Binance’s founder and Chief Executive Officer [CEO], Changpeng Zhao AKA CZ is suing Venture capitalist Sequoia for damaging his reputation. CZ took to Twitter to inform the crypto community about the unjust injunction and how it was an ‘abuse of process’ from the VC’s end.
In 2017, when Binance was a new venture, Sequoia Capital sued CZ for breaching the exclusivity clause by talking to IDG Capital for Series A funding, while still in talks with Sequoia. However, Sequoia did not notify Zhao about the injunction order in an ex parte order obtained in December 2017 f followed by a notice for arbitration in January 2018.
In April 2018, the Judge of the Deputy High Court noted that Sequoia “was wrong to pursue the ex parte application without notice to Zhao” and that it would have set the injunction aside if it were not already ‘spent’. Even the arbitration fell apart for Sequoia as the Tribunal dismissed the VC’s claim of Zhao breaching the exclusivity as it found that the discussion with IDG Capital was for series B funding.
However, CZ was not able to defend himself in public as the arbitration was confidential.
“The Hong Kong courts later determined that Sequoia’s actions in obtaining the injunction were an abuse of process. Late last year, the arbitration tribunal finally determined that all of Sequoia’s claims were completely without merit.”
Sequoia was deemed to pay Zhao’s legal fees which were around $2,400,000 and according to CZ, he had to front $779,043 USD for over a year to cover this expense. Using this case as an example, Zhao explained how such legal cases can have detrimental effects to new businesses and new entrepreneurs.
“This case illustrates a few points. For most entrepreneurs, they will not be able to: front $779,000 to fight a lawsuit; secure additional funding for their startup given a pending lawsuit, even one that’s clearly without proper base and where the claimant will surely lose.”
He expressed the difficulty to run a startup when a business is bounded by such a legal case. The CEO opined that many start-ups would have had to forcefully give in to the “unfair terms/practices employed by a VC”. The duty of a VC was to help the entrepreneurs but instead, such tactics by VCs often result in them getting away.
CZ talked about the damage he incurred when the news of him getting sued by a famous VC was “made public right away” and he was unable to defend himself in the public’s eye as the Tribunal was confidential. In order to make the results of the Tribunal public, CZ said that he would have to “counter sue”. The CEO concluded:
“10/10. We don’t just play defense. We fight for our industry.”
Subscribe to AMBCrypto’s Newsletter
Bitcoin’s [BTC] current performance shows that it is a great diversifying asset, says Morgan Creek’s CIO
Namrata is a full-time journalist and is interested in covering everything under the sun, with a special focus on the crypto market.