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Family Sues Bitwise for Pump and Dump Scheme

The lawsuit was filed in the New York Supreme Court

July 10, 2024 07:12 AM

Reading time: 3 minutes, 48 seconds

TL;DR Bitwise Asset Management is accused of securities fraud, negligence, and executing a 'pump and dump' scheme. The Mukamal family alleges these actions resulted in significant financial losses for investors.

Bitwise Accused of Securities Fraud and Mismanagement in $2 Million Lawsuit

Bitwise Asset Management, a leading name in the cryptocurrency index fund sector, is being sued in the New York Supreme Court.

The Mukamal family, significant early investors in Bitwise, allege that the company's top executives -- CEO Hunter Horsley, President Teddy Fusaro, and CIO Matt Hougan -- engaged in a 'pump and dump' scheme and misled investors, resulting in over $2 million in damages.

'Bitwise CEO Hunter Horsley and executives Teddy Fusaro and Matt Hougan lied to the Mukamal family and committed securities fraud for which we are seeking over $2 million in damages,' stated Theodore Mukamal, a son of the Mukamal family during his conversation with Crypto news.

Timeline of Alleged Fraud

According to the Lawsuit, the timeline of events begins in March 2018, when the Mukamal family invested $1.3 million in the Bitwise HOLD 10 Private Index Fund.

In April 2020, Bitwise altered the investment terms, breaking agreements and converting the Fund to an OTC product against investor wishes.

'They executed a reckless and negligent pump and dump scheme for their benefit, leaving their flagship product, the Bitwise 10 Crypto Index Fund (BITW), trading 35-65% below NAV for the past three years, which is devastating to thousands of investors,' Theodore Mukamal stated.

Misleading Assurances and Financial Losses

By November 2020, Bitwise initiated a campaign to liquidate shares, encouraging investors to sell at a premium to NAV, which led to losses.

The complaint accuses Bitwise executives of securities fraud and negligent mismanagement, citing fraudulent actions that have significantly devalued the family's investment, now trading at a 35-65% discount below the Net Asset Value (NAV).

The Mukamal family liquidated their initial 2018 investment in March 2021, turning a net profit, but reinvested $4.85 million based on what they describe as misleading assurances from Bitwise executives.

An article criticized the Fund's management fees and performance in February 2024, highlighting its significant trading discount to NAV.

Subsequently, the Mukamal family sold their shares at a substantial loss in March and April 2024, realizing $1.9 million in damages due to Bitwise's actions.

The Mukamal family claims they were deceived into reinvesting $4.85 million into the Bitwise 10 Crypto Index Fund based on false assurances and misleading subscription documents.

Breach of Fiduciary Duty, Negligence & Fraud

The Mukamal Lawsuit brings serious accusations against Bitwise on multiple grounds, including breach of fiduciary duty, negligence, negligent misrepresentation, fraud, conspiracy to commit fraud, and violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

The Mukamal family demands that Bitwise pay damages, legal fees, and other related expenses. The final amounts will be determined at trial.

'Bitwise made false and misleading statements about the nature and liquidity of the Fund and BITW's investments, aiming to retain the Mukamal family's investments.'

Furthermore, Bitwise is accused of managing the Fund and BITW in ways that violated their fiduciary responsibilities, including increasing their fees and changing the Fund's structure from a private placement to an OTC-traded vehicle for their benefit.

Additionally, the Lawsuit charges Bitwise with negligence, stating that the company failed to exercise reasonable care, competence, and diligence in managing the Fund and BITW.

The Lawsuit also includes: Claims of negligent misrepresentation and fraud. They alleged that Bitwise made false statements and omissions to induce the Mukamal family to invest and stay invested in BITW. This has resulted in substantial financial losses for the Mukamal family.

These allegations question Bitwise's integrity and could affect thousands of investors, potentially damaging the company's reputation and future operations.

Broader Implications for the Crypto Space

Theodore Mukamal added that while Bitwise claims to be trustworthy and offers low fees to attract investors to its new ETF products, the Mukamal family's experience reveals that Hunter Horsley, Teddy Fusaro, and Matt Hougan have breached agreements, increased fees, and defrauded many investors, causing millions of dollars in damages.

Fraud allegations and lawsuits in the crypto space have been endless. Among the newest similar lawsuits is Keith Gill, known as Roaring Kitty, who has been accused of securities fraud in a class-action lawsuit concerning GameStop. The Lawsuit alleges that his social media posts caused volatility in GameStop stock prices between May and June, which was called a pump-and-dump step.

On the other hand, Australian mining billionaire Andrew Forrest's Lawsuit against Meta for hosting several crypto ad scams bearing his likeness has been given the green light after Meta failed to have it dismissed, U.S. District Court Judge Casey Pitts ruled on Monday.

Crypto News has contacted Bitwise, but I am still awaiting a response. This story is developing, and further updates will be provided as more information becomes available.

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