- An early Binance backer is reportedly considering suing the company based on a perceived undervaluation of the company’s value
- Weixing Chen invested in the exchange in 2017 and claims that Binance is using one-year profits to value itself at far less than its actual worth
- Binance has faced similar legal troubles relating to early investment in the past and won
An early backer of Binance is planning to sue the company over a disagreement regarding the valuation of a share buyback by the company. According to Chinese media, Weixing Chen is preparing a lawsuit based on his belief that Binance is purposefully undervaluing itself in order to reduce the amount it needs to pay back to shareholders such as himself who invested when the exchange got off the ground in mid-2017.
Binance Allegedly Undervaluing Itself
Chen invested in Binance in July 2017, buying up around 5% of the company’s shares when it was valued at $70 million. Binance enjoyed phenomenal success right off the bat, being the chief exchange to benefit from the 2017 bull run, and as a result its valuation skyrocketed.
This has left Binance being valued roughly the same as Coinbase, around $10 billion, but Chen claims that the exchange is only willing to buy back its shares at a valuation equivalent to its one-year profit, which is between $500 million and $1 billion, clearly a gross undervaluation.
Chen also claims that Binance investors did not obtain share confirmation for transfer purposes and have not been receiving dividends due to Binance giving its shareholders “no rights, no entity, no statements, no dividends, no currency, no repurchase, no transfer rights.”
Chen Not the First
Chen’s is not the only equity dispute regarding Binance, with the core reasons all relating back to the ‘blind’ financing of the company in July 2017. In April 2018, Binance CEO Changpeng Zhao was sued by venture capital firm Sequoia Capital for allegedly breaching an exclusive investment agreement between the pair. The case was dismissed six months later, with Zhao counter-suing Sequoia for reputational damages following the dismissal.
According to Chinese blockchain reporter Colin Wu, it will be difficult for Chen successfully prosecute Binance because the exchange has many physical companies and is legally well concealed.