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StrongBlock Lured, Bilked Crypto Investors Via Reward, Suit Says

Aug. 29, 2022, 6:43 PM

Crypto-asset seller StrongBlock promised “lifetime” rewards with the purchase of certain blockchain products but then capped those rewards in a bait and switch, 15 investors say in a suit in federal court in New York.

The company also violated the law by failing to register as a seller of securities, Erik Crowl and the other investors say in their complaint, filed Aug. 26 in the US District Court for the Southern District of New York. The tokens and nodes qualify as securities, they say.

StrongBlock’s blockchain crypto-assets, unlike decentralized commodities based on blockchain, “are similar to traditional securities in that they represent one’s investment in a project that is to be undertaken with the funds raised,” the investors say.

Their compensation should amount to more than $4 million, they say.

The investors allege StrongBlock sold them nodes in exchange for StrongBlock STRNG and SRINGR tokens that they owned “and promised those nodes would in turn earn Plaintiffs token rewards.” The rewards were allegedly promised to come daily, “in perpetuity with no cap or limitation.”

But the company “pulled the rug out from under every node holder by arbitrarily and unilaterally capping in April 2022 the cumulative rewards that could be generated by an individual node,” the investors say. That action allegedly contradicted company statements “that node rewards would never go to zero.”

The investors also name four individuals in the complaint, including CEO and founder David Moss.

Causes of Action: Unregistered offer and sale of securities; control person liability; breach of contract; conversion; fraudulent and negligent misrepresentation; fraudulent inducement; negligence; and unjust enrichment.

Relief: Compensatory damages of “no less than $4,171,584.36" plus interest; and punitive damages.

Response: StrongBlock didn’t immediately respond to a request for comment sent through a support form on its website.

Attorneys: Zeisler PLLC and Government Law Group PLLC represent the investors.

The case is Crowl v. StrongBlock, S.D.N.Y., No. 1:22-cv-07313, complaint 8/26/22.

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Maya Earls at mearls@bloomberglaw.com