Bitget Exchange Faces Lawsuit by Advisor of ReelStar Token Project After the Listing Goes Sour

A little-known token project hires an advisor to build popularity. The advisor gets his fee in tokens and sells some after the exchange listing. The exchange freezes his account. Influencer sues.

This, in a nutshell, is the story of Evan Luthra, a prolific crypto influencer who claims to have advised 40 token projects and invested in 400.

Luthra promoted ReelStar, a startup that raised $5 million in an ICO in 2022 to build a creator-oriented social media app where content producers would be rewarded with crypto. He sold his token on Bitget, a Seychelles-registered crypto exchange, and then the exchange froze his position.

Now Luthra is suing Bitget, saying it unlawfully denied access to his account and also poisoned his relationship with the project, which terminated the advisory contract and denied Luthra the rest of his reward. The first step is setting up a litigation hold, which gives Bitget a chance to respond before the suit is formally filed in the Seychelles.

The story illustrates the thorny path to success for the small-cap tokens, where most early adopters get in for a short-term gain and the price crashes right after the token is listed, leaving buyers with losses.

Luthra started advising ReelStar last October and he was promised 150 million REELT, the project’s “utility token,” in multiple tranches over 20 months, he told CoinDesk.

“Since October, I haven’t got any tokens so it was very fair for me to sell,” he said in an interview, adding that before the listing, he received 7.5 million tokens and 1.3 million of them he sold on Bitget. He was also selling some on two other exchanges, MEXC and Gate, he added, and those two had zero problem with that.

Luthra tried to prove his case to Bitget, but to no avail, and the conflict spilled over to Twitter.

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In April, Bitget wrote a blog post saying the influencer [Luthra was not named] acted in bad faith and Bitget will “cooperate with the relevant authorities to investigate if any illegal activity has been carried out, such as insider trading or price manipulation.”

“Except for denying he is the one who dumped on his followers, there are many other misleading statements in the FUDs from this crypto influencer, trying to position himself as a victim, rather than the miscreant,” Bitget wrote.

ReelStar, a social media platform, uses smart contracts to ensure that creators are paid on time and that the revenue is distributed equitably, co-founder Nick (Narinder) Bahl told an online media outlet Entrepreneur in March.

For 1% of the REELT token supply, Luthra agreed to consult the project on marketing and promoting the token via influencers. He was supposed to get rewarded in multiple tranches but only got one. The whole collaboration fell apart immediately after the token got listed on several centralized exchanges. It was delisted from Bitget soon after.

The story is a part of a larger trend when new token projects launch in the red, with large amounts of tokens sold and the price crashes right after listing, leaving holders scrambling for breadcrumbs.

REELT was listed on Bitget on March 23. In the first couple of hours, according to Bitget, massive sales of the freely distributed token saw its price take a nosedive. On opening day, REELT plunged from $0.12 to $0.02.

Bitget stopped trading in REELT on March 24, explaining that right after the trading went live, four accounts started dumping tokens, including three accounts belonging to the market-maker hired by the project and one controlled by the advisor.

“In a short time, these accounts sold more than 2 million REELT tokens, receiving nearly 400,000 USDT. At the same time, the price of REELT dropped from an opening price of 0.07 USDT to 0.028 USDT — a decrease of over 60%,” Bitget said on March 31, adding that the exchange decided to delist REELT and compensate users who bought the tokens there. Later, Bitget said it refunded 583 users.

Luthra that day sold 1.3 million tokens from his account, he admits. He maintains that he did nothing wrong: according to him, the ReelStar CEO Navdeep Sharma told Luthra he was free to sell his tokens, Luthra said. And he did not even sell everything he had all at once.

The token was also listed on other exchanges, but the project asked the platforms to stop all the trading, citing “significant price discrepancies between the prices quoted on each exchange.”

“A number of bad actors have been using this disparity to manipulate the price of REELT, solely for their own arbitrage benefit,” said a post in the project’s Telegram group which has since been deleted.

The ReelStar team declined to comment on this story, citing ongoing negotiations with Bitget.

Bitget said the unnamed market-maker sold just a bit less than Luthra on that first day of trading and also got its accounts frozen.

Alexey Andryunin, founder and CEO Gotbit, has made a career in inflating trading volume of small altcoins, as CoinDesk has previously reported. He also worked with Luthra to liquidate his token allocation, he told CoinDesk, and was watching the situation in real-time.

Andryunin told CoinDesk that it’s quite common for market-makers to get a loan of tokens from a project to provide liquidity and then to dump those tokens immediately after the listing, sending the price south. That allows such market-makers to buy tokens back at the low price and then return the loan to the token issuer, after making a 80%-90% profit over a year or less.

“It happens in nine of the 10 cases with smaller token projects. This strategy works well and doesn’t kill the project with larger coins, listed on big exchanges, like Solana, NEAR, etc.,” Andryunin said.

“Founders of smaller projects don’t understand that traditional market makers aren’t good for them. They end up selling the control over their market to a third party,” he said.

In the case of ReelStar, the problem might have been that the project released more tokens than the market was ready to swallow at the moment, Andryunin said, adding that it can be the market maker’s mistake or lack of coordination on the side of Reel. Given the 583 users who, according to Bitget, it had to refund, the order book for REELT indeed was pretty shallow when the listing kicked off.

“First, you need to create a market on to which to sell,” Andryunin added.

Speaking to CoinDesk over Telegram messages, Bitget’s spokesperson Jing Zhang said that the exchange has been trying to work the situation out with the REELT team, but saw little cooperation so far.

“If the project team could actively work with us to find a solution and rebuild the trust, that could be a win-win for everyone,” Zhang wrote. “Given that they are unwilling to deal with it together with us, we announced a compensation plan for the users affected by the incident, and completed it by May 17.”

As to Luthra, Zhang insisted that his actions were ethically questionable. “Some actions might be legal but not that ethical, like shilling a coin with your influence and then dumping on your followers.”

“The drop in price triggered plenty of complaints in the Bitget and REELT community, and many of them see it as a potential exit scam,” he said.

Luthra said that in addition to the crypto on his account he can’t access due to the freezing, his advisory contract with ReelStar was terminated after the Bitget listing was canceled, so he won’t receive the rest of the tokens he was owed.

ReelStar sent CoinDesk a written statement signed by a person named Kiran D.

“We can confirm that we are presently in discussions with Bitget but to protect Reel Crypto (our) position in regards to its dealings with Bitget, we are unable to provide commentary nor confirm any details until those dealings with Bitget are resolved in full,” Kiran D. wrote, promising to provide details once those discussions are finalized.

CORRECTION (Aug. 3, 2023, 13:40 UTC): Corrects details of Luthra's stated compensation, details Seychelles court process.