Sable Martin, 25, an Atlanta-based biology graduate and pregnant mother, spends her days trading equities. She began dabbling with cryptocurrencies in 2017, enticed to their potential for wild profit, investing roughly $US500 each in Bitcoin, Ethereum, XRP, and Tron via the crypto exchange Binance.

“The costs weren't outrageous, and the platform appeared to be rather stable,” she remarked. “Everything was going fantastic, even with the extremely severe dips we'd seen in recent months, because I got in early.”

Everything changed on May 19. She began hearing claims that Binance, the world's largest cryptocurrency exchange by trading volume, according to CoinMarketCap, was collapsing and prevented individuals from moving their money, while others claimed their accounts had been cancelled without explanation.

“That's when I started panicking,” she explained.

She instantly logged on to Binance.com to check on her assets and received an error message stating that her account had been closed and that if she wanted to maintain her coins, she would need to create a new account on Binance dot US to transfer them there.

She followed the directions on the website. They did, however, request that she go back into her original account, which she could no longer access, in order to transfer the coins, which are now worth several times what she bought for them in 2017. She got in touch with customer service. However, she received no reaction, as did many others who reported identical account freezes on Reddit and a Discord server set up by dissatisfied Binance users.

“You can't get in touch with anyone,” she explained. “What are they doing with everyone's money?”

Martin is one of about 700 crypto traders from dozens of countries who have gathered online to discuss how they can take action against Binance after they either lost access to their accounts without explanation or recourse or lost money when the exchange crashed on May 19, leaving them unable to move their funds despite frantic efforts as cryptocurrency prices plummeted.

After months of planning and consulting with legal experts, the group has decided to pursue international arbitration, a form of cross-border dispute resolution commonly utilised by multinational corporations, to hold a completely unregulated, transnational organisation with no headquarters accountable.

“It's going to be a historic case, and it's definitely going to draw the attention of a lot of regulators,” said Aija Lejniece, an international arbitration lawyer based in Paris who is advising the complainants. “Binance functions essentially like a financial institution but is not subject to any of the laws that such an institution would normally be required to follow.”

Riley Kim, a representative for Binance, declined to comment on the upcoming arbitration. “Exponential growth of cryptocurrencies can periodically pose technical bottlenecks for exchange systems due to real-time market swings associated with periods of heavy trade volume,” he said.

In response to claims that users such as Martin's accounts had been stopped, Kim stated, "Unless there are ongoing account security or compliance issues, users can always move or withdraw their funds." In any situation, users can always contact our customer care team for assistance.”

The Road to Reparation

However, the road to potential compensation will not be straightforward. Binance has drawn the attention of financial regulators throughout the world due to suspicions that it evaded regulation for years by transferring its activities to multiple jurisdictions and pretending to have no headquarters, despite being domiciled in many nations.

It also demands users who sign up to agree to terms of service that forfeit their right to participate in class-action lawsuits. According to the terms of service, the sole way for users to resolve issues is through arbitration at Hong Kong's International Arbitration Center, where the fee of having a case heard is $US65,000 - prohibitively expensive for the ordinary amateur crypto trader.

A second stipulation buried in Binance's terms of service is that damages are limited to 12 months' worth of trading costs — a fraction of a percentage of the value of deals executed on the exchange.

The two stipulations mean that if all 700 traders chose to act individually, they would have to pay more than $US45 million in international arbitration fees for the possibility to recover a minuscule percentage of that value back, according to the terms of service.

They now have a secret weapon, however: the support of Lejniece and litigation finance strategist David Kay.

Kay, through his business Liti Capital, has committed $US5 million in funding to bring the claim before Hong Kong's international arbitrators, leveraging Lejniece's expertise in litigation and cross-border conflicts, the pair revealed Thursday.

They hope to first persuade an international arbitration that Binance's contract provisions are "unconscionable," a legal concept recognised in most developed countries' case law, including Hong Kong's "unconscionability doctrine," and so unenforceable.

If they are successful, they will seek compensation for the complainants' damages in the range of $US50 million to $US150 million, depending on how many people sign up for the lawsuit.

So far, over 700 people have joined the Discord server to discuss their losses, but only a small percentage of those who have lost more than $US20 million have signed the paperwork formalising the process with the legal team.

Kay and Lejniece are encouraging anyone who believes they have been wronged by Binance to join the action by visiting Binanceclaim.com. Claimants can join the action for free, and Liti Capital will cover the legal fees. Kay believes the initial $US5 million will be sufficient to cover "thousands" of applicants, but Liti Capital will add further cash if necessary. If the group is successful, Liti Capital will receive a 30% part of the damages.

“We believe it will be a historic case,” Kay added. “Can a firm that lacks borders, laws, and regulations handle customers with full impunity and up these hurdles to entrance that effectively make any form of justice difficult to obtain? We believe the answer will be no.”

According to Kim of Binance, there are dangers associated with any trading environment, and the company's terms of service explain such risks, "including the likelihood of systems-related downtime, to our consumers."

