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A Carmel-based cryptocurrency hedge fund is suing an international crypto venture company for fraud, claiming the company lied about how much money it had raised in order to persuade the fund to also invest.
The lawsuit, filed June 19 in Hamilton Superior Court’s Commercial Court, claims defendants Josef Holm and Alejandro Garcia convinced plaintiff Fifth Khagan LP to invest in a crypto token called $REWARD Token, which was created under the international business company E-Magine Worldwide (also known as E-Magine Ventures).
Fifth Khagan says its investment came with a promise that it would receive millions of crypto tokens over six months that it could in turn sell.
Fifth Khagan LP is a Delaware limited partnership with its principal office in Carmel.
Defendants Holm and Garcia are based in Dubai. The Lawyer made several attempts to reach defendants for comment, including through social media, but did not hear back by Monday’s deadline.
According to the lawsuit, the premise behind the $REWARD Token was that it could be used to pay individuals to do tasks through an online platform.
To launch the $REWARD Tokens, Holm and Garcia needed a sufficient amount of capital to create a liquid market for the token.
Defendants said they were raising a $2 million round of investment and had raised $1.3 million so far, the lawsuit states.
In the fall of 2024, Holm emailed John Sarson, a principal at Fifth Khagan, to invest in the $REWARD Token, saying that the hedge fund would receive all of its tokens over six months, according to the lawsuit. Defendants also told the plaintiff that 10% of their tokens would be available for sale upon the creation of the tokens themselves.
As a result of the discussion, Fifth Khagan and E-Magine entered into a SAFT, a Simple Agreement For Future $REWARD Tokens, dated Nov. 13, 2024. Pursuant to the agreement, Fifth Khagan paid $100,000 in exchange for the right to more than 8.3 million $REWARD Tokens. The SAFT stated that Fifth Khagan would receive its tokens over a six-month period and that 10% of its total tokens would be available to sell as soon as they were created.
The tokens were created on Nov. 29, 2024. However, the lawsuit alleges that the defendants did not unlock the plaintiffs’ $REWARD Tokens on that day.
During a Zoom meeting on Dec. 3, Holm and Garcia told Fifth Khagan that they did not unlock the tokens because of insufficient liquidity, according to the lawsuit. They allegedly admitted to having raised just $300,000 for E-Magine, despite originally stating they had raised $1.3 million, according to the complaint.
Later that month, Garcia emailed Fifth Khagan saying its $REWARD Tokens would remain locked until March 31, 2025, and that the hedge fund would receive its tokens over a period of 12 months instead of the original six, the lawsuit states.
When Fifth Khagan said that Holm was personally responsible for the misrepresentations, Holm allegedly said E-Magine was the only liable entity. However, records indicate that while there was an entity called E-Magine registered in the Seychelles, the entity is not in good standing.
When attempting to reach the defendants, The Lawyer discovered that E-Magine’s website has been suspended.
In February, Holm sent an email to Fifth Khagan stating the $REWARD Tokens’ online application was insolvent, and they were laying off all staff.
Now, Fifth Khagan is alleging fraud and breach of contract on the part of the defendants, arguing that the defendants initiated contact with the plaintiff in order to induce the plaintiff into entering a contract with an undercapitalized foreign entity “for the purpose of evading personal liability when the contract was inevitably breached.”
The case is Fifth Khagan, LP v. Alejandro Garcia, Josef Holm, E-Magine Worldwide, Inc., 29D02-2506-CE-006813.
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