Investor rights-focused law firm Rosen Law Firm has initiated the suit on behalf of Canaan securities purchasers in the company’s initial public offering (IPO). The law firm claimed that Canaan investors suffered damages as the firm had made false and misleading statements and failed to disclose a number of issues.
Blockchain services and cryptocurrency mining hardware producer Canaan is facing a class-action lawsuit filed by investors following claims of dubious practices for attracting investments.
According to the announcement, Canaan did not reveal to its investors that a purported “strategic partnership” — apparently with Hong Kong Exchange-listed company Grandshores (HK 1647) — was actually a transaction with a related party.
Canaan allegedly misled investors regarding a partnership
Also, Canaan allegedly did not provide the investors with correct information about its financial condition, which was allegedly been worse than was reported. Among other allegations, the lawsuit said:
“The company had recently removed numerous distributors from its website just prior to the IPO, many of which were small or suspicious businesses; and (4) several of the Company’s largest Chinese clients in prior years were clients who were not in the Bitcoin mining industry and, thus, would likely not be repeat customers.”
Rosen Law Firm is seeking restitution for affected investors.
Canaan carried out its IPO last November, wherein it raised $90 million — more than 75% less than was expected. Canaan has initially planned to raise considerably more, with a funding figure of $400 million circulating prior to the event.
The failure was purportedly a result of losing Canaan’s biggest banking partner, Credit Suisse, just a week before the IPO.
An investigation into claims against Canaan
Additionally, a shareholder rights litigation firm, The Schall Law Firm, has begun an investigation into purported violations of securities laws by Canaan. The law firm states that it is acting on behalf of Canaan investors and aims to indicate whether Canaan actually issued misleading statements and failed to disclose information pertinent to investors.
Both the investigation and lawsuit came in the wake of an analysis produced by Marcus Aurelius Value, which argued that the ASIC manufacturer had misrepresented its potential revenue for 2020 and that at least one of its customers is an alleged related party who is unable to honor a $150 million purchase contract.
The analysts based their claims on a highly irregular transaction relating to Canaan’s IPO on Nov. 27. This refers to the $150 million deal between Grandshores one month before the IPO, which would represent an equipment order almost equal to Canaan’s revenue in the past twelve months, which amounted to $177 million.
The analysts argued that Grandshores had no way of honoring the agreement, citing the company’s $50 million market capitalization and $16 million cash balance.
Institutional Custody Is Key as KPMG Estimates $9.8 Billion in Crypto Stolen Since 2017
Owning cryptocurrency is still considered a risk by institutional investors, according to a March 2 KPMG report shared with Bloomberg. The accounting firm estimated that more than $9.8 billion worth of crypto has been stolen since 2017.
The findings revealed that lax security and poorly written code were responsible for most thefts. As institutional investors adopt Bitcoin and Ethereum (ETH) to their portfolios, securing the tokens becoming a critical issue, KPMG argues.
The need to satisfy this market demand resulted in several companies offering custody services, both from traditional companies like Fidelity and Intercontinental Exchange, as well as crypto players like Coinbase and Gemini.
Sal Ternullo, co-loader of KPMG’s crypto asset services and one of the report’s authors, explained that lack of proper custody is a major concern for institutional investors:
“Institutional investors especially will not risk owning crypto assets if their value cannot be safeguarded in the same way their cash, stocks and bonds are.”
Opportunity for custodians
The double-edged sword of cryptocurrency decentralization is the ease with which it can be stolen and then used. Ownership of cryptocurrency is defined by simply knowing the private key, with no ties to identities or government records.
Though not all exploits compromised actual private keys, adequately securing funds has been challenging for existing custodians such as exchanges. Twelve of them have been hacked in 2019, including Binance, for a total of almost $300 million stolen.
Dedicated custodians are positioned to benefit massively from the growth of the crypto ecosystem, according to KPMG. The firm wrote:
“As crypto-assets proliferate, custodians have a tremendous opportunity to profit — both by earning management fees for delivering straightforward custodian services, and also by offering adjacent services only possible in the emerging crypto ecosystem.”
The report also mentioned the need to improve compliance methods for storing cryptocurrencies for customers. Anti-money laundering and know your client regulations must be observed by all industry participants, including banks and exchanges. But even for established institutions with mature compliance processes, KPMG believes their methodologies need to be improved in light of the “unique considerations for crypto-assets and related data-management challenges”, the report states.
