Assets owned by the founders of blockchain services firm Vanbex have been frozen by the Canadian police, in probe of a 2017 ICO that raised $22 million.
Court documents indicate that the firm, headed by Lisa Cheng and Kevin Hobbs, secured 30 million CAD or approximately $22 million in fiat and digital currency through the sale of FUEL tokens.
Per the civil forfeiture action filed in the Supreme Court of British Columbia, Vanbex claimed “the value of the FUEL token would increase dramatically,” and it would be usable in the Etherparty smart contract system.
However, the company “developed no usable products” and its leaders “did not intend to develop the products they were marketing but rather [acted] with [the] intention to misappropriate the corporately invested funds raised for their own personal benefit,” a filing by the director of civil forfeiture at Canadian Ministry of Attorney General reads.
“FUEL tokens became virtually worthless in dollar value while not being capable of use in the non-existent smart contracts system or for any product or service other than a cryptocurrency coin creating service called Rocket,” the director said.
So far, no criminal charges were filed, and Hobbs and Cheng denied the fraud charges, saying the firm is cooperating with the investigation.
On March 14, however, Justice J.A. Power ordered the Bank of Montreal to freeze Hobbs’ two accounts holding roughly $1 million, authorized the government to seize two Land Rovers, and ordered the founders not to borrow against, sell, or damage their condominium in Vancouver for at least 30 days.
In a statement, Cheng and Hobbs said the investigations stem from “false claims by a former contractor.” The Royal Canadian Mounted Police (RCMP) started investigating Vanbex and its leaders for fraud last May, and the Canadian Revenue Agency subsequently started a tax probe, based on the filing.
The founders denied making any promises regarding the FUEL token’s value, noting “the tokens integrate bitcoin and Ethereum and the value of any currency is beyond any company or individual’s control, obviously. … Fuel tokens pay for transaction fees on the network for Smart Contracts deployed through our architecture.”
“Vanbex is an operating company, which is easy to establish,” they stated, claiming they have been in the cryptocurrency space since 2013. The two also took issue with the authorities’ claim that their company created no usable products. “We have had more than 50 clients and we have two excellent products.”
Court documents allege that Cheng and Hobbs “acquired sudden and substantial personal wealth” during the ICO, buying two condominiums—one in Toronto, another in Vancouver—for around $3 million each and two Land Rovers as well as leasing a Lamborghini costing $375,000 for a three-year term.
One of the fillings states that Hobbs used a portion of the misappropriated funds on gambling “domestically and internationally at the high roller level.”
Between September 2016 and March 2018, he withdrew $1.3 million from British Columbia casinos, according to a document. State-owned British Columbia Lottery Corporation included Hobbs in a “watch list” in November 2017, barring him from buying in without proof of the source of his money.
According to the document, when Cheng and Hobbs learned about the investigation, they began liquidating their assets, taking out mortgages against the condominiums and selling one of them.
Hobbs and Cheng said they borrowed the funds to inject into the business. They also claimed that Hobbs “has been a professional poker player in the past and has participated in poker tournaments around the world,” and “has never been prevented from [playing at] any casino.”
“We remain confident that the truth will prevail, and this will be behind us soon,” Hobbs and Cheng stated. “Unfortunately, these things move at a pace beyond our control. In the meantime, we will continue to innovate and deliver quality products. Our counsel are working to put this astern in a fashion that decisively confirms our leading role in this industry, which we intend to maintain.”
They ended by telling stakeholders: “Thank you for your loyalty and trust. It is not misplaced.”