CoinFLEX Insolvent After Roger Ver Defaults on Loan

The cryptocurrency exchange CoinFLEX on Tuesday debuted a new token, Recovery Value USD (rvUSD), in an effort to finance customer withdrawals after the exchange abruptly ran out of funding.

“During the recent market volatility, a long-time customer of CoinFLEX’s account went into negative equity, meaning the individual’s account currently holds a negative balance,” CoinFLEX CEO Mark Lamb said in a Tuesday blog post on his company’s website, noting the insolvency forced the exchange to halt user withdrawals on June 23. “In normal circumstances, we would auto-liquidate a position that runs low on equity at prices prior to the zero-equity price. In this case, the individual had a non-liquidation recourse account. This condition required the individual to pledge stringent personal guarantees around account equity and margin calls in exchange for not being liquidated.

“As a solution toward re-enabling withdrawals, CoinFLEX is planning to monetize this personal guarantee by creating a corresponding liability in the form of a token,” he added. “We have been speaking to potential large buyers and believe there is significant interest in the terms presented.”

Crypto Twitter’s “FatManTerra” said Tuesday a “verified insider” confirmed the individual who defaulted on a loan was the controversial, long-time Bitcoin Cash (BCH) proponent and CoinFLEX shareholder Roger Ver. “Ver had a long on BCH, and the platform allowed him to run a deficit because he personally guaranteed he would pay them back,” FatManTerra explained, meaning Ver unsuccessfully bet an uncollateralized loan — in the sum of $47 million — on the prospect of Bitcoin Cash’s price rising. He shared an accompanying video of CoinFLEX’s global brand ambassador, Doug Polk, deriding Ver in 2018 as a “crazy altcoin man.”

Ver denied the allegation early on Tuesday afternoon, writing on Twitter. “Recently some rumors have been spreading that I have defaulted on a debt to a counter-party. These rumors are false. Not only do I not have a debt to this counter-party, but this counter- party owes me a substantial sum of money, and I am currently seeking the return of my funds.”

“We want to reiterate that this individual is a high-integrity person of significant means,” Lamb said in Tuesday’s blog post, adding that he was “experiencing temporary liquidity issues due to a credit (and price) crunch in crypto markets (and non-crypto markets), with substantial shareholdings in several unicorn private companies and a large portfolio.”

Lamb said his company was “targeting” June 30 as a date for his company to be able to accommodate withdrawals, but said it was “subject to receiving funds pursuant to the rvUSD issuance. If the rvUSD token issuance is fully subscribed, CoinFLEX will re-enable withdrawals and restore the platform to full functionality in an orderly manner.”

The company said in a white paper for the new token that it is requiring purchasers to have an annual income of at least $200,000, along with a household net worth of $1 million or greater. It also promised holders an APR of 20 percent “paid daily in rvUSD,” a payment mechanism that typically results in the rapid deflation of a cryptocurrency’s price.

Lamb told Bloomberg on Monday that he had “alternative mechanisms” in mind if buyers failed to embrace rvUSD, but declined to describe them.

CoinFLEX last week became the third exchange in 11 days to disable customer withdrawals after facing a problem with liquidity. Celsius Network became the first on June 12, followed by Babel Finance on June 17. Two more — Voyager Digital and Finblox — imposed limits on the amount customers were allowed to withdraw.