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 traders world wide.
The plaintiffs declare that none of the three corporations ever developed a product as they’d promised traders. Instead, the plaintiffs allege, the defendants overtly appropriated traders’ cash for their very own private use.

An initial coin providing is a sort of fundraising utilized by blockchain startups. The investor is offered with a brief movie in regards to the startup, biographies of its founders, and a “white paper” explaining the know-how and marketing strategy in additional element. If the investor is impressed by the startup, he should purchase tokens in its initial coin providing. These tokens typically 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, in opposition to Moshe Hogeg, Adi Sheleg, Ido Sadeh Man, Yaron Shalem, Shmuel Asher Grizim, Avishai Ziv (Sonenriech), Singulariteam Holding II and Singulariteam Ltd.

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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 mentioned the lawsuit is an try by disgruntled staff to extort him.
Broncial and Okashi, who in line with the grievance are on unpaid go away 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 reliable. As a consequence, they invested their very own cash and persuaded household and pals to spend money on the three startups, and have suffered monetary damages and psychological trauma because of this, they declare.
Okashi was an accountant for corporations 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 recognized for attracting superstar traders 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 traders by means of good PR and uncritical articles within the media. Hogeg can be the proprietor of the Beitar Jerusalem soccer group.

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

Hogeg has been sued a number of occasions by traders of varied ventures who alleged he defrauded them. In most instances, Hogeg settled with the plaintiffs, who in flip signed a nondisclosure settlement.
Hogeg is a 70 p.c shareholder of Singulariteam, whereas different defendants personal smaller shares within the fund. Adi Sheleg owns 22.5 p.c of Singulariteam, Ido Sadeh owns 5 p.c, and Yaron Shalem owns 2.5 p.c.
Shmuel Grizim, one other defendant within the lawsuit, is the CEO of an Israeli firm often known as 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 known as Alignment Consulting.
According to the plaintiffs, the defendants arrange a sequence of blockchain-based corporations that had nearly no actual exercise and whose sole goal was to defraud traders. The grievance 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 typically whereas they were doing so, the defendants emptied the businesses and left them with none substantial exercise, leaving traders with large losses,” the lawsuit alleged.
The grievance alleges that Singulariteam’s house owners were drawn to the truth that cryptocurrencies were unregulated.
“The defendants understood the benefits and the potential inherent in elevating cash by means of initial coin offerings, particularly the shortage of oversight and regulation on this space,” the grievance acknowledged.
The defendants submitted a transcript of a recording of Steven Kruger, Singulariteam’s authorized counsel, during which he instructed one of the plaintiffs that Moshe Hogeg had stolen from them and different traders and will find yourself in jail.
“So what if Moshe goes to jail?” Kruger allegedly mentioned. “You mainly must endure and Roi has to endure as a result of Moshe has mainly stolen from you and stolen from everybody else and now you need to be good to him so he doesn’t go to jail. The man shouldn’t be… he’s not 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 flats, as “bordellos for all intents and functions.”
According to the grievance, the defendants signed fictitious mortgage agreements between the three blockchain corporations and different corporations 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 group, 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 spend money on the ICO of Telegram.
According to the plaintiffs, 10 p.c 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 pals and households to take action. They had additionally been promised commissions for his or her advertising efforts that they allege they by no means acquired.
The plaintiffs additional allege that a couple of 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, at the same time as some of the defendants bought theirs.
The plaintiffs allege that they presently endure from nervousness and melancholy on account of their monetary losses and as a result of anger of members of the family who invested within the ICO.
“Because of his closeness to Hogeg,” the grievance 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 nervousness.”
From binary choices to ICOs
ICOs grew to become wildly fashionable 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 velocity and velocity [of ICOs].”
Several Israeli ICOs, together with Sirin Labs, Bancor and Kin, were among the many world’s prime grossing such corporations.
In Israel, the ICO craze occurred simply because the Knesset outlawed the largely fraudulent binary choices trade, which had employed 1000’s of Israelis, together with many digital entrepreneurs.

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

The Times of Israel reported in December 2017 that digital entrepreneurs from the binary choices trade 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 trade, that it doesn’t change into a haven for scammers,” he mentioned.

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, a web-based 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 trade.
“The benefit in internet affiliate marketing of cryptocurrencies and blockchain applied sciences is that it’s a blue ocean,” a consultant of Traffic Lords mentioned.
“It’s the Wild West. No one is aware of what’s going on. Facebook aren’t blocking the adverts but. Google aren’t blocking the adverts. You can do no matter you need.”
Facebook banned ICO adverts on the finish of January 2018, adopted by Google, which banned the adverts in March 2018. But by that point ICOs had earned many billions of {dollars}, to an excellent extent with the assistance of Google and Facebook. Google and Facebook’s focused promoting capabilities enable advertisers to take benefit of information collected by Facebook and Google to house in on the individuals who shall be most prone to their adverts.

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 chance with Hogeg that some ICOs is perhaps fraudulent.
Hogeg rejected this notion and mentioned he had 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 house, and the potential of the Israeli blockchain group,” he mentioned.
“Anyone who mistakenly thinks that is ‘straightforward cash’ or fraud is up for a ruthless awakening: it is a group of extremely smart and sharp people which might be setting the wheels of the subsequent tech and innovation period in movement.”

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