Gala Games CEO sues co-founder alleging $130 million theft, pattern of deception

Two top executives at Web3 gaming startup Gala Games are now in litigation against each other — a turn of events that has dropped the price of its token by 13%.

Web3 gaming startup Gala Games CEO Eric Schiermeyer recently sued the company’s co-founder Wright Thurston, alleging that Thurston stole 8.6 billion GALA -2.96% tokens in early 2021 and managed to sell them for $130 million before the company could stop him. Schiermeyer’s suit, filed August 31, also accuses Thurston of a pattern of founding companies that end up insolvent, bankrupt, or tied up in litigation. 

Thurston, in his own lawsuit filed on the same day, alleges that Schiermeyer took control of Gala Games for himself in order to use company funds for personal purchases, including the financing of a private jet. 

Gala Games, a Web3 GameFi startup, was co-founded by Thurston and Schiermeyer in early 2019, with each receiving 50% ownership. Michael McCarthy, who is listed by some publications as Gala’s third co-founder, is not mentioned in either lawsuit. The company recently launched Champions Arena, a turn-based RPG game for mobile devices, and also has ventures in blockchain-based music, film, and digital collectibles.

Allegations of a history of deceptive behavior

In his lawsuit, Schiermeyer alleges that Thurston “​​has founded numerous companies, most of which have ended up in litigation, insolvent, bankrupt, and/or sued by the SEC,” and claims Gala Games is the only legitimate enterprise in which Thurston has an interest. 

Schiermeyer’s main allegation is that Thurston stole 8.6 billion GALA tokens in February 2021, more than 100% of the total amount of GALA in circulation at the time as reported by market aggregators. Schiermeyer claims Thurston effectively held the company hostage, as exposing the token theft would cause him to liquidate his holdings, collapsing the GALA ecosystem as a result. 

As a partial solution, in May 2023, the company issued Gala v2 tokens that were advertised as bringing “a host of improvements to the table, including enhanced burn mechanisms, security enhancements, and future upgradeability.” Only Schiermeyer claims the real purpose of the tokens was to make the GALA tokens in Thurston-controlled wallets obsolete while leaving the rest of the ecosystem unaffected. 

By the time of the upgrade, the lawsuit claims approximately half of Thurston’s GALA tokens ended up at centralized exchanges, where Thurston sold them for over $130 million in profit. When Schiermeyer demanded that Thurston stop selling the stolen GALA, the lawsuit claims, “Thurston first responded that he was selling some of the GALA tokens in order to purchase ammunition for firearms. Then he stopped responding.”

The lawsuit names several companies that Schiermeyer alleges were multi-level marketing schemes and quotes a former associate of Thurston who claims his actions “ruined the lives of thousand[s] of young people as well as seasoned investors.” The filing also includes a separate lawsuit filed by the crypto company Blox against Thurston for alleged damages of $200 million related to equipment Thurston promised to provide the company and never delivered. That lawsuit also alleges Thurston engaged in Paycheck Protection Program fraud through his entity Block Brothers. 

Schiermeyer also alleges that Thurston has been largely absent from the operations of Gala, even being “virtually unreachable for many months at a time,” according to his complaint. 

Thurston files back

Thurston, in his lawsuit, agrees that he hasn’t been running the company, but complains that Schiermeyer “caused [Gala] to operate without notice to or input from [Thurston], thus eliminating Thurston’s ability to help guide [Gala] to the benefit of the company and its shareholders.” 

Thurston’s lawsuit claims “Schiermeyer’s malfeasance, mismanagement, and self-dealing have resulted in hundreds of millions of dollars in damage to [Gala]’s reputation and company and shareholder assets.”

Gala Games did not immediately reply to The Block’s request for comment . 

Thurston has faced other allegations of fraud

Thurston was also sued by the SEC earlier this year in relation to a different company he founded, Green United LLC, which the SEC alleges misled investors into putting $18 million into a fraudulent green crypto enterprise.  

According to the SEC, investors in Green United were told by the company and by a promoter also named in the suit, Kristoffer A. Krohn, that they were purchasing miners and nodes associated with a “public global decentralized power grid” powered by the ERC-20 GREEN token. 

In reality, the SEC alleges, the GREEN token did not exist and the software sold by Thurston either mined bitcoin, which the users did not receive, or seemingly did nothing at all. GREEN tokens were distributed to users not as the result of mining but rather at the discretion of Thurston, according to the agency. 

Both defendants filed motions to dismiss the SEC’s lawsuit in May on jurisdictional grounds, alleging that the agency doesn’t have the jurisdiction to oversee cases involving digital assets.