Early BitMEX investor sues the crypto exchange for allegedly denying him $50M worth of equity

BitMEX, the Seychelles-registered bitcoin perpetual swap giant, was named in a new lawsuit for allegedly defrauding an early investor of nearly $50 million worth in equity.  

In a Complaint filed last week in the San Francisco County Superior Court, Grasshopper Capital partner Frank Amato alleges BitMEX and its CEO Arthur Hayes denied him of 0.5% of the company's equity. Amato says he is entitled to due to pursuant to a so called Simple Agreement for Future Equity("SAFE") contract provided in exchange for his 2015 investment. Estimating the exchange’s valuation to be around $10 billion, Amato seeks damages actual and punitive damages of $300 million.

Early investment 

In June 2015, Amato alleges he paid $30,000 to BitMEX as the “first outside investor when no one else understood its potential.”  According to the lawsuit, in order to solicit investment, Hayes repeatedly assured Amato that his investment was an “equity investment” and would later be converted into ownership stake of BitMEX, capped at 0.5%, once the next equity financing round was closed. At the time, the two parties also signed a SAFE to document this agreement, stated the complaint. 

"Without the infusion of cash, Defendants would not have been able to pay their bills or continue to grow the platform," the Complaint alleges.  "As a result, BitMEX likely would not have been the platform it is today without the Plaintiff’s generous and business-saving investment."

False promise? 

According to the complaint, from 2015 to 2018, Amato believed that he was already on BitMEX’s capitalization table, and continued to receive monthly reports on BitMEX’s performance from Hayes. It was not until the 2018 Consensus conference that Amato began to realize something was amiss, the lawsuit says. 

At the cryptocurrency conference, where Hayes made a grand entrance in a bright orange Lambo, the investor says he learned from the exchange CEO that his shares would convert "shortly." According to the lawsuit, when Amato subsequently followed up with Hayes to ask about the exact amount of his BitMEX ownership, Hayes told him that his investment had not been converted into stock since  “no equity financing ha[d] occurred."

Contrary to Hayes' claim, Amato alleges that BitMEX in fact raised cash in exchange for equity soon after receiving money from Amato. According to the complaint, in late 2015, San Francisco-based venture firm SOSV invested $30,000 in BitMEX in exchange for 5% of the company’s ownership.  Amato claims that BitMEX has been concealing this information from him in order to not convert his shares: "Defendants failed to disclose these Equity Financings to Plaintiff and have falsely denied to this day that SOSV’s investment in BitMEX triggered Plaintiff’s conversion right under the SAFE, depriving Plaintiff of his rights as a shareholder of the Company,” the lawsuit states.

On SOSV’s official website, BitMEX is listed as its portfolio company. A Medium post by the venture capital firm also states that it is the exchange’s only institutional investor. 

When contacted for comment, a BitMEX spokesperson declined to discuss the specifics of the lawsuit, stating, "we will address Mr. Amato’s claims through the proper legal channels and will not comment beyond that." 

"By this action, Mr. Amato seeks to realize the benefit of this investment in BitMex as represented by the company and memorialized as in their agreement," a representative of Amato told The Block. 

BitMEX vs. Amato Suit by Celiawan on Scribd