Blockchain consultant DigitalX says claimants in a $2.5 million lawsuit against it failed to take action to mitigate their own losses in an initial coin offer (ICO).
The company (ASX:DCC) has filed an 11-page defence against a suit bought by a consortium of investors in October.
The investors are alleging that DigitalX engaged in misleading or deceptive conduct during an ICO for an German company, revealed by Stockhead to be healthcare blockchain play Shivom.
The matter was to have an initial hearing on October 18, but was sent to mediation and DigitalX was ordered to file a defence by November 15.
The defence arrived a day late.
In the filing obtained by Stockhead, DigitalX denies the allegations brought against it.
In their Statement of Claim, eight parties say they brought significant amounts of tokens dubbed ‘OMX’ within the Shivom ICO under false pretences.
An ICO is like an IPO, but cryptocurrency instead of stock is issued.
These eight investors were The Gas Super Fund, Carjay Investments, Blue Island Nominees, Bob Alfred Pty Ltd, Kassite Limited, Prosperity Ridge, Technique Capital and Jon Biesse and Esther Joy Biesse.
Collectively they allegedly purchased 11.6 million OMX tokens for 1,610 Ethereum which they allege had a value of $2.5 million when purchased.
On Friday, OMX tokens were worth 0.00002302 Ethereum, meaning the current collective value of the alleged tokens that are the subject of the claim is just $44,409 Australian dollars.
It is alleged that DigitalX acted as corporate advisor to Shivom, providing the company with technical expertise, marketing and promotion services, and introductions to its network.
The court papers allege that in discussions leading up to the ICO, DigitalX made several representations to the applicants including that the OMX tokens they had purchased would be the only OMX tokens available to be traded during a two-month restricted trading period after the initial trading day.
They allege DigitalX CEO Leigh Travers held several telephone conversations with some of the applicants, saying that there would be a high demand for their OMX tokens after the initial trading date.
And finally, the filing claims that from the initial trading day, OMX tokens other than the ones purchased by the applicants were listed for trading, meaning there was a decline in the market price of the applicants’ tokens.
The applicants claim that DigitalX’s representations “were false and misleading” and they want the company to “repurchase the DCC private sale OMX tokens from each applicant at the cost incurred by each applicant in their acquisitions” as well as damages.
DigitalX was “under a duty to provide accurate advice about the terms of the ICO by Shivom, required to act as a competent financial advisor and required to correct any incorrect information of which it was aware or had reason to believe the applicants had received about the ICO,” the claim says.
But DigitalX “denies that the applicants or any of them are entitled to the relief claimed or any relief” and then turned the heat back onto the applicants.
The company says even if they are entitled to relief they “failed to mitigate their loss by failing to sell their OMX tokens including all bonus tokens they received after 4 June 2018 or at all”.
The company also denied any allegations that it had made misrepresentations to the applicants. It also does not admit that “each applicant purchased ETH in the quantities alleged or at all”.
It also claims that in early 2018 “each or some” applicants had made prior subscriptions for OMX tokens “on the basis of representations made by Zhenya Tsvetnenko … without the involvement of the respondent”.
Zhenya Tsvetnenko was a co-founder and chairman of DigitalX until he resigned on July 24, 2016 to “focus on personal interests”. In the same year he was was facing jail time in the US over his involvement in a text messaging scheme.
A new court date will be set if the matter is not resolved in mediation.
The company’s website says it advised more than 10 ICO projects last year which brought in $8.1 million revenue for the group.