Monkey Capital, a Delaware-based company seeking to create a decentralized hedge fund, has been hit with a class action lawsuit alleging a fraudulent issuance of securities.
The claim, filed in the U.S. District Court in Florida, represents five plaintiffs who invested cryptocurrency now valued at $3.8 million into the project ahead of a proposed token sale last July that was to help build the Monkey Capital Market - an envisaged decentralized hedge fund and private crypto exchange.
The investors purchased cryptocurrency options called "coevals" that were to be later used to purchase tokens called Monkey Coins at a valuation premium in a forthcoming token sale.
However, after the sale was delayed, Monkey Capital's fundraising website disappeared altogether in early August, when the sale was scheduled to resume. It has yet to reappear.
The suit alleges that Daniel Harrison, founder of Monkey Capital and an heir to Harrison & Sons - a U.K.-based printing house - then captured the proceeds via a network of pass-through companies and exchanged them for crypto or fiat currency.
"In other words, there never was, and may never be, a Monkey Capital Market," the filing states, while arguing that the pre-sale amounted to an unregistered securities offering that was marketed through the use of deceptive and misleading statements and advertising.
"Monkey Capital promoted that through its 'all-star management team' ... it would be operating a decentralized hedge fund to invest in items such as SpaceX supply contracts and hostile public company takeovers and blockchain systems while simultaneously speculating on large blocks of cryptocurrency."
In addition, Monkey Capital's original white paper - which appears to have been rescinded along with its fundraising website - detailed how its scheme could create "perpetuated wealth creation" for token holders and returns as high as 40 percent per year.
The class action, filed by David Silver, partner at SilverMiller in south Florida, contends that the investors had clearly bought into a common enterprise with an expectation to profit from the efforts of others - checking many of the boxes of the Howey test, a common metric for determining if an offering constitutes an investment contract.
"Daniel Harrison and Monkey Capital are a damning indictment of what is wrong with the ICO market and the unregulated sales of securities," Silver told CoinDesk.
In emailed comments to CoinDesk, Harrison characterized the lawsuit as one driven by "a deep, irrational personal vendetta," stating that "the content of the filing therefore amounts to baseless heresay[sic]."
"What the individuals who submitted this ridiculous filing have done today will in time turn out to be a course of action that they really regret taking," he added.
The full class-action complaint can be found below:
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