When ICOs (Initial Coin Offerings) became popular in 2017, the world was not prepared for the frequency with which scammers and criminals attempted to take advantage of people’s naivety. Most of the community wanted to be a part of the new phenomenon and did not think about the consequences. The fight to establish regulatory frameworks in different locations and the presence of ‘watchdogs’ has been helping lower the incidence of scams in recent months, but the issue is still ongoing.
The latest controversial case involves a high-profile Israeli entrepreneur and a Chinese investor. The latter is suing the former and his blockchain company, named Stox (STX) for the sum of $4.6 million, according to a report from The Times of Israel on January 25th.
A Sizable Investment
Zhewen Hu is the name of the Chinese investor. Hu is said to have invested a considerable sum of money, approximately $3.8 million worth of Ethereum (ETH) according to the report of the Israeli news outlet.
Stox is a blockchain company based on Ethereum. It is an open source project, designed as a prediction market platform. The name of the founder and the person facing the legal situation at Hu’s request is Moshe Hogeg.
Hogeg is famous in Israel because he is the owner of Beitar Jerusalem, one of the most famous football clubs in Israel, which currently plays in the nation’s top-flight competition. He completed the purchase of the team in August 2018.
In fact, Hogeg is among the most influential personalities in the entrepreneurial landscape in his country. He is known for investing in crypto-related projects, including Sirin Labs (a blockchain phone developing company) and LeadCoin, a decentralized lead-sharing ecosystem based on blockchain technology.
The Lawsuit’s Foundation
The lawsuit’s equivalent in Israel’s currency is NIS 17 million. The foundation of the legal proceeding is that Hogeg and Stox operator, which is STX Technologies Limited, misappropriated a sizable sum of money in US dollars worth of crypto that were invested in the project.
According to the lawsuit, the company’s white paper clearly stated that in the case the firm reached its ICO target of $30 million through the crowdfunding phase (in ETH,) the funds then would be channeled into product development. In turn, if the prediction market platform was successfully developed, the price of the STX coin, the project’s associated token, would rise.
The lawsuit then continues by saying that the target was reached, with the platform raising $33 million worth of ETH by August 2017. After that, only $5 million of those assets were re-invested to the development of the product. According to Hu, Hogeg used the funds to contribute to other ICO projects, causing a commitment breach that resulted in investors selling their Stox holdings and the fall of STX’s price.
It is not the first time that Hogeg faces a lawsuit for a similar motive. In November, he confronted one for alleged misappropriation of funds in his own firm, Invest.com. He denies any accusations.
By Andres Chavez