Litigation Finance on Blockchain or How to Fight Off a Hostile Investor
Intro: Litigation Finance in a Nutshell
Litigation finance is not only a huge industry but also an attractive asset class that delivered great returns to its investors over the last couple of years. Third Party Litigation Funding (TPLF) is an approach where a third party unrelated to the subject matter of a litigation provides money to a party involved in litigation to help that party´s objectives in the legal claim in return for a financial reward. The growing number of litigations feeds the growth of litigation finance and there are no signs that this will stop anytime soon. In particular, the tech industry with its IP litigations (patent infringements, copyright and license disputes, regulatory issues etc.) is one of the driving forces of the legal industry.
If you are interested to learn more about the litigation finance market we suggest taking a look into the Litigation Finance Journal. It’s a great source of information on the global litigation finance market, its players and transactions.
Litigation finance is growing rapidly and shows no sign of stopping anytime soon (Michael McDonalds, University of Fairfield)
Litigation Finance, Startup Protection, and Knowledge Base
The basic idea of our LitigationToken project is to evolve the successful litigation finance model on to the blockchains, enhance it here and there and use the peer-to-peer power to unlock the potential of a decentralized community.
Hence, we will not only provide the funds for litigations but also develop a global and multi-jurisdictional litigation knowledge base. To achieve this goal we will issue our own litigation token (LIT) as a community currency and a means to pay for user-generated content (knowledge). Our LIT will be governed by an Ethereum Smart Contract in two mutations — one for the WordPress ecosystem to pay for content and one for the Ethereum blockchain as a means of exchange.
The 3 pillars of our LitigationToken model are:
- litigation funding for founders and startups,
- a multi-jurisdictional knowledge base
- litigation PR.
We had some great discussions with legal experts and legal-tech guys and thus understand that a multi-jurisdictional knowledge base not only needs the appropriate technology (database) but also a community stretching over the different jurisdictional regimes providing the necessary knowledge and information.
BitRush Corp — the Subject Matter
As it is the case with many great projects it all started with a problem. In our case, it was a huge problem and an almost lethal threat to our project. We have been confronted with a group of hostile investors that wanted to have the founders (us) out at any expense. They have plenty of money, they are hidding in *far-away* jurisdictions and started to literally buy people in our personal environment. In parallel, they systematically deleted their digital presences — their corporate website suddenly vanished into thin air, they started to delete their LinkedIn accounts and were simply not available for courts. Kind of *invisible* enemies!
We, on the contrary, had hardly any money compared to their deep pockets and just lost control of our startup and our resources. Moreover, we didn’t hide away but showed ourselves to the public and the shareholders. Our opponents acted like snipers via their lawyers and henchmen. Sounds like a kind of cheap novelette, right? Though, it was a tough challenge to us and we had to find a way to deal with this.
We, the team behind LitigationToken, are experienced entrepreneurs and professionals, including lawyers, auditors, and tax people. Some of our team have been the co-founders of the public-listed Canadian BitRush Corp, one of the first public listed blockchain companies back in 2015. To be more specific it has to be mentioned that BitRush Corp was the result of a reverse takeover (RTO) we did with a London-based company.
It was a great project and a great startup — and we learned a lot when it comes to regulatory issues and dealing with regulatory authorities, lawyers and different jurisdictional regimes. Can you imagine how suspicious the Canadian Securities Exchange (CSE) or the Ontario Securities Commission (OSC) have been back then when you spoke about Bitcoin? Let alone the auditors. I think you can, right? It was kind of jurisdictional & financial pioneering, we had to educate and guide them and it took us many personal and financial resources.
But we were enthusiastic, passionate, had a great network and lots of fun. Just for fun, we set up the Bitcoin faucet & quiz site PinkTussy and soon received more than 800,000 Unique Users per months with nice Google AdSense revenues in those early days (until Google banned Bitcoins but that’s a different story). We have been connected with the early Bitcoin people from all over the world and worked on some cool blockchain projects. But then things changed in 2016 when some people realized that Bitcoins and other cryptocurrencies may be a great investment opportunity and an even greater way for gray money transactions.
In February 2016 we signed a partnership and shareholder agreement with a Slovakian family office and its Singapore-based partner. They claimed to have an excellent network in Asia that could contribute a lot to the successful BitRush development. They set up the Singapore-based HSRC Investment Ltd. (“HSRC”) and invested some 650,000 US$ into BitRush in a private placement. Additionally, we, the founders, agreed to give HSRC additional 18M BitRush shares for the symbolic price of one dollar in exchange for their ongoing business development support and access to their Asian network. And we granted them a BitRush board seat and two officers seats. Back then those 18M shares have been worth some USD 1.5M.
