Cryptocurrency token exchange, Hyperion Technologies, acquired two blockchain technology products from Vanbex Labs, which is presently being investigated by the Royal Canadian Mounted Police (RCMP) for fraud related to their 2017 initial coin offering (ICO).
The products are called Rocket and CryptoTaxes respectively. Rocket uses smart contracts for the creation, use and issuance of digital assets like security tokens, and CryptoTaxes tracks capital gains and losses for crypto-asset traders. The acquisition lets Hyperion offer an end-to-end solution for companies looking to issue their own digital asset, raise funds and list on a regulated exchange with compliance and support.
“This acquisition allows the value of the products and the business models they represent to continue under Hyperion’s banner and we are thrilled to see Rocket and CryptoTaxes reach their potential this way. It has certainly been a tumultuous year in the blockchain industry and we are excited that Rocket and CryptoTaxes will be represented and valued for the compelling solutions that they are,” said Lisa Cheng, founder of Vanbex.
This deal is either monumentally brave or astronomically stupid, and it’s hard to tell the difference at first glance. If it’s the former, it’s because the good folks at Hyperion have done their due diligence and received independent verification that the products they’re buying from these alleged fraudsters are legitimate. Oh, and all of the cases against them from various government agencies are somehow misguided, and the other companies suing them for not delivering on their promises are all lying. We’ll get to these in a moment.
If it’s the latter, then it’s Cheng and her partner, Kevin Hobbs, successfully pulling off another scam.
In all probability, it’s somewhere in the middle. Vanbex’s product likely performs the desired functions. But one has to wonder at what variety of risk Hyperion is willing to absorb in doing business with a company presently under investigation for stealing from investors.
The digital asset that will connect the Rocket and CryptoTaxes solutions with Hyperion’s systems will be the FUEL token. FUEL was launched by Vanbex in 2017, and the token will continue to operate as a utility-based cryptocurrency to pay for transaction fees, API integrations, and services provided in the digital asset ecosystem between Hyperion and the Vanbex blockchain technology products that it has acquired.
—from the press release
In 2017, Hobbs and Cheng raised between CAD$30-$33 million in both fiat and cryptocurrency through their ICO by promising that FUEL be used in their soon-to-be-released smart-contracts software Etherparty.
Here’s what happened next:
“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,” said the director of civil forfeiture at Canada’s Ministry of the Attorney General.
That’s right. No Etherparty.
Instead, they were accused of pocketing the money. During the ICO and in the months directly following, US$8.9 million mysteriously appeared in Hobbs’ personal bank account, according to a report by the Financial Transactions and Reports Analysis Centre of Canada submitted in an RCMP affidavit. There were 18 transactions averaging US$495,000 each over a period of eight months. The largest transfer was for US$2 million on December 4, 2018.
After which, they decided to litter their social media pages with images of their newfound wealth, including playing in a $100,000-entry high stakes poker tournament in the Bahamas, a few condos in Toronto, and a new blue lambo.
Even if Rocket is a legitimate product, it’s not the smart contract platform the company promised investors. And it’s not like token creators are in any way novel or new. Here’s a medium.com article on how to create your own token, and you don’t have to blow through tens of thousands of dollars in an investment. If you’re not that ambitious, there are lots of other products out there to assist you in creating your own security token. For free.
Here’s another reason to suggest that Hyperion probably didn’t do their due diligence:
Cheng and Hobbs are defendants in a number of civil suits, and the Civil Forfeiture Office isn’t the only organization looking into Vanbex. According to court documents, the RCMP’s Federal Serious and Organized Crime division has since May 2018 been investigating the company and the $33 million dollars raised, and for over a year now, the BC Securities Commission (BCSC) has been investigating the company and its principals.
In addition to the provincial security commissions, the Canada Revenue Agency (CRA) has also been questioning Cheng and Hobbs and has an active investigation into the pair for alleged failure to declare taxable income. Since Vanbex’s founding in 2017, the company or its principals have been investigated by at least six agencies including the BC Lottery Corp., and Fintrac.
Or maybe that the company is being sued by two of their former clients, StoAmigo and Elev3n, for failure to provide the products and services they paid for. Elev3n in particular contracted out to Vanbex to assist with their own ICO for their healthcare platform and to help develop the technology. That never happened so they sued Vanbex in the U.S.
How many red flags are enough?
—Joseph Morton