Court Directs Probe Into Suspected Insider Job

On October 18, 2024, the Delhi High Court directed the police to investigate allegations against Indian crypto exchange WazirX. This order followed the WazirX hack incident in July that resulted in the loss of $230 million in investor assets.

Jaivir Bains’ Petition Against WazirX

Investor Jaivir Bains, through his lawyer Advocate Ankit Bhatia, filed a petition seeking legal action against the crypto exchange for its response to the incident. The complaint included the merging of affected and unaffected funds.

The court session on WazirX hack, presided over by Justice Sanjeev Narula, focused on Bains’ accusations regarding the exchange’s handling of investor funds after a breach compromised its multi-signature wallet server. The July attack, attributed to an international group, led to the theft of substantial digital assets held by Indian investors.

The petition alleged that WazirX attempted to mitigate losses by pooling funds from all users, redistributing the remaining funds equally across affected and unaffected accounts. According to Bains, this practice violated the terms of the user agreement and unfairly impacted investors whose assets had not been compromised in the infamous WazirX hack.

Bains had initially attempted to withdraw his funds, but his requests were denied. The company reportedly cited updated user agreements and guidelines from the Financial Intelligence Unit (FIU) as reasons for blocking the withdrawals. It was later through a whistleblower that Bains learned of the breach.

In the petition, Bains also raised concerns over the potential loss of the stolen funds, which were allegedly transferred to Singapore. He called for an official investigation, arguing that without proper action, the chances of recovering the misappropriated assets were slim. The petitioner expressed frustration with the FIU’s failure to act on the matter and pointed to reports suggesting that influential government officials were involved in the decision not to pursue the case.

Delhi High Court Order inWazirX Hack Case

WazirX, a registered entity with the FIU, was under scrutiny for its decision to merge both compromised and uncompromised funds. Bains argued that this practice was detrimental to unaffected investors and violated their agreement with the platform.

The court examined whether this constituted a breach of regulations and questioned the extent of the FIU’s role in overseeing the exchange’s activities. Justice Narula remarked that regulatory authorities could only act based on solid evidence of regulatory infractions in the WazirX hack case.

The petition did not provide sufficient proof to warrant immediate action by the FIU or the Enforcement Directorate (ED), though the court instructed law enforcement to further investigate the claims. The court also suggested that any legal disputes over WazirX’s actions could be addressed in a civil court.

Breaking : Delhi high court directed the police to investigate Wazirx Hack – whether it was an inside job or not & also directed Police to involve the FIU if evidence emerge. pic.twitter.com/xK3DSUsRFM

— Crypto India (@CryptooIndia) October 18, 2024

Also, the Delhi High Court ordered the police to involve the FIU in case they obtain any solid evidence. Meanwhile, the petition raised the possibility that the hack could have been internally orchestrated, though there was no evidence to support this claim.

The court maintained that suspicion alone could not justify a broader investigation but encouraged law enforcement to follow leads that might emerge during their inquiry. Hence, police are now investigating the potential insider involvement in the WazirX hack fiasco.

Additionally, Bains questioned WazirX’s regulatory compliance, citing its decision to redistribute investor assets. The court determined that such disputes over financial compensation and terms of service fell within the scope of civil litigation.

The petition did not result in immediate regulatory intervention. However, the court ordered the Assistant Commissioner of Police to investigate the matter and provide a report on the allegations.

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