Hangzhou Intermediate Court ruled that OKEx and OKCoin were related to Lekuda, and Xu Mingxing’s “compliance protection” may be invalid

The ruling held that the OKEx trading platform was a website registered overseas that evolved from the website www.OKCoin.cn and was associated with Lekuda Company. The Hangzhou Internet Court had jurisdiction over the case.

The above two cases are the follow-up progress of the "Yang Yongxing Rights Protection Case" that caused a sensation in the cryptocurrency circle in 2019. The case was officially filed in the Hangzhou Internet Court on October 22, 2019.

The case numbers of the two cases are: (2019) Zhejiang 0192 Minchu 9177 and (2019) Zhejiang 0192 Minchu 9178.

The plaintiffs are Wei Weiping and Wang Lingsheng. The defendants include OKCoin’s operating entity, Lekuda, and its legal representative, Xu Mingxing.

According to information from multiple sources, Lekuda is also the actual operating entity of the virtual currency exchange OKEx in China. Wei Weiping and Yang Yongxing jointly hold 1% of the shares of OKC Group behind OKEx.

The case originated from a feud between Yang Yongxing, a well-known private equity fund manager, and OKEx, a digital currency exchange. Yang Yongxing once told the Securities Times that he had been "embezzled" RMB 800 million worth of digital currency by OKEx, a digital currency exchange, because of his investment in the cryptocurrency circle.

Most of these digital currencies are OKB, the exchange platform currency issued by OKEx itself.

OKEx's actual controller Xu Mingxing and CEO Jay even personally joined the verbal battle over the matter, calling "Yang Mouxing" a "stupid" and a "scoundrel", and that this matter was a modern version of the farmer and the snake, and that what Yang Yongxing said was fabricated.

Looking at the two rulings, it can be found that the two rulings are aimed at the "jurisdictional objection" raised by OKEx, while the infringement liability dispute case is still in the evidence stage.

The so-called "jurisdictional objection" refers to the claim and opinion that the court has no jurisdiction over the case raised by the parties in accordance with the law after the court accepts the case.

Specifically in these two cases, the defendant Lekuda Company stated in its "jurisdictional objection" that it has no connection with the OKEx website, and that the domiciles of the defendants, the places where the infringements occurred, and the places where the results occurred are not in Hangzhou. Therefore, the Hangzhou Internet Court has no jurisdiction over this case.

In practice, "jurisdictional objection" is often used as a delaying tactic in litigation strategy and is easily abused.

According to Article 127 of the Civil Procedure Law: Before the court hears the case on the merits, it should first review the objections raised by the parties to the jurisdiction and make a written ruling on whether it has jurisdiction over the case.

For the defendant, "jurisdictional objection" is undoubtedly an effective strategy to delay time, and it is also the reason why these two cases are still in the evidence presentation stage eight months after they were filed.

Simply put, Lekuda believes that its OKCoin platform has nothing to do with OKEx, and it is not located in Hangzhou, so the case should not be heard in the Hangzhou Internet Court.

However, the plaintiff believes that the OKEx trading platform was developed from the OKCoin website, and the OKEx client download link comes from Hangzhou City, so there is nothing wrong with conducting a trial in the Hangzhou Internet Court.

But it is worth noting that the relevant information revealed in the above "Award" has put OKEx in a very unfavorable position.

Why is it always so difficult for rights defenders to use legal means to protect their rights against OKEx?

In previous cases, rights defenders often stopped at proving the relationship between OKEx and Lekuda. A typical case is the "Infringement Liability Dispute between Rights Defender Yang Haibo and Lekuda".

The case was heard by the Wuhou District People's Court of Chengdu in March 2019, and it was finally concluded that the evidence submitted by the plaintiff was insufficient to prove that the defendant Lekuda Company was the actual operator of the OKEx platform.

In this judgment, in order to prove that OKEx is actually operated by Lekuda, the plaintiff presented a series of evidence, including that the core team members of Lekuda and OKEx have a high degree of overlap, and Lekuda’s recruitment announcement.