“We seek to minimise disruptions and are constantly working to improve our platform capabilities to give a best-in-class experience,” Kim said.

A more extensive crackdown

The action underscores larger scrutiny of Binance in multiple markets as the platform has evolved, including an enquiry by the Justice Department and the IRS into charges of money laundering and tax evasion, according to a Bloomberg story citing people with knowledge of the situation. Experts believe it is only a matter of time until Binance alters its business model significantly.

“Binance's current condition is unsustainable,” said Kevin Werbach, a professor of legal studies and business ethics at the University of Pennsylvania's Wharton School. “To be trusted and effective as an asset class, cryptocurrencies cannot simply exist outside of the rule of law. Governments have laws in place to protect their citizens, and it makes no sense for entities to try to avoid them, even if their operations are spread and there is no obvious headquarters.”

Significant losers

Among the 700 or so possible complainants are traders from all over the world, some of whom invest in cryptocurrencies casually in their spare time and others who devote their entire life to it.

Fawaz Ahmed, 33, a former Uber driver in Toronto, belongs to the second group. He began trading full-time early last year and made large bets every few months.

On May 19, he noticed that the price of ether was plummeting and decided to cut his losses and close his position.

He opened the Binance app on his iPhone and began feverishly clicking the "close position" button in an attempt to save his funds. There was no action. He claimed he tried again and again, opening and closing the app and calling friends for guidance for nearly an hour as his losses skyrocketed.

“I couldn't do anything for 50 minutes. I was unable to close, manage, or hedge my position. “My hands were literally trembling,” he admitted.

Binance terminated Ahmed's transaction at some point - a process that occurs automatically when a bet's losses exceed investors' deposits. He had everything taken from him. He claims that if he had been able to close his position when he wanted to, he would still have 3,300 ether, which is worth roughly $10 million today.

“It was a huge success,” he remarked. “Mentally, I was in a poor way. I intended to use this money to retire my parents, pay for my siblings' education, and eventually buy a house.”

He was numb for hours, he added, but he expected Binance to reimburse him because he was liquidated due to an apparent technical fault with the programme. The following day, Binance released a compensation claim form, which Ahmed filled out in the hope of being compensated. However, over the next several weeks, he received scores of stories from others on the Discord group who had filled out the form claiming they were only offered a small portion of what they had lost, generally up to 30%. Binance eventually offered Ahmed around 20% of what he had lost, according to Ahmed.

At that point, he and others in the group began looking into more aggressive options, such as a class action, which lawyers they contacted ruled out due to the contracts they had signed, before settling on international arbitration.

Ahmed stated that he and others simply want "justice and compensation," and he has one message for Binance CEO Changpeng Zhao: "Do the right thing."

Kate Marie, a 58-year-old healthcare consultant from Sydney, had likewise intended to use the money from crypto trading to ensure her future. She began trading early last year with about $US20,000 and claimed to have turned it into about $US250,000 just before losing everything during the May 19 outage, when she was unable to transfer her cash.

“I felt I had finally found a means to pay for my retirement because my job possibilities were so limited,” she explained. “When you are a girl in your late 50s or early 60s, you are no longer considered for typical jobs.”

Marie, who is one of the complainants who has already signed up for the case, expects that the group arbitration will aid in the cleaning up of the market.

“I want to see people safe,” she stated.

Kim, a Binance spokeswoman, declined to comment on specific consumers.

“On May 19, practically all bitcoin exchanges experienced temporary disruptions owing to severe market volatility,” he explained. “At Binance, we took urgent efforts to interact with affected users and worked fast to resume trading.”

Binance has been upbeat in the face of charges of malfeasance. Following the May 19 downtime and subsequent coverage by The Wall Street Journal, Binance issued a blog post in which it stated that it has researched some of the accusations and “could not uncover any relevant technical or system issues that impacted their trading.”

The blog post mentioned three examples without naming the individuals involved, and appeared to blame the losses on the users.

“We are aware of a very tiny percentage of people who are attempting to extract excessive demands from us,” Kim said in answer to questions. Our approach is fair in that we compensate users who have suffered actual trading losses as a result of difficulties with our system. We don't cover hypothetical 'what may have been' circumstances like unrealised profits.”

Kim went on to say that he wasn't referring to any of the clients mentioned in this press.

Francis Kim, an experienced derivatives trader in Melbourne, Australia, is frustrated by the company's apparent lack of compassion and accountability. He said he lost roughly $US170,000 on May 19, when the app stopped operating and he was unable to manage his assets.

“You're watching tens of thousands of dollars vanish every minute,” he claimed.

Francis Kim stated that he was well aware of the hazards associated with trading derivatives and that he has "made and lost $US170,000 numerous times."

However, the situation on May 19 was distinct because of how the corporation handled customer complaints. Kim stated that he filed a compensation claim, but the firm only promised to reimburse one-third of his damages.

Francis Kim, like Marie, Ahmed, and Martin, wants Binance to stand up to its faults and recompense users to put things right.

“Even if we are degenerate gamblers, the firm does not have the right to reach into our stack of chips and steal them,” he stated.

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