Former Exec Hits Back at OKCoin Amid Contract Dispute

More details emerged in the ongoing dispute between OKCoin and Roger Ver after former OKCoin CTO Changpeng Zhao released a statement.

AccessTimeIconMay 30, 2015 at 1:03 p.m. UTC
Updated Sep 11, 2021 at 11:42 a.m. UTC
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Former OKCoin chief technology officer Changpeng Zhao has hit back at allegations that he forged a contract at the center of a dispute between bitcoin entrepreneur Roger Ver and the Chinese bitcoin exchange.

"I signed version 7 of the contract with Roger. It was sent via email with my PGP signature. I do not recall a version 8," he wrote. "With either version of the contract, OKCoin is seriously violating its obligations."

Zhao alleged that OKCoin artificially inflates its volume through the use of bots that engage in self-trading, manipulated the results of its August 2014 proof-of-reserves audit and actively encourages its employees to trade on the exchange.

In addition to denying his role in the creation of the so-called 'version 8' of their agreement, Zhao's disclosures offer new insight into why he departed the company in February, a move that, at the time, was attributed to “different directions".

Zhao wrote:

“As the second largest individual shareholder in the company at the time, I was never allowed to see a bank statement, even though my name is associated with several bank accounts of the company. In Jan, I asked strongly to see the bank statement where the VC investment money was stored, I was denied. I left shortly afterwards.”

“As many were curious before, this is the definition of ‘different directions’,” he added.

OKCoin responds

When contacted for comment on Zhao's allegations, OKCoin produced a detailed response from Xu, which contained several refutations of Zhao's claims and added a number of new complaints of its own.

This included several counts of alleged misconduct – that Zhao had overstated his technical skills and experience on his resume and was let go by the company after less than a year after mistrust grew and it found him unable to serve in the CTO position.

OKCoin also accused Zhao of repeatedly criticizing the company on Reddit and social media after his departure, and of allegedly deceitful behavior in attempting to negotiate new business agreements with OKCoin and one of its competitors.

The new claims and counter-claims are almost guaranteed to prolong the current saga concerning OKCoin's contract, and all parties are now vowing to take their positions to the courts.

Growing controversy

The controversy surrounding Ver and OKCoin deepened this week following the release of a report by cryptography developer and IT consultant Ben McGinnes.

was published in response to a $20,000 bounty posted by OKCoin that encouraged members of the public to help clear it of wrongdoing in the contract dispute. In his report, McGinnes concluded that the document is a forgery, but that Xu was not responsible for the act.

"The accusations leveled against Mr Xu by Mr Ver are thus entirely without foundation," he wrote.

McGinnes later noted in a 28th May email chain involving Ver and Xu, among others:

"The evidence trail at this point points to the likelihood of criminal actions being undertaken by a former employee of OKCoin. We all know it, but the report carefully steps around that issue, as will the auxiliary report. Why? Because at some point in the future there will almost certainly be a criminal investigation."

At the same time, OKCoin released a video depicting access to a QQ account said to be controlled by OKCoin's accountant that shows it received a "v8" version of the contract in December from Zhao's QQ account. The copy of the contract accessed in the video includes a disputed cancellation clause.

According to OKCoin's Jack Liu, a formal report is currently being drafted by a Chinese public notary that also prepared the video. He declined to name the company involved, stating that this information would be disclosed upon publication, which is expected in the next week.

Xu's statement accused Zhao of unsuccessfully attempting to cover up his actions by deleting his QQ chat records, which OKCoin staff recovered.

Response to report, forgery allegation

In his statement, Zhao remarked that he had no motive for forging any agreement, writing:

"Why on earth would I forge the contract? What benefit is there for me? As Star Xu has openly disclosed my salary, I was making more than $20,000 per month in salary (plus double digit equity options). What incentives do I have, to forge a contract valued at $10,000 per month?"

Zhao described the agreement between him and Ver as "a simple gentleman's agreement", emphasizing the friendship between the two.

"We have enough respect and trust for each other that we both thought a simple gentleman’s agreement would suffice," he wrote. "I did not expect OKCoin will delay or default on payments of $10,000 in size."

In response to the McGinnes report, Zhao said the analysis "seems illogical at best", highlighting a comment from Ethereum creator Vitalik Buterin that questioned one aspect of the report.

Zhao's statement also addressed the video of the QQ log, questioning how the video was generated and whether it was notarized.

Zhao offered a number of explanations for the video, suggesting that the video is a fake or that the notarization process was flawed. He suggested that the password may have been leaked, writing that he shared it with a fellow employee who tells him she only used it on one occasion. He also suggested that his account had been hacked.

On the deal

Zhao wrote that when he resigned in February, he asked to be able to take over the contract on a personal basis, a request he said was denied by Xu.

"I personally still think it is a good deal as the site attracts 2,500 unique new visitors each day, mostly from users Googling 'bitcoin'," he wrote.

He outlined internal plans to charge per-month fees for ad space on the domain, a decision that he said dissuaded potential ad partners that wanted to use a pay-per-click model.

Xu said he does not see why Zhao would ask to take over the contract on a personal basis, and if he had been able to pay the $10,000 per month himself then could have negotiated a new contract with Ver, who was more easily able to terminate the existing agreement.

