3 of Israel’s most-hyped initial coin offerings were scams, ex-employees allege

A lawsuit filed on May 25 by staff of an Israeli enterprise capital fund alleges that three of Israel’s largest initial coin offerings of 2017 and 2018 were outright scams.
The three ICOs, launched by Sirin Labs, Stx Technologies Limited (Stox) and Leadcoin, collectively raised $250 million from buyers all over the world.
The plaintiffs declare that none of the three firms ever developed a product as they’d promised buyers. Instead, the plaintiffs allege, the defendants overtly appropriated buyers’ cash for their very own private use.

An initial coin providing is a kind of fundraising utilized by blockchain startups. The investor is introduced with a brief movie in regards to the startup, biographies of its founders, and a “white paper” explaining the expertise and marketing strategy in additional element. If the investor is impressed by the startup, he should buy tokens in its initial coin providing. These tokens usually give him entry to the product and if the product is profitable, it’s hoped, the tokens will rise in worth on secondary exchanges.

Moshe Hogeg, proper, with Mexican billionaire Carlos Slim (Facebook screenshot)

The $16.1 million lawsuit was filed by Roee Brocial and Eran Okashi, former staff of the Singulariteam enterprise capital fund, towards Moshe Hogeg, Adi Sheleg, Ido Sadeh Man, Yaron Shalem, Shmuel Asher Grizim, Avishai Ziv (Sonenriech), Singulariteam Holding II and Singulariteam Ltd.

Get The Start-Up Israel’s Daily Start-Up by e-mail and by no means miss our prime tales

Free Sign Up

Neither Hogeg nor any of the opposite defendants responded to The Times of Israel’s requests for remark. However, in statements to different media shops, Hogeg has denied [Hebrew link] the allegations and stated the lawsuit is an try by disgruntled staff to extort him.
Broncial and Okashi, who in keeping with the criticism are on unpaid depart from Singulariteam as a result of coronavirus pandemic, allege that the defendants fooled them into considering that the Sirin Labs, Stox and Leadcoin ICOs were legit. As a consequence, they invested their very own cash and persuaded household and associates to put money into the three startups, and have suffered monetary damages and psychological trauma in consequence, they declare.
Okashi was an accountant for firms below the Singulariteam umbrella, whereas Broncial was formally employed by Sirin Labs however successfully served as a private assistant to Singulariteam’s largest shareholder, Moshe Hogeg, the lawsuit alleges.

Hogeg, a startup entrepreneur who emerged from obscurity within the early 2010s, is finest identified for attracting superstar buyers to his startup ventures, together with Mexican billionaire Carlos Slim, movie star Leonardo Dicaprio and Kazakh oligarch Kenges Rakishev. Critics have described Hogeg as a “serial failed entrepreneur” who manages to draw buyers by good PR and uncritical articles within the media. Hogeg can also be the proprietor of the Beitar Jerusalem soccer workforce.

Portuguese mannequin Sara Sampaio selling Sirin Labs Solarin telephone (Screenshot)

Hogeg has been sued a number of occasions by buyers of varied ventures who alleged he defrauded them. In most circumstances, Hogeg settled with the plaintiffs, who in flip signed a nondisclosure settlement.
Hogeg is a 70 % shareholder of Singulariteam, whereas different defendants personal smaller shares within the fund. Adi Sheleg owns 22.5 % of Singulariteam, Ido Sadeh owns 5 %, and Yaron Shalem owns 2.5 %.
Shmuel Grizim, one other defendant within the lawsuit, is the CEO of an Israeli firm often called Webydo Systems in addition to the CEO and founder of Leadcoin Ltd. Avishai Ziv, a sixth defendant, is the CEO of Singulariteam. He additionally ran a subsidiary of Singulariteam often called Alignment Consulting.
According to the plaintiffs, the defendants arrange a sequence of blockchain-based firms that had virtually no actual exercise and whose sole objective was to defraud buyers. The criticism focuses on three Singulariteam ventures: Sirin Labs, which raised $158 million in July 2017 for a safe smartphone; Stx Technologies Limited, which raised $34 million in August 2017 for a sports activities and present occasions prediction market; and Leadcoin, which raised $50 million in March 2018 for a “decentralized lead sharing community.”
The Stox ICO was endorsed by American boxer Floyd Mayweather in July 2017 on Instagram whereas Sirin Labs was promoted by soccer star Lionel Messi and supermodels Irina Shayk and Sara Sampaio.

A July 2017 screenshot of Floyd Mayweather selling the Stox ICO (screenshot)

“Soon after they raised cash and generally whereas they were doing so, the defendants emptied the businesses and left them with none substantial exercise, leaving buyers with large losses,” the lawsuit alleged.
The criticism alleges that Singulariteam’s homeowners were interested in the truth that cryptocurrencies were unregulated.
“The defendants understood the benefits and the potential inherent in elevating cash by initial coin offerings, particularly the shortage of oversight and regulation on this space,” the criticism acknowledged.
The plaintiffs submitted a transcript of a recording of Steven Kruger, Singulariteam’s authorized counsel, through which he informed one of the plaintiffs that Moshe Hogeg had stolen from them and different buyers and will find yourself in jail.
“So what if Moshe goes to jail?” Kruger allegedly stated. “You principally must endure and Roi has to endure as a result of Moshe has principally stolen from you and stolen from everybody else and now it’s important to be good to him so he doesn’t go to jail. The man is just not… he isn’t good.”

