Lavish ‘Lies’ Led to Investors Being Fleeced in Nine-Figure International Crypto Scam

The founders of two cryptocurrency investment firms, one of which was, at one point, reportedly valued at $800 million before it mysteriously shut, are facing a lawsuit in a federal district court in Tennessee over allegations that include fraud and the unregistered sale of securities.

Gary Blackburn of the Blackburn Firm in Nashville, Tennessee, represents two dozen investors in the defendant investment firms, Phoenix Community Capital and its successor, Xeta Capital LLC, which were sued along with their four founders over the “tens of millions of dollars” that they allegedly fleeced from the plaintiffs.

“When you look at this case, you see a pattern,” Blackburn alleged. “That pattern is, you start with things that attract people. That is the ‘get rich quick’ approach, colored with pretentious language to impress people. What we allege in the complaint is a whole series of these lies and tactics, none of which seemed to survive as they kept hiding the pea, like a shell game.”

The case dates back to Phoenix offering investors a cryptocurrency called “$Fire,” in which the sale of the token would be used to create investment positions in startups, following which the investors would earn a return on their investment within 45 days while still accumulating more money, court records show. However, the tokens peaked in early 2022 before becoming worthless.

The defendants allegedly made several false representations to the investors, including that there was an arrangement with Netflix to produce a movie or television series, they were pursuing the creation of a resort and luxury hotel and the investment fund was sponsored by the “All-Party Parliamentary Group” in London and had retained Am Law 100 firm Baker Botts.

However, as Phoenix failed without investors being compensated for their investments, the principals began operating and marketing Xeta Capital with “a new round of pretentious language, misrepresentation and false promises,” according to the complaint. Xeta guaranteed a 265% annual percentage yield from the $Xeta token, with a minimum price of $100 per token.

“This impossible performance was to be made possible by a much-promoted partnership with an alleged Swiss wealth management firm called Gaxsys,” the plaintiffs alleged in the complaint. “Gaxsys was said to have grossed over $100 billion since its inception in 2007 and to have had under management $6 billion in assets. These representations were false.”

Also, Phoenix claimed that PricewaterhouseCoopers and KPMG performed quarterly company audits to entice investors and to allay the concerns of those whose money had already been taken. However, while two additional iterations of Xeta followed in May, the principals allegedly conceded that Xeta was “going out of business” and closed all public channels in the Phoenix Discord group.

Now, the case is pending before U.S. District Judge Waverly D. Crenshaw, Jr of the U.S. District Court for the Middle District of Tennessee in Nashville.

And in the complaint, the plaintiffs sued the defendants for the sale of unregistered securities, violations of the Racketeering Influence and Corrupt Organizations Act, fraud and deceit and conversion, along with a request for punitive damages. The plaintiffs also alleged that the defendants allocated over $7.1 million of customer money to themselves.

“Because crypto is going to continue to grow, and because the nature of it is an invitation to fraud, and that this case will cause some evolution in the law, at least in the Sixth Circuit, lawyers who do commercial litigation could be impacted by it,” Blackburn said.