Abuse of signature alleged

In his statement, Zhao echoed past comments in which he claimed his signature had been used without his consent in connection with the use of a Mozambique-based bank account.

Zhao wrote:

"I now know that OKCoin have used my physical signature to conduct multiple bank transfers from bank accounts, after I left the company, and without my knowledge. Verifying this is a simple matter of confirming with the bank. And a lawyer is in process of doing just that."

Zhao also questioned the reticence on the part of OKCoin to provide contact information for its lawyer Li Yajun, who now appears on OKCoin's team page. Ver's legal representation in the dispute, Daniel Kelman, had previously asked for the contact information as the contract dispute first emerged.

"Why was OKCoin so reluctant to provide contact details for Li Yajun, or let Daniel talk to him in Chinese, even now, whiling publicly claiming to have paid over ¥100,000 to notarize QQ chat logs?" Zhao wrote.

Operational allegations

Zhao went on to make a number of other allegations about the way OKCoin has conducted its business, acknowledging that it could harm his and other former colleagues' reputations but saying the community has a right to know.

"Again my apologies, to any former colleagues who are now dragged into this," he wrote.

When reached by email, Zhao acknowledged that he had no hard evidence to back up his allegations, but he suggested that other former OKCoin employees, as well as existing employees of the company, could support his claims.

Self-trading bots

Notably, Zhao alleged that OKCoin utilizes in-house trading bots to deceptively boost its trading volumes, an activity that sometimes sees those bots trading against each other and not actual users.

He wrote:

"During certain periods, these bots have also been used in a manner to create orders that will only trade against themselves, not with user orders. This mode of operations was strongly resisted by even Chen and Liu (programming, matching engine), but Star Xu insisted on executing it."

While this is the first time a senior member of the company's team has made claims about artificially-inflated trade volumes in writing, it has previously been the subject of speculation from other figures in the bitcoin industry.

These in-house automated accounts were removed from OKCoin's system before it held a proof-of-reserves audit in August last year. The cryptographic audit, conducted by Ripple Labs' Stefan Thomas as a community service, showed OKCoin held 104% of the bitcoins its records showed.

According to Zhao:

"I can confirm OKCoin removed a number of accounts (used by OKCoin bots) to pass the Proof-of-Reserve audit in Aug 2014. In essence, these bots trade on fractional (or fictional) reserves. Stephan[sic] Thomas was lied to during the audit. This is an unfortunate limitation of the proof-of-reserves method."

While OKCoin's rebuttal admits that trading bots exist in its system, it defends their presence by claiming there are "hundreds of API users in the QQ customer group", and that the exchange also offers a paid service to high frequency traders.

There are also server clusters which sometimes use trading bots to test matching engine performance and accuracy.

"OKCoin does not need to have any fake volume. Our customers run a large amount of bot trading acting as market makers. OKCoin in production environment does not run any bots of its own."

On the issue of Stefan Thomas' audit, Xu explained the only balances that were removed from the system pertained to OKCoin's margin trading functions.

A select few larger traders could lend out BTC amounts and still view their balances as 'lent' even if borrowers then sold/traded them. Those were removed for the audit to prevent double counting, he said.

Employee trading

Zhao also alleged that OKCoin employees are encouraged to trade on the company's exchange platform.

"Star Xu openly encourage employees to trade on its own exchange," Zhao wrote. "The goal is to “learn the product”. This is a known fact in OKCoin, and there are easily more than a dozen employees who can confirm this."

The allegation comes months after an OKCoin representative told CoinDesk that, per company policy, employees were not allowed to trade on the platform.

This restriction, the representative said at the time, included administrators with access to sensitive trade data.

Xu's statement confirmed there are accounts with "small amounts of funds" for the purposes of training product managers and customer support staff, and for engineers to test their code, but that "those with privileged information at OKCoin absolutely do not trade on that information".

Security concerns

In his post, Zhao also raised questions regarding the manner in which OKCoin secures its bitcoins.

According to Zhao, at least until February when he departed the company, Xu held sole control over the private key for OKCoin's cold wallet, with copies held by close family members.

OKCoin has posted its cold wallet and security policy, but for safety reasons does not disclose locations.

"Up until the time of my resignation, Star alone holds the private key to the OKCoin code wallet," he wrote. "The backup of the private keys were held by Star’s wife and mother, both of whom are non-technical."

On OKCoin's staff and bitcoin in China

Zhao closed his statement by speaking in support of other employees at the company, writing that many were simply doing what they were told.

He went on to suggest that others in the company may have attempted to stop some of the actions alleged in his statement:

"Let me state clearly, most of the employees at OKCoin are very, very good people. They are simply following orders. Many of them have fought back on many occasions, to no avail. Many of them have left the company."

Zhao added that "OKCoin is not representative of other Chinese or bitcoin companies" and asked readers to not pass judgment on other bitcoin companies in China.

"Please do not generalize," he wrote. "This is a not a “culture difference”. I have had the pleasure to work with a large number of great bitcoin (and other) companies in China."

Argument visualization via Shutterstock


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