Binance Founder and CEO Changpeng Zhao Targets Sequoia Capital China for Reputational Harm

Quick Facts:

  • Binance CEO fights back against defamation.
  • He alleges that the claims of Sequoia Capital prevented him from earning the revenue he anticipated on his platform.

Changpeng Zhao is known to the world as the founder and CEO of Binance. However, in a recent case, it looks like Zhao’s reputation could soon be tainted. A report from CoinDesk shows that Zhao was involved in an investors case with Sequoia Capital, though he is now filing a direct case against the China unit of the VC firm, saying that the entity kept him from raising valuations as a result of the harm to his reputation. He demands now that the VC firm compensate him.

The filing [HCMP 2770/2017], which reached the High Court in Hong Kong by May 20th, says that an application was sent by Zhao’s attorney, ordering “immediate summary of assessment of damages.” The hearing won’t be held until June 25th, involving both Zhao and SCC Venture VI, which is the Sequoia Capital China special purpose vehicle.

During the application process, there will be an inquiry that discusses if Zhao has actually “sustained any and what damages,” based on the details in the injunction order from December 27th, 2017 that Sequoia obtained, which Zhao alleges kept him from raising capital until March 1st, 2018 from other investors.

As the filling states on behalf of Zhao:

“The injunction order has caused loss to me for which I am entitled to reasonable compensation by Sequoia. In particular, I have suffered i) a loss of chance to raise capital through successive rounds of financing at increasing high valuations; and ii) damage to my reputation.”

The actions of Zhao come after a decision made by the Hong Kong International Arbitration Centre in December 2018. At the time, the entity dismissed all of the claims that Zhao had violated the exclusivity agreement when they were in the process of negotiating a Series A equity financing with Binance. The case actually started a year before, without any notification to Zhao.

Right after the injunction order was initiated, the company then filed a notice for arbitration in January last year. The firm accused Zhao of breaching exclusivity, which they said Zhao did by speaking with IDG Capital when discussions about the Series A round were still in process.

A Deputy High Court Judge ruled that Sequoia “was wrong to pursue the ex-parte application without notice to Zhao,” according to the hearing only three months later. The judge added that there was a significant lack of explanation and evidence to show why there weren’t any actions taken that would’ve simply involved both parties. The judge said that the use of the procedure in this circumstance was “an abuse of the process.”

The following months were filled with arbitration as the company worked to submit evidence to the Hong Kong Arbitration Centre. On December 14th last year, a final decision was made when the claims by Sequoia were dismissed, since the discussion with IDG Capital was in regard to series B financing, rather than series A as the firm believed.

The Tribunal stated that they found “that that the negotiations with IDG were not in respect of a ‘rival transaction’ to the Series A Financing but were in respect of a proposed Series B financing transaction which was not in competition with the Series A Financing and which did not become a Series A Financing.”

So far, there has yet to be a response from Sequoia Capital to CoinDesk.

CZ has taken to Twitter to let his followers know a little more about the case:

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