Bitwise faces $2 million lawsuit over alleged investor fraud

Key Takeaways

• Bitwise faces $2 million lawsuit from investors over alleged misrepresentation of fund conversion.
• Plaintiffs claim Bitwise engaged in "pump and dump" scheme, leading to significant financial losses.

Asset management firm Bitwise faces a $2 million lawsuit from investors alleging fraud and misrepresentation. The Mukamal family, through their Vandelay Industries entities, claim Bitwise misled them about the nature and management of the Bitwise Hold 10 Private Index Fund (BITW), resulting in damages roughly the value requested in the lawsuit as compensation.

According to a complaint filed with the County of New York, the plaintiffs invested $1.3 million in the fund between February and March 2018, claiming to be attracted by its promise of expert management and diversification in the crypto market. In 2020, Bitwise announced plans to convert the fund to a statutory trust and make shares tradable over the counter (OTC).

Following a profitable liquidation of their 2018 investment in March 2021, the Mukamals reinvested $4.85 million in the fund believing that private redemptions would be available for the fund’s shares. This is the investment that the plaintiffs claim resulted in a nearly $2 million loss, as private redemptions were unavailable and they allegedly sold their shares on the OTC market below the net asset value (NAV) in February 2024.

“Bitwise Asset Management CEO Hunter Horsley and executives Teddy Fusaro and Matt Hougan schemed and deceived the Mukamal family and committed securities fraud for which this newly filed lawsuit seeks over $2 million in damages,” claimed Theodore Mukamal, one of the plaintiffs, in a note sent to Crypto Briefing. He added that Bitwise executed “a reckless and negligent pump and dump scheme for their own personal benefit.”

Additionally, the lawsuit claims Bitwise failed to disclose critical information about the fund’s liquidity and increased management fees.

The case, filed in court, seeks damages for breach of fiduciary duty, negligence, fraud, and violations of securities laws. Bitwise and its executives, including Hunter Horsley and Matt Hougan, are named as defendants.

A spokesperson for Bitwise stated in a note sent to Crypto Briefing:

“Theodore Mukamal, who also refers to himself as Tootsie Warhol, is an experienced accredited investor who has been profitably investing in digital assets with Bitwise since 2018. He has repeatedly signed documents confirming that he understands and accepts the risks and details of the Bitwise digital asset funds he chose to invest in. Earlier this year he reached out to Bitwise threatening to sue and smear Bitwise’s reputation in the press unless he was paid a large sum of money. Theodore has a history of threatening and suing other people, former employers, and companies to pursue personal gain. We believe his claims are utterly without merit and we intend to dispute them vigorously. We expect to refute his false allegations.”