rights agreement.
He also refuses to comment additionally on the details of the arbitration proceedings, as the process is confidential.
In addition, the Hong Kong Supreme Court ruled that the ban on the exchange from negotiating with other potential investors was improperly obtained with elements of abuse by Sequoia Capital. Thus, the ban, introduced in December 2017, was lifted during the April court session, and Sequoia was ordered to pay the legal costs of Changpeng Zhao.
Binance CEO plans to exact reputational losses from Sequoia Capital
The head of the Binance cryptocurrency exchange, Changpeng Zhao, intends to continue litigation with the Sequoia Capital venture capital company and demand compensation for its reputation losses.
Zhao announced in a lawsuit filed in the High Court of Hong Kong that Sequoia Capital China's actions damaged his reputation and prevented him from attracting financing on favorable terms. In particular, he asks the court to determine “whether there was damage inflicted and, if so, to what extent”, due to an injunction issued on December 27, 2017, limiting his ability to raise funds until March 1, 2018.
“The injunction has resulted in a loss for me for which I am entitled to receive compensation from Sequoia. Specifically, I 1) missed the opportunity to raise capital through successive rounds of funding in the face of rising prices; 2) suffered reputational losses,” Zhao said in his statement of claim.
Earlier, in December 2017, Sequoia Capital unilaterally and without notice secured an injunction, insisting that by starting negotiations with IDG Capital, the defendant had violated the terms of an exclusive right to invest in his business.
However, the court subsequently ruled that Sequoia had no reason to seek the investment restriction unilaterally, without providing an explanation as to why several firms were involved. Attempts to challenge this decision were unsuccessful, and on December 12, 2018, the judicial panel finally rejected Sequoia's claims.