A Chinese investor today filed a NIS 17 million (approximately $4.6 million) lawsuit in the Tel Aviv District Court against Israeli blockchain entrepreneur Moshe Hogeg, head of the venture capital firm Singulariteam.
The lawsuit names also former Singulariteam CFO and current Saga Foundation CFO Yaron Shalem, and the Stox Technologies company.
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The plaintiff, Zhewen Hu, says he fell victim to “the respondents’ well-planned sting, led by Moshe Hogeg.”
According to the plaintiff, Stox is a company wholly owned and controlled by Hogag, which is registered in Gibraltar but operates from Hogag’s offices in Ramat Gan.
Stox, which was founded in 2013 as a subsidiary of Invest.com, raised $34 million under the ICO (Initial Currency Issue) in August 2017. According to the lawsuit, Hogeg “emptied the company of all of the proceeds of the ICO,”
“Emily is celebrating the company from all the proceeds of the issue ($35 million) and has attracted them to himself or to other companies associated with him while violating a long list of White Paper commitments and in any case without working to promote the company’s operations and objectives as presented to investors. ”
Stox wanted to develop a prediction market based on estimates on the blockchain, so that in order to participate in a “survey” on a particular topic (for example, who wins the elections in the US), the user must make a bet using Stox’ designated currency.
“In retrospect, it turned out that the obligations of Hogag and the company to the investors, including the plaintiff, including White Paper and the additional updates, were blatantly violated by the company by Hogeg and by Shalem, when it was clear that the company had no intention of holding them in the first place, and was intended solely to induce investors to inject funds into the company as part of the offering.
“It is obvious that Hogg’s goal was simply to present a” serious “misrepresentation that would lure large and serious investors to convince them to invest large amounts of money, after which the” spoils “between him and his partners would be distributed. He also planned to steal the investment money and transfer it to his needs.
The lawsuit details the series of liabilities included in the company’s pre-issue white paper, including the distribution of the funds: 50% was intended to pay salaries, 20% was intended for marketing, 15% was intended to create incentives for players and 15% was allocated for administrative expenses and other expenses. The company also undertook that 50% of the total tokens will be transferred to the purchasers of the tokens, 12.5% will be transferred to Invest.com, 105 will be transferred to the company’s workers, and 27.5% will be used by the company.
The distribution of the platform was supposed to be carried out, inter alia, through strategic cooperation, with the company already committed to such cooperation with Invest.com, which was presented to investors as a company with three million customers and revenues of more than $ 50 million in 2016. Investors have been promised Invest.com, will develop for every three million users a digital wallet that will use Stox’ tokens so that the latter will gain popularity and high liquidity from day one.
Hogeg and the company have committed that the tokens allocated to Invest and the Stox development team will have a two-year vesting period, in which these entities will not be able to sell their tokens so as not to flood the market with Stox’s containers and prevent price declines. In other words, these were “blocked” ticks, similar to blocked shares that the controlling shareholders of a company issuing shares to the public and its employees undertake not to sell for a certain period after the issuance.
The lawsuit also that the fact that Invest.com was a company owned by Hogeg was concealed from the investors: “In order to be precise about the size of the fraud, we will make it clear that the company is signing the agreement, both on behalf of Stox and Invest.com which is supposed to receive the said consideration (in the amount of $ 2-3 million). Hogeg has signed an agreement with himself, in which he gives himself, apart from 12.5% of the Stox issued in the Stokes issue, another $ 2-3 million of the issue money. Without disclosing it to Stokes’ investors. ”
The lawsuit goes on to say where much of the $34 million that Stox had been transferred was transferred: “According to Hogeg’s instructions,” Stox wrote $24 million in the Telegerm issue. Stox’s chief financial officer, Ran Ashtar (Ashtar is not sued and no complaints are filed against him) who said in a private investigation earlier this month that “somehow he [Hogeg] has transferred the money from one pocket Into another pocket.” In the same investigation, Ashtar also noted that of the $34 million raised, he received only about $5 million as the company’s budget.
In addition, the lawsuit states that “the Company, in accordance with Hogeg’s instructions, borrowed money and distributed prohibited dividends to Hogeg and relate to him including funds in the framework of the issuance of ORBS, an Israeli company that develops infrastructure in blockchain for customers, as well as funds to other corporations of Hogeg – Sirin Labs and the Singularity Fund.
The lawsuit alleges, the result is the cessation of the company’s operations and the dismissal of all the employees. The company is currently inactive, after the departure of the CEO of Stox in October 2018.
Hogeg, it is claimed, he declared on Twitter that the reason for the liquidation of the company is regulation in Israel, but: “From the date of the issue until the company fired all of its employees (in light of the empty fund), there was no change in regulation in Israel, and the only reason all the employees were dismissed was to empty the company’s coffers by Hogeg.”
The Stox application, according to the lawsuit, was finally launched without any cooperation with Invest.com and without any promotion. The app was downloaded by only about a thousand Android users, and the site is not active except for a landing page. The company failed to develop applications for iPhone or desktop application, and the website of Stox only includes a possibility to bet on sporting events.
Despite the promise – flooded the market with Tokens
Another charge in the lawsuit concerns the flooding of Stox’s tokens in the market. Despite the promise of a vesting period, in which some of the tokens will be blocked for use in order to prevent flooding and decrease in value, “all of the blocked tokens, which constitute 22.5% of the total tokens of the stox, are sold during the vesting period.”
In a response issued by Hogeg and Stox on various blockchain site, it was noted that a sale had been made, but also that “all the Tokens sold were returned back to the electronic wallet of the blocked Tokens.”
According to the lawsuit, “Out of the explicit admission of Hogeg in the Stox investors’ telegram group because he is the biggest ‘holder’ of the tokens, we learn that Hogeg and his partners have received millions of dollars worth of tokens from the company.” That’s when the tokens were supposed to go to the Stox and the invest team.”
Hagar Revat and Little Dubrovitzky, Calcalist