Bitwise Accused of Fraud in $2 Million Lawsuit by Early Investors

Cryptocurrency investment firm Bitwise Asset Management is facing a heated legal battle. The Mukamal family, represented by Vandelay Industries, is suing Bitwise for a staggering $2 million. Their explosive accusations? Fraud, negligence, and a manipulative “pump and dump” scheme that allegedly left investors in the red.

But what exactly went wrong? Dive deeper to find out how this lawsuit is shaking the foundations of Bitwise’s reputation.

A Promising Start Turns Sour

In early 2018, the Mukamal family invested about $1.3 million in the Bitwise HOLD 10 Private Index Fund. By 2020, tensions escalated as Bitwise proposed shifting the fund from private placement to a publicly traded entity on OTC markets, accompanied by a 25% increase in management fees.

According to the plaintiffs, these changes were forced upon them during the COVID-19 market downturn, significantly restricting their options. The lawsuit also highlights investments totaling $4.85 million in 2021 under new terms that Bitwise executives allegedly misrepresented.

Understanding the Allegations

The Mukamal family claims that Bitwise’s top executives, CEO Hunter Horsley, President Teddy Fusaro, and CIO Matt Hougan, engaged in a ‘pump and dump’ scheme that misled investors, resulting in over $2 million in damages.

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

Liquidation Controversy

By November 2020, Bitwise initiated a campaign to liquidate shares, encouraging investors to sell at a premium to NAV, which led to losses. The lawsuit accuses Bitwise of reckless and self-serving management practices, including breaking signed agreements and altering the structure of investments without investor consent. Multiple violations of the SEC Act of 1934 and other regulatory breaches were cited.

The lawsuit brings serious accusations against Bitwise on multiple grounds, including Breach of Fiduciary Duty, Negligence, Negligent Misrepresentation, Fraud, Conspiracy to Commit Fraud, and Violation of Section 10(b) of the Securities Exchange Act of 1934. These allegations question Bitwise’s integrity and damage the company’s reputation.

Notably, Bitwise draws support from influential investors such as Daniel Loeb and Stanley Druckenmiller.

Bitwise’s Defense

A Bitwise spokesperson claimed that Theodore Mukamal has a history of threatening and suing other people, former employers, and companies to pursue personal gain. The spokesperson added that his claims are utterly without merit and that Bitwise intends to dispute them vigorously.

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Will this lawsuit impact Bitwise’s future? Stay tuned for updates.