Class Action Alleges CoinMarketCap.com, Binance Gamed Rankings to Artificially Suppress Price of HEX Cryptocurrency [DISMISSED]
Last Updated on April 26, 2023
Cox v. CoinMarketCap OpCo, LLC et al.
Filed: September 13, 2021 ◆§ 3:21-cv-08197
A class action alleges CoinMarketCap.com, Binance Capital Mgmt., and several other parties have artificially suppressed the value of HEX by manipulating rankings on the site to inflate the price of other cryptocurrencies.
April 26, 2023 – CoinMarketCap.com HEX Cryptocurrency Class Action Dismissed
The class action out of Arizona detailed on this page was dismissed with prejudice on February 10, 2023 after a federal judge found that the court lacked personal jurisdiction—i.e. the power to make a decision in a dispute—over the defendants in the state.
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In a 31-page order, U.S. District Judge Susan M. Brnovich granted Binance.US’s and CoinMarketCap’s respective motions to dismiss the litigation, as well as a motion to dismiss filed by Binance Capital Management (BCM), Binance CEO Changpeng Zhao, Yi He and Ted Lin.
Judge Brnovich found that the court did not have proper jurisdiction over the companies and individual defendants because their alleged misconduct was not “tethered to [Arizona] in any meaningful way.” The plaintiff argued only that he was in Arizona when he accessed CoinMarketCap.com and at the time the value of HEX was allegedly suppressed, the order relays.
According to the judge, “[d]oing business in a state alone does not rise to establishing general personal jurisdiction in the forum.” Rather, the plaintiff had to allege that the defendants’ contacts with Arizona “are so constant and pervasive as to render [them] essentially at home” in the state to establish general personal jurisdiction, Judge Brnovich shared.
The judge noted that Binance.US, CoinMarketCap and BCM are not incorporated in Arizona, that Arizona is not their principal place of business, and that the individual defendants live outside the state.
Moreover, Judge Brnovich found that personal jurisdiction cannot be established because the plaintiff failed to show that the non-resident defendants committed an intentional act that was expressly aimed at Arizona, and caused harm that they knew would likely be suffered in the state.
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A proposed class action alleges crypto-coin ranking site CoinMarketCap.com; its ownership arm, cryptocurrency exchange Binance Capital Mgmt.; and several other parties have artificially suppressed the value of HEX by way of manipulating rankings on the site in order to artificially inflate the value of other cryptocurrencies, namely Binance Coin.
The 44-page lawsuit alleges broadly that although HEX was the best-performing cryptocurrency of 2020, CoinMarketCap.com locked its ranking on the site at #201, and has “refused to adjust it on the basis of HEX’s performance as related to other cryptocurrencies ever since.” The plaintiff, an Arizona resident, contends that CoinMarketCap.com’s locking of HEX’s ranking has caused the cryptocurrency to trade at lower prices than it would have had it been free to fluctuate up the website’s charts.
“Upon information and belief, some other websites that allow users to buy cryptocurrencies also present them in the order they are found in CoinMarketCap.com’s market cap rankings,” the complaint says. “At the same time, smaller ranking websites including Nomics.com, CoinRanking.com, YahooCrypto, TradingviewCrypto, Coinpaprika.com, Etherscan.io and CryptoCurrencyCap.com all had HEX ranked between fourth and tenth in size as of June 18, 2021.”
Alleged in more detail in the filing is what the plaintiff describes as a web of conspiracy among the defendants, who include in addition to CoinMarketCap.com and Binance Capital Mgmt. Binance.US, the company’s U.S. affiliate; Binance CEO Changpeng Zhao; and the company’s chief marketing officer and chief growth officer. According to the case, Binance.US was launched in partnership with American company BAM Trading Services Inc., also a defendant, after Binance was banned in the United States on regulatory grounds and stopped accepting stateside users in 2019. Per the lawsuit, Binance launched in China in 2017 and became the largest cryptocurrency exchange in the world by January 2018 despite quickly moving operations to Japan ahead of China’s ban on cryptocurrency trading. Increased regulatory scrutiny in Japan led to the company reportedly moving its headquarters in March 2018 to Malta, who has since announced that Binance has never been licensed to operate there, according to the case.
The complaint begins with an excerpt from a Medium article written by Nic Carter, a partner at venture capital firm Castle Island Ventures and co-founder of CoinMetrics.io, that details what he calls the under-reported underbelly of the relationship between exchanges, coin ranking sites and retail investors. In sum, Carter wrote that the web intertwining exchanges, coin ranking sites and retail investors, below the surface, involves the extraction of money from crypto investors into the pockets of altcoin and exchange operators:
“Many if not most exchanges have affiliate schemes, and referral links (‘reflinks’) can be a lucrative source of revenue if you are the intermediary between active traders and exchanges.”
According to the suit, CoinMarketCap.com, self-described as “the world’s most-referenced price-tracking website for cryptoassets,” is sponsored by BlockChain.com and became a subsidiary of Binance upon its acquisition in early 2020. The case states, however, that one crypto expert, Andy Cheung, former COO at OKEx and founder of crypto derivative platform ACDX, described Binance’s acquisition of CoinMarketCap.com as “not very good for the industry” given the “conflict of interest between the parties’ missions,” nodding toward the fact that Binance has its own exchange token, Binance Coin. According to the suit, Binance and its affiliates “have a financial interest in ensuring the strongest possible demand” for Binance Coin.
CoinMarketCap, for its part, is capable of using its ranking system to essentially direct buyers toward certain cryptocurrencies and away from others, the suit contests. Another industry chief, DAPS Coin CEO Adel de Meyer, speaking to Forbes, noted that “[a] ranking authority with the size and reputation of CoinMarketCap has the capacity to essentially ‘hide’ a [Cryptocurrency] at will,” the lawsuit adds.
The lawsuit relays that a “buy” button found next to each cryptocurrency listed on CoinMarketCap.com directs users to either Blockchain.com or Binance’s website without disclosing that they are being directed to a Binance subsidiary. Per the case, while Binance and Binance.US make money through transaction fees when cryptocurrencies are traded on their platforms, HEX cannot be purchased on either exchange.
The filing charges that although Binance touts CoinMarketCap.com as an open-source platform to which any user can contribute, users cannot change HEX’s rankings, with the power to do so solely in the hands of the defendants, according to the suit.
The plaintiff claims that “[d]espite CoinMarketCap.com’s promises of objectivity and fairness, CoinMarketCap.com has a history of manipulating its rankings to the benefit of Binance.” According to the case, HEX was ranked the 20th overall cryptocurrency historically on CoinMarketCap.com as recently as September 20, 2020, yet the defendants allegedly began to suppress the asset by September 27.
“As CoinMarketCap.com’s website provides only four ‘snapshots’ a month of the historical rankings, Plaintiff is currently unaware of exactly when exactly [sic] the Suppression Period began but expects that discovery will reveal a precise answer to that question,” the suit reads.
According to the lawsuit, HEX was held in more than 300,000 unique asset wallets as of July 23, 2021. The suit says that as of July 21, there were approximately 173.4 billion units of HEX outstanding. The plaintiff alleges the defendants’ failure to properly rank HEX has had the effect of steering crypto buyers away from HEX and toward other cryptocurrencies that, unlike HEX, can be purchased through Blockchain.com or Binance and thus earn revenue for the defendants.
The lawsuit looks to represent all persons who sold HEX during the suppression period, i.e., sometime around September 27, 2020 through the present (as HEX’s ranking allegedly remains locked), that they had acquired prior to that frame of time.
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