Blockchain Startup Stox and Founder Sued for $4.6 Million Over Alleged Fraud

A Chinese investor has sued a prominent Israeli crypto entrepreneur and his blockchain firm Stox (STX) over alleged fraud, English-language newspaper The Times of Israel reports Jan. 25.

The investor, Zhewen Hu, is suing Stox and its founder for $4.6 million, according to the report. Hu allegedly invested a total of around $3.8 million worth of Ethereum (ETH) in the blockchain firm — an open source, Ethereum-based prediction market platform dubbed Stox, founded by Moshe Hogeg.

Hogeg is well-known for his multiple cryptocurrency-related ventures — which include founding blockchain smartphone developer Sirin Labs, and serving as chairman of LeadCoin, a blockchain-based decentralized lead-sharing network.

He is also the owner of Beitar Jerusalem, one of Israel’s top soccer clubs, having negotiated its purchase for $7.2 million last August, The Times of Israel reports

The NIS 17 million lawsuit (~$4.6 million) alleges that Hogeg and Stox operator, STX Technologies Limited, misappropriated millions of dollars worth of crypto that had been invested in the company.

The lawsuit claims that Stox’s white paper had pledged that if the company hit its initial coin offering (ICO) target of raising $30 million in ETH, all the funds would be channelled into developing its product offering. The anticipation, according to the lawsuit, was that the successful development of Stox’s prediction market platform would boost the value of the native STX token.

Having raised a total of $33 million in its August 2017 ICO, the lawsuit alleges that only $5 million of these funds were in actuality devoted to the company and its flagship product. Hu claims that Hogeg re-invested the rest of the capital to invest in other ICOs — including that of major messenger app Telegram. The claim also states that Hogeg breached his commitment to investors by selling his Stox holdings earlier than promised, thus purportedly devaluing the tokens’ worth.

According to the report, Hogeg faced a lawsuit in November for the alleged misappropriation of funds in regard to his crypto company, Invest.com — of which Stox is a subsidiary. The entrepreneur reportedly denies any wrongdoing in connection with both cases.

As previously reported, the Stox ICO was promoted by professional boxer Floyd Mayweather Jr., who faces separate charges from the United States Securities and Exchange Commission for unlawful promotional activities around crypto startup Centra Tech’s ICO in September 2017. Centra’s founders were later formally indicted by U.S. prosecutors for fraud.