Singapore suspends payments of $233 million as WazirX hack victims plan to file class action lawsuit at Indian consumer forum

Singapore suspends payments of $233 million as WazirX hack victims plan to file class action lawsuit at Indian consumer forum

2024-10-26 05:30:16 :

Victims of the $233 million WazirX hack are preparing to sue the cryptocurrency exchange for damages at a national consumer forum after the company’s Singapore-based parent company won a four-month stay on the city-state’s legal action .

Two petitions have been filed with the Delhi High Court against the exchange, one by CoinSwitch co-founder Ashish Singhal on August 28, alleging security flaws in WazirX; the other by investor Jaivir Bains on 10 proposed on March 18, seeking an investigation into the hacking incident.

WazirX, one of India’s largest cryptocurrency exchanges, reported that it suffered a $233 million hack on July 18, in which all of its ether coins were stolen, leaving about 4 million users in limbo.

The new suit is expected to be filed with the National Consumer Disputes Redressal Commission (NCDRC), according to a group of victims and lawyers Mint Had a conversation.

“We are filing a class action suit with the National Consumer Forum on the ground that the agreement between exchange users and WazirX is with Zanmai Labs Pvt. Ltd. – headquartered in India,” Supreme Court lawyer Aman Rehaan Khan said he was appearing before the NCDRC to participate in the class action lawsuit.

“It is therefore not legally reasonable for WazirX to apply for a legal resolution and reorganize its assets in Singapore through Zettai Pte Ltd (WazirX’s parent company).”

ALSO READ | Why WazirX is finding it difficult to recover stolen cryptocurrencies

Zanmai Labs is the all cash deposit holding subsidiary of WazirX in India. Singapore-based Zettai, on the other hand, is WazirX’s cryptocurrency token holding entity, holding all of the exchange’s crypto assets.

The class action lawsuit is expected to be filed in mid-November and currently has 30 victims seeking to recover more than $1 million worth of crypto assets. $50 million rupees ($600,000).

Khan expects more victims to join as the lawsuit is filed.

“Zettai has never been a party to the user agreement. Additionally, we are looking to restore the entire cryptocurrency balance for withdrawals, rather than 55%,” Khan added. “As for cash balances, WazirX also failed to notify users before the incident that the legal entity was freezing one – this is another breach of user trust for which we are seeking compensation, fines and restitution. $5 Crore for this conflict. “

WazirX said in September that it would allow customers to withdraw 55% of their cryptocurrency token holdings and 66% of their cash deposit holdings.

Meanwhile, the Delhi High Court on October 18 issued notices to the Enforcement Directorate and the Financial Intelligence Unit to investigate the management of WazirX in the case filed by Bains.

WazirX did not immediately respond Mint’s inquiry and said its legal team was reviewing the company’s position. Representatives of WazirX wallet provider Liminal Custody could not be reached for comment. Mandiant Inc., the security auditor behind the hack, declined to comment.

Who will take responsibility?

Users were unhappy with the way WazirX handled the incident, claiming that the exchange was trying to “step away from recovering the stolen funds and find a way to escape liability.”

The legal actions aim to force WazirX to provide users with a clear roadmap to withdraw their cryptocurrency holdings and allow full cash withdrawals.

“As one of the largest investors in WazirX, we believe the exchange’s communications following the hack were not entirely helpful. This is one of the reasons we are pursuing legal solutions against the company in India and Singapore.” said CoinSwitch’s Singhal.

The co-founder of the cryptocurrency exchange aggregator said on August 28 that 2% of CoinSwitch’s cryptocurrency holdings, totaling $9.6 million, were invested through WazirX. Singhal added that WazirX mishandled assets worth more than $70 million.

ALSO READ |WazirX hacked worth $230 million: Regulatory loophole leaves 4 million Indians in trouble

The Telegram group “Justice for WazirX Users” has more than 2,000 members, some of whom claim to face more than $10 million rupees ($130,000).

