BitMEX Hit with $540M Lawsuit from Purported Early Investors

The plaintiffs seek to recoup both the current value of their equity, $90 million, alongside $450 million in punitive damages.

BitMex, one of the world’s most popular cryptocurrency exchanges, and its founder Arthur Hayes have been slapped with an amended lawsuit from self-proclaimed early investors in the crypto derivatives platform.

First plaintiffs Frank Amato and RGB Coin Ltd. were joined by another investor named Elfio Guido Capone and they are collectively suing BitMex for $540 million. They claim to have been the first seed investors of BitMex in 2015 and that their $55,000 investment was supposed to have been converted into equity at $10 million post-money valuation.

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The three parties are seeking to recoup both the current value of their equity, estimated to exceed $90 million, alongside $450 million in punitive damages, based on BitMex’s multi-billion valuation.

The lawsuit states that when Hayes contacted the trio vis Linkedin, BitMEX was a novel idea that lacked backers, funding or significant traffic. Amato, a former JPMorgan Chase & Co. commodity derivatives trader, says that Hayes solicited his angel investment since mid-2014 and from the outset, he stated that they were seeking “equity investors.”

Mr. Amato was promised that his investment would buy 0.5% of BitMEX’s equity for $50,000, with the same rights as the two other founders of BitMEX. Hayes also promised to immediately notify him in case BitMEX plans additional financing and capital raises so that he can retain his ownership percentage.

“Defendants representations and repeated assurances that Mr. Amato’s investment would entitle him to equity in BitMEX were either knowingly false, or were recklessly made to induce Mr. Amato to invest money that Defendants never intended to allow to become equity in the business. In reliance on Defendants’ representations, Mr. Amato executed the SAFE and then, on June 26, 2015, wired Defendants $30,000,” the legal document reads.

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Capone made investment after a Skype call

The newly-added plaintiff Capone also accuses the exchange’s founder with procrastination as well as giving him false information.

Hayes wrote to Capone to confirm a valuation of BitMEX at $10 million and that he will share other investors in holding a 10 percent stake in the exchange while the three founders retain 90 percent. When asked if he was the first investor to commit to the round, Hayes claimed he already had commitment for another $150,000 to $200,000 from other investors.

After many attempts to convert his initial investment into a 0.5 percent stake in BitMex, as initially promised, founder Hayes offered him a “$125,000 to tear up the contract.”

Capone declined the offer and then moved to contact the other two founders of BitMEX – Sam Reed and Ben Delo. In reply, Ben Delo sent a meme image, cynically suggesting that, despite BitMEX has been headquartered in San Francisco, it could simply evade accountability by incorporating itself in the Seychelles.

Ben Delo’s response came shortly after CEO Hayes was captured on a video saying that it just costs “a coconut” to bribe the Seychellois authorities.

The compliant further claims that BitMex, which handled nearly $2.5 billion in bitcoin trading volumes over the past 24 hours, has created a false “shell” company called ABS Global. The legal documents says the move was part of a broader securities law dodge designed to tell regulators that BitMEX has no California operations or US investors. However, California is where most of its technology and services are managed, and where almost all of the key personnel who perform those functions live, work and run BitMEX’s operations, Capone added.

In addition, over half of the BitMEX jobs listed on recruitment sites were for looking for staff to work in the San Francisco office.

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