March 1, 2024

CoinFLEX creditors dissatisfied with restructuring to OPNX: Report

CoinFLEX creditors claim former CEO Mark Lamb and the OPNX exchange “misappropriated” their assets in a court filing.

Some creditors of cryptocurrency futures exchange CoinFLEX are alleging that OPNX, a new crypto exchange established in part by Three Arrows Capital (3AC) co-founders Kyle Davies and Su Zhu, was created using CoinFLEX assets without their consent. 

According to a writ of summons filed in the High Court of Hong Kong and seen by Cointelegraph, CoinFLEX creditors claim that OPNX co-founder and former CEO Mark Lamb is “misappropriating and/or otherwise wrongfully using the assets, human resources, intellectual properties, […] trade secrets and other technologies” of CoinFLEX by diverting them into OPNX. It alleges that Lamb performed these actions contrary to his responsibilities to CoinFLEX creditors during his tenure. 

Citing the document, creditors say that Lamb devoted “time, attention, skill and/or effort” to setting up OPNX while simultaneously being employed as the CEO of CoinFLEX.

The document claims that the former CEO diverted clients and business opportunities to the rival exchange, misappropriated assets that belonged to the creditors, falsely represented that OPNX was associated with CoinFLEX creditors, divulged confidential trade secrets to third parties, solicited employees and contractors to move to OPNX, forged a fake nondisclosure agreement between himself and a third-party, and engaged in other actions that harmed the creditors.

According to a creditor who spoke with Cointelegraph, CoinFLEX’s terms of service required users to settle disputes through arbitration in Hong Kong, which is why the creditors have pursued legal action in Hong Kong instead of Seychelles, the firm’s place of domicile. The allegations have not been proven in the High Court of Hong Kong.

The plaintiffs listed in the document are two companies: Liquidity Technologies and Liquidity Technologies Software. According to Crunchbase data, the first is the Seychelles-based legal entity under which CoinFLEX originally operated. The document lists Mark Lamb, crypto investor Roger Ver, Open Technologies Holdings, and Open Technology Markets as defendants. Open Technologies holdings and markets are two companies the document claims are associated with the OPNX crypto exchange.

List of plaintiffs and defendants in Writ of Summons. Source: Hong Kong High Court.

In January, a pitch deck for OPNX was leaked to the public and was later confirmed by the founding team as authentic. The deck listed Davies and Zhu, Mark Lamb, and Sudhu Arumugam as OPNX co-founders. In September, Zhu was arrested in Singapore’s Changi International Airport for non-compliance with a Singaporean Court Order regarding 3AC’s bankruptcy proceedings. Davies, too, was sentenced to four months in prison for contempt of court but was not within Singapore’s jurisdiction at the time of sentencing. He has since been sighted in Bali, Indonesia. 

Critics, including BitMEX co-founder Arthur Hayes, Tech Crunch founder Michael Arrington, and financial and macro-financial executive Nik Bougalis, previously argued that investors shouldn’t give OPNX founders more money after they had already lost millions, if not billions, of dollars in customer assets.

However, OPNX pushed back against this criticism. When the exchange opened in April, it argued that it would allow creditors to sell their claims on the exchange for quick cash, benefiting them, and therefore was good for creditors of bankrupt firms. Kyle Davies even stated that he would donate his share of the profit to 3AC creditors

CoinFLEX Writ of Summons “Indorsement of Claim” section. Source: Hong Kong High Court.

In February, OPNX CEO Leslie Lamb, who is also the wife of OPNX co-founder and CoinFLEX CEO Mark Lamb, posted to LinkedIn, stating, “We’re excited to announce that CoinFLEX will be officially rebranding to Open Exchange (OPNX).” In contrast to this statement, the Writ of Summons filed with the Court claims that OPNX is a separate exchange that CoinFLEX creditors never authorized.

In a conversation with Cointelegraph, a CoinFLEX creditor, who wished to be identified as “Kirill,” provided further details of the allegations being made by creditors. Kirill claimed he lost “a vast majority of [his] net worth” when CoinFLEX stopped processing withdrawals. According to Kirill, after withdrawals were halted, he and other creditors put together an “ad hoc creditor committee” to sort out what to do with the now-insolvent company. They also involved some of CoinFLEX’s initial investors. After months of deliberating, the committee decided to restructure the company and reopen the exchange.

Kirill stated that during this time, he became aware that Mark Lamb was talking to Davies and Zhu about investing in the new, restructured company. Kirill claims they were skeptical of involving the 3AC founders in the project. However, they claim that there was no formal way for CoinFLEX to either accept or reject them as investors since the firm was still going through a restructuring in the courts. The restructuring was approved on March 7, according to a CoinFLEX blog post.

According to Kirill, once the restructuring was approved, CoinFLEX creditors discovered that Mark Lamb was acting against the interests of creditors in the ways described in the Writ of Summons.

Related: Roger Ver denies CoinFLEX CEO’s claims he owes firm $47M USDC

After discovering these activities, the creditors filed the Writ of Summons, which Kirill claims was a required first step to obtaining an injunction against Mark Lamb to wrest control of the company away from him. They then filed for the injunction, which Kirill claims was granted by the court. The injunction allegedly states that Mark Lamb “cannot hold himself out to be a decision maker for Coinflex without express majority consent of the board.” 

On October 31, the official OPNX account for X (formerly Twitter) posted a “Creditor Tender Offer” to CoinFLEX stakeholders. The offer stated that CoinFLEX creditors who accept it “will collectively receive 25% equity in OPNX, distributed in proportion to claim size.” In addition, they will each receive a portion of the exchange’s native token, OX, but these tokens will be vested for ten years. In response, Kirill claimed that this tender offer was not legally valid, stating:

“It’s not legally valid. How’s Mark gonna do the offer? You need the shares [to be] transferred by boards. They’re not transferred by independent parties. Mark is not on the CoinFLEX board in Seychelles anymore. He doesn’t have authority to transfer shares.”

Kirill also claimed that the tender offer lacks the financial information for investors to make an informed decision. In his view, this makes it unreasonable for an investor to accept the offer. “The one important piece of Mark’s offer is that it’s completely devoid of any information,” Kirill stated. “Any rational fiduciary would never approve an offer like this.”

Cointelegraph also obtained an order from the Supreme Court of Seychelles, which sheds some light on Roger Ver’s role in the legal dispute. According to the order, CoinFLEX has accused “a large individual customer (Roger Ver)” of defaulting on a “written manual margin agreement.” This default originally caused the exchange to be unable to process withdrawals, according to CoinFLEX’s claim as quoted by the court’s order.

Caption: Order in CoinFLEX restructuring case. Source: Supreme Court of Seychelles.

Cointelegraph reached out to Roger Ver for comments. He denied that he walked away from a valid margin agreement. Instead, Ver stated that CoinFLEX made third parties aware of his trading positions, which knowledge they used to trade against him to his detriment. He claimed that CoinFLEX has agreed to an arbitration allowing him to recover the funds from these third parties.

“I was never in default and never owed CoinFLEX the $82M they initially claimed,” Ver stated. “The reality, and one that CoinFLEX has now agreed to, is that I was the one owed money the entire time, and I am the biggest victim.”

A spokesperson for OPNX declined to comment on the allegations. Since launching in April, OPNX has developed a credit currency for margin trading called “oUSD” and has obtained a Lithuania license for spot trading throughout the EU.

According to Coingecko, OPNX currently processes over $32,000 in spot trading volume and over $82 million in derivatives volume each day. Criminal and civil proceedings against OPNX co-founders Davies and Zhu remain ongoing.