Another group of 11 unnamed users said they were waiting for the ban to expire to seek a legal solution against Singapore Exchange.

talk with MintA senior WazirX executive, who spoke on condition of anonymity, said the pause in the exchange’s application was crucial to “determine the right way forward and provide users with a structured solution to return investment.”

“We are also opposed to opening up partial cryptocurrency withdrawals because most investor portfolios hold multiple tokens. This means it is difficult to measure how much of a user’s holdings we can allow withdrawals,” the executive said.

The person added that while investors who only hold Bitcoin may feel this is unfair since they do not hold any Ethereum, any user whose funds are stolen due to a wallet hack will be affected by the imbalance. Feeling hurt by withdrawal policy.

The executive also insisted that the responsibility for refunding users may also lie with Binance Holdings Ltd., claiming that the latter took over Zettai in 2020. But Binance has categorically denied this.

On September 17, Binance said: “We urge the WazirX team under Zanmai/Zettai to be responsible for WazirX users and compensate them for the funds they lost under their management. Their responsibility to WazirX users has nothing to do with their dispute with Binance… … Their attempt to deflect blame is a disappointing deflection tactic.”

ALSO READ | Binance and KuCoin are ready to return to India

Questions about WazirX security measures

Vikram Subburaj, co-founder of local rival Giottus, said the hack also raised questions about whether WazirX had taken adequate steps to protect its holdings and funds.

“WazirX’s hack occurred on a custodial wallet that held all of its Ethereum ERC-20 tokens. This was also a hot wallet, meaning it was connected to the exchange’s live servers. This was a mistake strategy, because typically, at any given moment, the safe thing to do is to keep 90% of your assets in ‘cold’ wallets, which avoids network leaks,” he said.

Siddharth Sogani, CEO of cryptocurrency research firm Crebaco, agreed, saying questions need to be asked about whether WazirX’s efforts to secure funds are sufficient.

“WazirX first tried to blame wallet infrastructure provider Liminal, and then Liminal tried to blame WazirX. There was a complete lack of transparency and the so-called ‘resolution’ pursued by WazirX was not at all beneficial to user interests,” he said.

ALSO READ | The $230M WazirX Hack: How Safe Is Your Cryptocurrency?

At a WazirX town hall on September 2, CEO Nischal Shetty said that the exchange has $284 million in cryptocurrency token assets, while the platform’s 4.3 million users have a net user balance sheet of $546 million.

On October 24, WazirX published a reserve certification document claiming that its cryptocurrency holdings are currently worth $298 million.

“At a recent town hall meeting, exchange officials said that a third of the cash held by users is being withheld due to various legal proceedings. This not only shows that WazirX is using customer funds to fight its own battles, but Doing so without letting users withdraw their funds in full,” said a senior industry executive who requested anonymity, citing legal action against the company. exchange.

The executive added that a basic question is completely unclear: When will customers be able to withdraw most of their funds from exchanges? “None of this helps to increase user confidence in WazirX and the crypto industry as a whole.”

Another executive and four users, who requested anonymity because they are all pursuing legal action against WazirX, said the communications were filled with “heavy jargon and the excuse that WazirX has been using it since 2017″ Touting. Violation. We have seen almost no action to actually recover funds.”

Giottus’ Subburaj added that the cybersecurity audit conducted by WazirX “was to see if there was any malware in its systems,” which did not fully address any other questions about the hack.

At the same time, the hack has emboldened voices seeking cryptocurrency regulation in the country.

Uttkarsh Bhatnagar, partner at Cyril Amarchand Law Firm, said: “Without regulations, users can only resort to secondary legislation such as consumer courts, which are not effective as consumer litigation regulations take years and a lot of money. “With dedicated regulations, users will have a clear way to take action in the event of a breach,” Mangaldas said. “Without such laws, the danger to consumers is inevitable.”

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