Thursday, 09 July 2020

In court, blockchain entrepreneur says investors have no ownership rights

Moshe Hogeg responds to a lawsuit alleging he misappropriated funds and deviated from white paper business plan, by asserting that such papers are descriptive, not legally binding

Israeli cryptocurrency entrepreneur Moshe Hogeg has defended himself against an unhappy investor’s lawsuit by saying his company is under no obligation to use investor’s funds as set out in the company’s “white paper” and that investors have no ownership rights in the cryptocurrency company they invest in.

Hogeg, the owner of the Beitar Jerusalem soccer team, was sued for NIS 17 million (about $4.6 million) on January 24 by Chinese investor Zhewen Hu, who alleged that Hogeg misappropriated millions of dollars worth of cryptocurrency invested in the company STX Technologies Limited (also known as Stox).

The plaintiff claimed he invested a total of about $3.8 million worth of the virtual currency Ethereum in the Stox prediction market platform on the basis of the company’s promises and commitments in its white paper, which is a kind of prospectus that cryptocurrency companies make available to potential investors ahead of an initial coin offering (ICO).

According to the lawsuit, the Stox white paper claimed that if the firm were able to raise $30 million worth of Ethereum, it would invest all of the money to develop its prediction market platform and make it successful, thereby increasing the value of Stox tokens in secondary markets.

In a response to the suit filed February 5, Hogeg’s lawyers argued that the Stox white paper and Stox website are of “a descriptive nature only and not binding.”

“A whitepaper does not constitute a prospectus or offering document,” they wrote. In other words, unlike a prospectus issued to investors before an initial public offering, a white paper confers no legal responsibility on its issuers, according to the argument put forward by Hogeg’s lawyers.

The August 2017 ICO of Stox raised $34 million. It was promoted by boxing superstar Floyd Mayweather, who was later fined by the US Securities and Exchange Commission for promoting Stox and two other ICOs without disclosing that he had been paid to do so.

The plaintiff has claimed that Hogeg only invested $5 million of the total $34 million raised in Stox itself, and that he used the rest to invest in other ICOs, like that of Telegram. In addition, Hu has claimed that Hogeg sold his own tokens in Stox before the earliest date when he said he would do so, thereby devaluing the tokens of other investors.

Hogeg denied these allegations, saying that the employee, who told the plaintiff only $5 million had been invested in the Stox platform, was mistaken and that Stox continues to be a thriving website with a large number of users.

Hogeg described the lawsuit as “an extortion attempt” that is harming his public image. He said that when investors acquired Stox tokens they signed a contract, which stipulated that “ownership of tokens carries no rights whether express or implied other than a limited potential future right to use or interact with the Stox platform.”

In other words, Hogeg argued, a Stox token is not a security and does not grant any ownership rights in the company. He also said that since STX Technologies Limited is incorporated in Gibraltar, the proper venue to adjudicate the lawsuit is Gibraltar, not Israel, and that purchasers of Stox tokens had agreed to this point when they signed the contract.

Hogeg, one of Israel’s highest-profile cryptocurrency entrepreneurs, has in recent months gone on a multi-million dollar spending spree. On June 20, 2018, it was reported that he had purchased $19 million of land in the wealthy Tel Aviv suburb of Kfar Shmaryahu from businessman Ilan Ben-Dov, paying for part of it in Bitcoin.

In August, he bought Beitar Jerusalem, one of Israel’s top soccer teams, for $7.2 million.

In October, Tel Aviv University announced that it had accepted a $1.9 million donation from Hogeg to establish the “Hogeg Institute for Blockchain Applications” at the university’s Coller School of Management.

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