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FROM: Nicholas Owen Gunden

TO: LedgerX Holdings board


LedgerX LLC board
LedgerX Shareholders
Office of the Inspector General at CFTC

January 10, 2020

Dear LedgerX Stakeholders and CFTC Inspector General,

As a three-fold stakeholder at LedgerX, I have a unique vantage point into the company. In
particular, I am:

● A market participant and client of the exchange.


● A two-time investor with significant personal funds invested, and one of the earliest
investors in LedgerX.
● A board member filling a CFTC-required role on the board of Ledgerx LLC as a market
participant.

From each of these three perspectives, I am concerned with recent developments at the
company, particularly the fact and manner in which the founders, Paul Chou and Juthica Chou,
and particularly Juthica, have been barred from continuing their roles at the company. Consider:

● For myself as a client, Juthica was my point of contact at the exchange. When she was
placed on leave, nobody reached out to take on this role. It follows that other important
clients have been similarly “left in the dark” by this process.
● As a client, I have become concerned with the safety of funds held at LedgerX. Bitcoin
security procedures are sensitive matters, and the manner in which Paul and Juthica
have been removed leaves little reassurance that BTC funds will be properly looked after
in their absence, and amidst potentially large employee turnover at the company.
Therefore, I have had to make the difficult decision to withdraw funds and not resume
trading operations. It follows that other larger clients may have similarly gotten cold feet
by this process.
● As an investor, I am concerned with the morale of the LedgerX employees:
○ Just days after Paul and Juthica were placed on administrative leave, a petition
was circulated at the office, which 75% of employees signed in support of
retaining Paul and Juthica’s leadership. I have seen a copy of this petition and
believe it to be legitimate.
○ Two of the employees who started this petition to the Board were fired,
apparently in retaliation. Retaliatory terminations are illegal and put the company
under significant liability.
○ I have spoken with two current employees and learned that there is a lot of
confusion and uncertainty at the company, and I’ve received reports that many
employees are interviewing elsewhere in anticipation of the company shutting
down.
● As a board member, I am concerned that LedgerX has fallen out of compliance with
CFTC regulations since Paul and Juthica have been placed on administrative leave.
Neither the interim CEO nor the Holdings board have given any indication at board
meetings that there is a problem here.
● As a board member, I am concerned about a lapse in fiduciary duties taking place
amongst board members. In particular:
○ Counsel for one shareholder only (Miami International Holdings - MIAX), was
invited to private board meetings. Not only was MIAX counsel able to listen, they
were invited to participate and speak. No other shareholders (aside from board
members) were represented at board meetings. Given MIAX has a large stake in
the outcome of these meetings, this strikes me as an ethical and fiduciary
violation.
○ In speaking to the CFO at LedgerX, I was struck by the fact that I was the only
board member who had reached out to her to ask how things were going at the
company.
○ Shareholders have sent more than one letter to both boards, outlining concerns
around the actions of interim management and the Holdings board which should
be addressed or investigated by the board. To my knowledge, these letters
continue to be ignored by other members of the board.
○ At a joint meeting between the Holdings and LLC boards, an extreme and
one-sided case was made against Paul and Juthica, with no chance for them to
speak in their defense and nobody speaking on their behalf. At the end of this
meeting, both boards were expected to vote to remove them.
○ While a case can be made against Paul due to his recent external
communications, no comparable case can be made against Juthica, and yet she
is being removed as well in spite of being the best suited candidate for CEO.
○ The other case being made by the Holdings board is that the company is in dire
financial straits and needs to be rescued by an investor ASAP; and that the only
way to raise investment dollars is by removing Paul and Juthica. There are
several issues with this:
■ Financials were presented informally to the board just before the vote,
which turned out to be overly pessimistic about the cash status of
Ledgerx, as the LLC board learned later when examining financials from
the CFO.
■ To my knowledge, no real effort has been made to solicit investors
outside of MIAX. In past capital raises, for example, I have been
contacted asking if I wanted to invest. If the situation for capital is so dire,
why has the net not been cast wide?
■ I have heard reports from minority investors that there is interest in
investing, but only if Juthica is running the company.
■ After placing Paul and Juthica on leave, the Holdings board hired a
security firm at the office which they are paying a rate roughly equivalent
to $60,000 per month. This action was not mentioned to the LLC board.
This significantly increases the burn rate at Ledgerx, and raises the
question whether the Holdings board is really acting in the interests of its
shareholders, or merely attempting to drain cash reserves as fast as
possible in order to make the case for an emergency financing round via
MIAX.
■ The CFO has not been informed of any financing efforts. The CFO is
being kept in the dark as to the intentions of the Holdings board.

In addition to the above, I have spoken with minority investors in more detail, and learned the
following troubling points:
● MIAX may be receiving a “sweetheart deal” investment which seeks to dilute existing
shareholders, and crises are being manufactured in order to support this deal.
● MIAX, which controls two Holdings board seats, may be seeking to benefit directly from
the removal of the founders if they are able to somehow obtain implicit or explicit control
of the license that LedgerX owns. Parties related to MIAX have stated, during the Series
B fundraise which they led and at other times, that they wish to gain control of the
license.
● A kickback scheme appears to be in place where a Holdings board member is receiving
payouts for helping MIAX to complete an insider funding round.
● By keeping the CFO in the dark, the Holdings board members appear to be
circumventing normal fundraising processes in order to directly enrich themselves.
● MIAX does not care if the employees leave and LedgerX shuts down, because they
could still benefit from controlling the license.

From what I can tell, the Holdings board is engaged in grossly negligent actions towards
LedgerX market participants, employees, shareholders, and perhaps even CFTC compliance
requirements themselves.

For all of these reasons, and more, I feel it is my fiduciary duty to raise these concerns publicly
so that all are aware of the problems happening at Ledgerx.

Sincerely,

Nicholas Owen Gunden


Board member at LedgerX LLC