Court orders crypto startup to pay $6M for deceiving investor

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A court in the Southern District of New York has found a crypto startup and its founders guilty of duping an investor. The startup reportedly tricked the plaintiff to stake his money in an unregistered security. According to the court filing, the two co-accused company representatives made “numerous misrepresentations and omissions” that led the plaintiff to invest $2 million.

Known as Lijun Sun, the plaintiff is a Chinese citizen who resides in California. His first interaction with the startup was in May last year. According to the filing, he first met Mengxian Zhang in New York and learned of the MCash tokens. Zhang assured him that the tokens would double in value in no time at all. Sun seized the opportunity and decided to invest $2 million.

However, it was after he invested that loopholes started to manifest themselves. The first red flag was that he would only receive one million MCash tokens initially, half the tokens he had bought. Second, the company had locked up the tokens for a period of one year and he would be unable to access them.

The second defendant, Anthony Liu, also became involved later on. Liu is a resident of New York and the CEO of Blue Stone Capital Group, the firm behind the token. Interestingly, he even admitted at one point that he was engaging in criminal activity. The court filing stated:

“In fact, at an in-person meeting with Plaintiff’s representatives in November 2018, Defendant Liu acknowledged that he was aware that the transaction in which he engaged with Plaintiff was not legal in the United States and that he could be exposed to charges of fraud.”

Unregistered Security

The two defendants are thus accused of selling a security which wasn’t registered with the Securities and Exchange Commission (SEC). Further, the two also made several misrepresentations and omissions about the MCash investment opportunity. Therefore, the plaintiff is “entitled to compensatory damages in an amount of $2 million plus interest and punitive damages in an amount of $6 million.”

The two defendants have not provided any materials so far to prove their firm is legitimate. The MCash website is scrappy at best and barely contains any helpful information. The parent company, Blue Stone Capital’s website was down at press time as well. The firm had however released a whitepaper for the project which it shared with the plaintiff via the messaging app, WeChat. It details a project that aims to enable payments faster than all the established systems including VISA, Bitcoin and Ethereum.