Sounds naive? I know and you are right! To make a long story short — it quickly turned out that they had no network at all and they contributed next to nothing in terms of business development. We, on the contrary, delivered 12M shares (all we had, the remaining shares have been locked in an escrow account with the Toronto transfer agent).
The Hostile Attack and AML Issues
Besides other points, it was agreed that the 2 sons of Igor WOLLNER, the Slovakian investor behind HSRC, should have devoted 100% of their personal resources and know-how into our cryptographic gaming project WaggaWagga. They became BitRush officers and team leaders and started their job in March 2016.
Unfortunately, they have been on holiday most of the time when we set up and developed the project. From March to September 2016 they were several weeks on a road trip in U.S. or did some climbing in Scotland while we other guys worked around the clock. No network access, no business oportunities and no operative performance were a bit too far away from our expectations and from the USD 1.8M worth of shares we agreed for that as compensation.
When we officially complained about this obvious non-performance in September 2016 those guys started to act aggressively and hostile, formed alliances with people against us, hired the best available Securities Litigation Lawyers in Toronto, terminated the CEO in December 2016 and asked the Toronto court to expropriate the founders, i.e. to delete their shares etc. Furthermore, even worse for shareholders, they stopped doing business, they switched BitRush into an operative “RIP Mode” and focused on a *legal strategy* to gain control over BitRush.
When the CEO left BitRush in December 2016 all projects came to a sudden end (see Alexa Ranking of the WaggaWagga project above as just one evidence for that).
Another example of how those HSRC people failed to deliver what was agreed: the HSRC guy who should have taken the BRH board seat and become an active business developer in this position, Hans-Joerg WAGNER, was appointed in Jun 2016 but missed all management events and board meetings. He only joined the board late October 2016 to start hostile actions against us — the founders. He started to blackmail the co-founder and CEO and threatened the people around him via WhatsApp, Emails, and calls.
Let me spare you further disgusting details around money laundering, threatening people and blackmailing actions. The HSRC people used their money to start a war and they have plenty of money. Besides other actions, they tried to convince a Canadian VC, a former Deloitte Touche partner, to join them but, fortunately, this VC joined and supported us instead when he learned how those people acted. It took us some time to deal with that war and the emotions and to look at it from a less personal but more professional angle. Business is war some people say, right? So dealing with war is a kind of business then.
The Rise of LitigationToken Idea or How the Problem became a Project
We don’t want to complain too much as we are very well aware that we have been a bit naive. But we learned our lesson and started our LitigationToken project. To be honest, we have been very lucky to have a great lawyer aboard who is not only experienced in multi-jurisdictional cases but also a good friend and even greater thinker. Without our lawyer Peter HSRC would probably have won this *blitzkrieg* in a couple of days which they obviously thought they will.
In the first place we saw it just as a means to finance our litigations and damage claims but after the first couple of discussions with other shareholders, lawyers, startups, and investors it turned out that LitigationToken could have a greater vision. It could become a role model for the litigation finance industry and, even better, a partner for founders and startups. We learned that many other startups and founders have experienced that kind of troubles with hostile or aggressive investors (read Micha Benoliel’s article “How to keep control of your company against all odds”).
We repositioned our BitRush Corp Case (the “BitRush Case”) into “just the initial case” meant to ignite our LitigationToken project. We, the founders and major BitRush shareholders teamed up with other shareholders, lawyers and legal experts to request damage claims from these people.
The initial goal of LitigationToken is to finance this damage claims in exchange for 50% of the proceeds in case of win. We go for US$ 30M damage payments because of the actions HSRC and their associated people set and the things HSRC and its people didn’t make. Furthermore, the founders signed an agreement with the Litigation Coin Ltd (the legal entity that leads the LitigationToken Consortium) to pledge 30% of their BitRush shares (appr. 20M shares) into an asset pool to further finance its development. Finally, BitRush shareholders will be offered a special program within the Initial Token Offering (ITO) in case the join a class action campaign.
We haven’t won the case yet and neither have we fought off these invisible hostile investors but at least we are able to address this challenge as an opportunity with a vision for us and other startups. Psychologically, this way to see it is definitely the first step to win it, we guess!
to be continued, stay tuned, watch the scene …
If you are interested to receive more information and/or participate in the project feel free to contact us. We are looking forward to get in touch with you.