WazirX, a leading virtual currency exchange in India, became the target of one of the largest cyber attacks recently. The investors of Wazir hence lost approximately $230 million, or Rs 19.12 billion. In this article, I’ll be discussing in brief the details of the attack, the legal steps being forwarded by Wazir, and what Indian users have to say.
The Cyber Attack on WazirX
On July 19, WazirX officially declared a cyber attack that made the exchange lose about 230 million dollars. The said amount is considered 45% of the total digital assets held by Wazir. What happened was an unauthorized transfer of the assets in one wallet that was hosted by Liminal, the provider of digital asset custody that Wazir uses. However, according to the exchange’s declaration, Wazirs main system did not suffer any damage.
Legal Actions in Singapore
In response, WazirX submitted an affidavit for a moratorium in the Singapore High Court to obstruct and delay proceedings against it. This is the legal maneuver that will contribute to stopping and slowing down the proceedings against the firm. With this view, Wazir wants protection by Singapore law from its reorganization of liabilities. Its parent company, Zettai Private Limited, is registered in Singapore.
Concerns Among Indian Users
Indian users of WazirX are panicking. Deposits by them are stuck, and they cannot withdraw more than the minimum amounts in their accounts. Hundreds of users have taken to social media to express their discontent. Users have accused these three promoters, who head Wazir, of trying to flee from legal actions in India by relocating to Singapore. Users shared photos of their financial struggles and urged Wazir to reopen withdrawals from the crypto accounts.
WazirX
WazirX Response
WazirX doused these fears by elaborating on its legal strategy. The company explained that filing needed to be in Singapore because the parent company of Wazir, Zettai, had been headquartered there. Wazir then pointed out that more than 43 lakh Indian users invested through the company. Wazir reassured users by stating that efforts are being made to recover the lost funds and rebuild the company to serve their customers better.
Company Structure and Operations
Incorporated on 21 December 2017, WazirX operates in India through Zanmai Labs Private Limited. Its parent company, Zettai Private Limited, was incorporated in Singapore on 7 January 2019, having paid-up capital of $3,228. It has three shareholders and maintains a virtual office in Singapore. The company, in India, is administered by the directors Sameer Hanuman Mhatre, Tushar Patel, Muthuswamy Iyer, and
Nischal Shetty is one of its founders
Financial Impact on the Users
That means 43.52 lakh individual users and 640 corporate users in India were affected by the cyber attack. The total value of the affected assets stood at Rs 4,782 crore. However, crypto worth $284 million was still in the control of WazirX. Further, the company has kept aside $12 million for future costs and $17.74 million as contingent assets. Also, Wazir has kept crypto tokens worth $28 million for Indian law enforcement agencies, which were not affected by the attack.
Attack Aftermath
After the hack, WazirX announced a bounty of around $23 million for the recovery of the siphoned funds. It filed an FIR under the BNS and IT Act in New Delhi and lodged a complaint in Singapore. The company is also in touch with agencies in the United States for help in the process of recovery.
Previous Legal Issues
WazirX has been no stranger to legal controversies. In August 2022, the Enforcement Directorate had searched the office of the firm and frozen bank balances totaling INR 64.67 crore for investigations into money laundering and predatory lending. It was reported by the ED that funds were diverted to Wazir for buying crypto assets, and later on, it was laundered abroad.
Compliance with Regulations
WazirX has followed the Indian regulations. In March 2023, it was brought under the Prevention of Money Laundering Act. Wazir registered itself as a reporting entity with the Financial Intelligence in India. The platform requires users to provide PAN, Aadhaar, voter ID, or passport for account verification.
Compensation Plans to Investors
It also announced a compensation plan for its investors. WazirX will allow users to withdraw up to 66% of their balances in phases starting from August 26, 2023. Users can withdraw half of the above limit from August 26, 2023, up to September 8, 2023, and the full 66% starting September 9, 2023, through September 22, 2023. The remaining 34% will be made available upon the resolution of disputes and investigations.
Industry Reactions
Other crypto platforms trolled WazirX’s move to pass on the losses to the users. Sumit Gupta, co-founder of CoinDCX, a rival crypto exchange, tweeted that Wazir was wrong in passing on the loss to its users. Instead, it should own up to the loss amount. CoinDCX added Rs 50 crore to its Crypto Investors Protection Fund that helped users when their security got breached.
Assurance by WazirX
WazirX said it believes the moratorium filed in Singapore is the best legal course to return funds to users and to restructure the company. It also reiterated that this is the course that best protects all stakeholders and would lead to an equitable solution. The company has retained various law firms to address the legal challenges at hand, as well as those to be encountered.
Steps Going Forward
WazirX will hold a town hall to understand user queries and communicate their legal strategy. They shall work hard to recover as much as possible for their users and build further value on their platform. A pledge from the company is to commit themselves to solving the current problem and further improve their services for the regaining of user trust.
Conclusion
Operating WazirX has been quite tumultuous since the $230 million cyber attack. The firm has sought legal protection in Singapore and has put in place compensation plans to try and stabilize the situation. But as far as its Indian users are concerned, it raises a question of better transparency and accountability. The storm isn’t over yet, and this topic will be dragged further by each and every step and action WazirX will take toward its future in this trust-competitive cryptocurrency market.