The late Steven Kruger, former authorized counsel to Singulariteam (Screenshot)

Kruger died final yr on the age of 64 from problems following surgical procedure.
According to the plaintiffs, the defendants used the cash they raised on costly actual property, together with a $15,000-a-month penthouse in Tel Aviv’s W Tower that served, together with different residences, as “bordellos for all intents and functions.”
According to the criticism, the defendants signed fictitious mortgage agreements between the three blockchain firms and different firms owned by themselves or their enterprise associates.
These allegedly included Microverse Ltd., owned by brothers Uriel and Daniel Peled, shut associates of Hogeg; Alignment, headed by Avishai Ziv; and the Beitar Jerusalem soccer workforce, owned by Hogeg.

The Times of Israel despatched an e-mail to the Peled brothers’ firm Orbs requesting a response, however didn’t hear again.
The plaintiffs allege that the defendants took €17,629,197 that had been invested in Stox and used it to put money into the ICO of Telegram.
According to the plaintiffs, 10 % of the tokens issued for Leadcoin were bought by Grizim’s Webydo to an organization referred to as Ladera (*3*) S.A. for $10 million. Ladera (*3*) S.A. was owned by Yaniv Levi.
The plaintiffs claimed that they personally invested within the ICOs and inspired their associates and households to take action. They had additionally been promised commissions for his or her advertising and marketing efforts that they allege they by no means obtained.
The plaintiffs additional allege that a few month after Sirin’s ICO, the worth of one of its tokens had risen to $3.80. The plaintiffs had needed to promote their tokens however were prohibited from doing so, whilst some of the defendants bought theirs.
The plaintiffs allege that they at the moment endure from anxiousness and melancholy as a consequence of their monetary losses and as a result of anger of relations who invested within the ICO.
“Because of his closeness to Hogeg,” the criticism alleges, “and since he served as his private assistant, Brocial was uncovered within the course of his work to surprising and blatantly unethical habits on the half of Hogeg. As a outcome, Brocial continues to endure from nightmares and anxiousness.”
From binary choices to ICOs
ICOs turned wildly standard in 2017, with one former US regulator telling The Economist that yr: “Regulators have by no means seen a brand new monetary product explode with the pace and velocity [of ICOs].”
Several Israeli ICOs, together with Sirin Labs, Bancor and Kin, were among the many world’s prime grossing such firms.
In Israel, the ICO craze occurred simply because the Knesset outlawed the largely fraudulent binary choices business, which had employed hundreds of Israelis, together with many digital entrepreneurs.

The places of work of Traffic Lords on the twenty fourth flooring of the Atrium Tower in Ramat Gan (Facebook Screenshot)

The Times of Israel reported in December 2017 that digital entrepreneurs from the binary choices business were being inspired to market ICOs.
At the time, Shmuel Hauser, then-chairman of the Israel Securities Authority, sounded the alarm about ICOs.
“We need to be sure that the world of cryptocurrencies doesn’t flip right into a mutation of the binary choices business, that it doesn’t develop into a haven for scammers,” he stated.

Israel Securities Authority chairman Shmuel Hauser at a convention in Jerusalem on June 19, 2017. (Yossi Zeliger/Flash90)

Hauser left his job just a few weeks later and now works for eToro, an internet buying and selling firm that sells cryptocurrencies, amongst different monetary merchandise.
The Times of Israel attended an occasion in December 2017 at which a consultant of Hogeg’s firm Traffic Lords enthused in regards to the unregulated nature of the cryptocurrency business.
“The benefit in affiliate marketing online of cryptocurrencies and blockchain applied sciences is that it’s a blue ocean,” a consultant of Traffic Lords stated.
“It’s the Wild West. No one is aware of what’s going on. Facebook aren’t blocking the advertisements but. Google aren’t blocking the advertisements. You can do no matter you need.”
Facebook banned ICO advertisements on the finish of January 2018, adopted by Google, which banned the advertisements in March 2018. But by that point ICOs had earned many billions of {dollars}, to an important extent with the assistance of Google and Facebook. Google and Facebook’s focused promoting capabilities enable advertisers to take benefit of knowledge collected by Facebook and Google to dwelling in on the individuals who can be most vulnerable to their advertisements.

Entrepreneur Moshe Hogeg (left) with Israeli Finance Minister Moshe Kahlon on October 23, 2017 (Facebook Screenshot)

In December 2017, The Times of Israel raised the likelihood with Hogeg that some ICOs is perhaps fraudulent.
Hogeg rejected this notion and stated he had an excellent relationship with then-finance minister Moshe Kahlon and different regulators.
“We work in partnership with Israel Securities Authority (ISA) to permit Israeli startups’ work and achievements to be regulated, and that’s why I initiated a gathering with Finance Minister Kahlon, in October to debate the challenges the Startup Nation is going through on this area, and the potential of the Israeli blockchain group,” he stated.
“Anyone who mistakenly thinks that is ‘straightforward cash’ or fraud is up for a ruthless awakening: this can be a group of very smart and sharp people which might be setting the wheels of the following tech and innovation period in movement.”

You May Also Like

About the Author: Amanda