Feb 26, 2023
BitFlyer Founder Seeks Comeback to Calm Crypto Exchange Turmoil
(Bloomberg) -- BitFlyer Holdings Inc. co-founder Yuzo Kano plans to reinstate himself as chief executive officer of Japan’s biggest cryptocurrency exchange and guide it to an initial public offering, seeking to end a dispute with current management and other shareholders over control of the startup.
Kano, who owns 40% of BitFlyer and stepped aside from the top role in 2019 after a regulatory crackdown, said he will put forward his proposal at a shareholders meeting planned for next month. “I will make it capable of fighting on the international stage,” the 47-year-old said in an interview.
The former Goldman Sachs Group Inc. derivatives and convertible bonds trader is speaking out for the first time about returning to lead BitFlyer since a deal to sell the exchange was scrapped last year. Kano said he quashed the sale because he suspected that ACA Partners, a Singapore-based fund, was collaborating with current management to shut him out by convincing a majority of investors to accept their bid to buy BitFlyer.
“They wanted to get rid of me, both as a shareholder as well as the representative of a subsidiary,” Kano said.
Kano isn’t currently in charge of BitFlyer, but CEO of a subsidiary called BitFlyer Blockchain Inc. Masaaki Seki, who was brought in as deputy head of risk and compliance in 2020, became president of the entire entity last year with backing from other shareholders. ACA and Seki worked together to sell BitFlyer on the cheap, according to Kano.
Hideki Hayashi, who heads the CEO office at BitFlyer, responded on behalf of Seki and declined to comment on a detailed list of questions on Kano’s assertions. Hayashi added that all matters involving shareholders will be addressed at the meeting.
BitFlyer has been embroiled in drama ever since Kano co-founded the company in 2014. In 2018, Japan’s Financial Services Agency ordered BitFlyer and several other crypto exchanges to adopt more stringent measures against money laundering. Kano stepped aside soon after to take responsibility.
Since then, multiple chiefs have sought to right the ship. Some of them quit after Kano pointed out their shortcomings as BitFlyer’s single-largest individual shareholder, he said.
“It’s my responsibility to point out issues and demand improvement,” Kano said. “I reprimand people when they cause problems, make false reports or fail to do whatever they are supposed to do.”
Kano speaks with the air of a derivatives trader, confident and ready to take risks. He took a leap of faith almost a decade ago to become a cryptocurrency entrepreneur. With an active social-media presence, he’s a well-known figure in Japan’s crypto community.
Despite the recent turbulence, BitFlyer says it has 3 million accounts, handling more Bitcoin transactions than any other in Japan. Among its rivals, Kraken has officially announced it will close down its Japan business, while Coinbase Global Inc. has said it will unwind most of its operations in the country.
Even so, Japan remains a laggard globally when it comes to crypto. Kano says he can change that, with plans to bolster BitFlyer’s business by introducing stablecoins, building a token-issuance operation and potentially open up its Miyabi blockchain technology to the public.
First, however, Kano needs to pull off his plan to reinstate himself as BitFlyer’s CEO. It might prove to be a tough sell, given that he had a key role in the turmoil surrounding the exchange over the past few years, as well as the scrapped acquisition by ACA last year.
Kano said that the fund had approached him with a proposal to buy BitFlyer that initially valued the business at ¥40 billion, but talks broke down after ACA declined to formally boost its offer and put it in writing, even as other potential buyers emerged and indicated they could pay more.
In April 2022, the Nikkei reported that BitFlyer had agreed to sell itself to ACA for as much as roughly ¥45 billion.
“I was stunned,” Kano said, recalling the moment he heard the news. He said he had also been led to believe that he would return to helm BitFlyer, but that any deal with ACA would have effectively ended that possibility.
Kano said he later learned that ACA had approached a group of investors holding a combined majority stake, excluding him, and convinced them to sell their stockholdings based on a ¥80 billion valuation for BitFlyer. There aren’t enough regulatory protections in Japan to prevent this kind of scenario from happening, according to Kano.
The fund indicated that Seki and current management could stay on, Kano said. The co-founder said he moved to kill the deal because management had allowed ACA to approach two different shareholder groups — one holding minority stakes and Kano himself — inappropriately. Securing a deal behind his back was also problematic because as the biggest shareholder he has the right to choose a buyer as long as its bid tops any others, Kano added.
Desperate to thwart the sale, Kano sent a tweet saying, “WANTED: WHITE KNIGHT,” citing the Nikkei article and inviting other potential buyers to contact him.
After Kano found other firms willing to pay more for BitFlyer and prepared to exercise his right to pick a buyer, the deal went into deadlock. “I broke the deal,” he said.
Akihiro Azuma, ACA’s chairman, declined to comment on a detailed list of questions regarding last year’s developments involving the attempted acquisition of BitFlyer. “We didn’t present an obviously lower bid to a specific set of shareholders,” he wrote in an email.
Time is running out to save BitFlyer, which has been stuck in limbo for the past few years, according to Kano. While net income jumped to ¥12.5 billion in 2021, a jump from the previous year’s ¥427 million, he said innovation has stopped and the exchange isn’t seizing new business opportunities.
BitFlyer is becoming “a company that produces nothing new,” Kano said.
The timing isn’t so great. November’s unraveling of FTX has cast a pall over crypto exchanges across the globe. Cryptocurrency transactions in Japan shrank 72% last year to ¥30 trillion despite a more relaxed regulatory environment, according to Japan Virtual and Crypto Assets Exchange Association.
Even so, Japan is now better positioned with updated cryptocurrency regulations that BitFlyer can show as an example to other nations, according to Kano. Earlier this month, the FTX’s Japanese subsidiary reopened withdrawals, making it the first of the group’s businesses to return money to clients. Japan has been calling on its international counterparts to oversee crypto as strictly as they do commercial banks.
Read more: Japan Pushes Global Counterparts to Regulate Crypto Like Banks
“There are very strict regulations in place now to protect customers, which can be a model for the rest of the world,” Kano said.
Kano expects to win approval for his plan to return to BitFlyer’s helm. That’s the “simplest” solution, he said. Taking the company public, something no other crypto exchange in Japan has yet accomplished, is the best option for stakeholders to extricate themselves from the entire situation, with some form of remuneration.
“That way, anyone can sell shares if he wants to,” Kano said. “I’m very confident.”
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