Victims file $235M class-action suit against WazirX for hack

A collective of affected individuals is set to launch a lawsuit against the crypto exchange WazirX following the $235 million breach.

A group of thirty individuals who fell victim to the hack on WazirX on July 18, which resulted in approximately 45% of user funds being siphoned from the platform’s hot wallet, is preparing to submit a class-action lawsuit with the National Consumer Disputes Redressal Commission in India, as reported by a local media source.

The plaintiffs, aiming to reclaim digital assets valued at over INR 5 crores (approximately $600,000), contend that the exchange operated outside its legal parameters.

The $235 million hack affected nearly 4 million users, forcing the exchange to apply for a Scheme of Arrangement in Singapore, which is a restructuring process in line with local insolvency regulations. WazirX successfully secured a four-month moratorium, effectively pausing any legal actions against it.

The lawsuit, anticipated to be filed by mid-November, is based on the assertion that WazirX’s contract with its users was established through its Indian subsidiary, Zanmai Labs Pvt. Ltd.

Victims were not notified about frozen cash balances

Supreme Court attorney Aman Rehaan Khan is advocating for the victims.

Khan asserts that the exchange’s choice to seek asset restructuring in Singapore via its parent company, Zettai Pte Ltd, lacks legal justification.

“Zettai was never included in the user agreement,” Khan stated.

Zettai, based in Singapore, manages the exchange’s cryptocurrency assets, while Zanmai Labs is responsible for cash deposits from Indian users. Originally, Zanmai oversaw WazirX’s operations in India, but it is now completely owned by Zettai. According to the WazirX website, Zettai assumed control of the platform’s assets after a conflict over ownership with Binance.

About a month post-attack, WazirX announced that it would permit users to withdraw 55% of their cryptocurrency assets and 66% of their cash holdings. However, this was the first instance wherein the exchange disclosed that a third of users’ cash balances had been frozen due to distinct legal disputes and ongoing law enforcement investigations.

Khan emphasized that users were not made aware of the freezing of cash balances by a third-party entity, which he argues constitutes yet another breach deserving of damages and penalties.

Khan anticipates that additional victims will come forward by the time the lawsuit is initiated.

WazirX facing scrutiny

WazirX, one of the largest cryptocurrency exchanges in India, has been under intense scrutiny and legal pressure in recent years.

Alongside the imminent lawsuit, the report noted that two other legal actions have been launched against the exchange in the Delhi High Court. On August 28, CoinSwitch co-founder Ashish Singhal accused the exchange of security failures. Additionally, investor Jaivir Bains filed a petition on October 18, demanding an investigation into the hack.

WazirX applied for a moratorium in September as part of a restructuring effort in Singapore, where the current owner is located. The company secured the moratorium, giving it four months of protection from any legal challenges.

Moreover, a separate group of 11 users intends to seek legal recourse once the moratorium concludes.

India’s Financial Intelligence Unit, tasked with analyzing and disseminating financial information relating to money laundering and terrorist financing activities, is reportedly investigating WazirX.

The exchange has provided server logs, transaction records, and blockchain addresses associated with the stolen assets to the authorities.

On October 25, the exchange announced its pursuit of a new custodian partner capable of offering insurance for user funds, aiming to bolster platform security.

WazirX was established by former CEO Nischal Shetty and CTO Sameer Mhatre.