The defendant, Lekuda Company, stated that it did not recognize the authenticity of all the evidence and that its sources were unclear and unspecific.

The OKEx website is operated by Seychelles and Malta companies, and the plaintiff should assert his rights against the company; the platform in question is not operated by the defendant Lekuda, and the infringement alleged by the plaintiff has nothing to do with the defendant Lekuda.

OKEx has always used such territorial and subject explanations when facing many disputes, making it extremely difficult and costly for many rights defenders to assert their rights through judicial procedures in the country.

Hangzhou Internet Court: "Lekuda Company and OKEx have some kind of relationship."

However, in these two rulings, the Intermediate People's Court of Hangzhou City, Zhejiang Province clearly stated that "the original court held that the OKEx trading platform was a website registered overseas that was developed from the www.OKCoin.cn website, and the ICP registration entity of the www.OKCoin.cn website was Lekuda Company, indicating that Lekuda Company was related to the OKEx trading platform, and it was not improper to determine that Hangzhou City was the place where the alleged infringement was committed.

"The Hangzhou Internet Court also held during the trial that "there is some kind of relationship between Lekuda and the OKEx trading platform."

In another case heard by the Haidian District People's Court of Beijing in 2018, the plaintiff Wang Youqing sued Lekuda because his account on OKEx was stolen.

The plaintiff submitted evidence indicating that in 2017, the OKCoin platform forced all users who were engaged in "contract trading" and "coin-to-coin trading" to transfer to the website www.okex.com. The account names and passwords between the websites are universal, using the same customer service channel, and virtual currencies such as Bitcoin can be transferred between the websites.

In response, OKCoin China argued that its actual operator was Lekuda, and that the OKEX website had been promoted and provided with corresponding network services by Fenghuo Chuangjie in mainland China, and used this to explain that its service provider was a company registered in Belize.

OKEX Technology Company Limited attempted to circumvent Chinese legal sanctions and escape legal responsibility in this way.

In this case, the plaintiff Wang Youqing's statement was ultimately accepted by the court. The court ruled in the first instance that "Lekuda, the operator of OKCoin China, actually participated in the operation of the OKEX website, and there was confusion in personnel, operations, and property between the two websites."

This means that the "compliance strategy" adopted by OKEx is not recognized by the court.

OKEx’s “Legal Defense Strategy” May Face a “Domino Effect”

On September 4, 2017, the People's Bank of China, together with the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission, issued the "Announcement on Preventing Risks in Token Issuance and Financing", which clearly stated that no trading platform may engage in the exchange of legal currency and tokens, or the buying and selling of virtual currency.

OKCoin issued an announcement that month, stating that it would suspend registration and RMB recharge services, and gradually stop all digital asset-RMB trading businesses.

In order to circumvent regulatory policies, OKCoin launched OKEx as a new virtual asset contract trading brand, and at the same time continuously transferred users to the OKEx exchange by transferring tokens from users' OKCoin accounts to OKEx with zero transaction fees.

According to the service agreement on the OKEx website, its operating entity is Aux Cayes Fintech Co. Ltd, which is registered in Seychelles.

Although a large number of OKEx's active users and employees are located in China, OKEx's digital currency trading business has unclear jurisdiction in China, unclear rights and responsibilities, and its domestic and foreign entities and business setup systems are extremely large and cumbersome.

This means that for Chinese users, when disputes arise with exchanges, there are actually great obstacles in taking legal action to protect their legitimate rights and interests.

These two rulings have, to some extent, acknowledged the relationship between OKEx and OKCoin, identifying OKEx as a website registered overseas that evolved from the website www.OKCoin.cn and has connections with Lekuda.

This connection will undoubtedly have an impact on OKEx's current compliance strategy to evade regulation. At that time, rights defenders will no longer have nowhere to defend their rights, and regulators may also intervene.

According to the information published on the website of Hangzhou Internet Court, the two cases of online infringement liability dispute between Lekuda Company and Wang Lingsheng and online infringement liability dispute between Lekuda Company and Wei Weiping are still in the evidence presentation stage.