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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 1 of 42
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`
`
`Case No. 1:22-cv-7313
`
`
`JURY TRIAL DEMANDED
`
`ERIK CROWL, KEITH WADE, ERIC
`O’REILLY, ALTON PARKER, STEVEN
`HEY, NATHAN COHEN, SAMUEL
`GLICK, FARSHID SEPASSI, ROBERT
`NEELY, ANTHONY WATSON, TYLER
`HANDLEY,
`QWNTM
`CAPITAL
`LIMITED
`LIABILITY
`LIMITED
`PARTNERSHIP, DAVID WARD, ANDRE
`PAEZ, and SALEM ALOBAID
`
`Plaintiffs,
`
`vs.
`
`STRONGBLOCK, DAVID MOSS, BRIAN
`ABRAMSON,
`COREY
`LEDERER,
`KONSTANTIN SHKUT, AND JOHN DOE
`DEFENDANTS 1-5,
`
`Defendants.
`_______________________________________/
`
`COMPLAINT
`
`Plaintiffs, ERIK CROWL (“Crowl”), KEITH WADE (“Wade”), ERIC O’REILLY
`
`(“O’Reilly”), ALTON PARKER (“Parker”), STEVEN HEY (“Hey”), NATHAN COHEN
`
`(“Cohen”), SAMUEL GLICK (“Glick”), FARSHID SEPASSI (“Sepassi”), ROBERT
`
`NEEELY
`
`(“Neely”), ANTHONY WATSON
`
`(“Watson”), TYLER HANDLEY
`
`(“Handley”), QWNTM CAPITAL LIMITED LIABILITY LIMITED PARTNERSHIP
`
`(“QWNTM”), DAVID WARD (“Ward”), ANDRE PAEZ (“Paez”), and SALEM
`
`ALOBAID (“Alobaid”) (collectively referred to as “Plaintiffs”) bring this Complaint against
`
`Defendants, STRONGBLOCK (“Strongblock”), DAVID MOSS (“Moss”), BRIAN
`
`ABRAMSON (“Abramson”), COREY LEDERER (“Lederer”), KOSTANTIN SHKUT
`
`1
`
`

`

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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 2 of 42
`
`(“Shkut”), and potential John Doe entities and individuals (collectively referred to as
`
`“Defendants”), and allege as follows, upon personal knowledge as to Plaintiffs’ own acts
`
`and experiences, and, as to all other matters, upon information and belief, including an
`
`investigation conducted by Plaintiffs’ attorneys.
`
`INTRODUCTION
`
`1. Strongblock is an unincorporated general partnership operating within the United
`
`States of which the individual Defendants are partners. From at least September 29, 2020, to the
`
`present (the “Relevant Period”), Defendants sold various Strongblock securities to Plaintiffs
`
`without registering those securities or complying with any exemption from registration.
`
`2. The securities sold by Defendants included Strongblock digital or crypto assets
`
`known as tokens and nodes. Defendants named the Strongblock tokens they sold STRNG and
`
`STRNGR. Defendants sold Strongblock nodes to Plaintiffs with the promise those nodes would
`
`provide daily token rewards in perpetuity. As an example, Strongblock sold “S1 nodes” to
`
`Plaintiffs for ten Strongblock tokens and promised those nodes would in turn earn Plaintiffs token
`
`rewards on a per diem basis in perpetuity with no cap or limitation, something Defendants
`
`marketed as Node Universal Basic Income (“NUBI”).
`
`3. Based on the facts and circumstances set forth below, the Strongblock tokens and
`
`nodes were securities under the federal securities laws. Purchasers of STRNG and STRNGR
`
`tokens and Strongblock nodes, including Plaintiffs, had a reasonable expectation of future profit
`
`based upon Defendant’s efforts, including the development of the Strongblock network, its nodes,
`
`and its NUBI reward system, and the launch of a Strongchain blockchain Defendants are
`
`developing. Defendants violated at least Sections 5(a) and 5(c) of the Securities Act by offering
`
`and selling these securities without a registration statement or exemption from registration.
`
`
`
`2
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`

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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 3 of 42
`
`4. Crypto-assets exist on a blockchain, which is a decentralized digital ledger that
`
`records all transactions. Following the creation of Bitcoin, which was the first prominent digital
`
`asset, the number of digital assets in general circulation has increased dramatically. There are
`
`many different kinds of crypto-assets; some closely resemble Bitcoin or other commodities, in
`
`that they are decentralized. For decentralized commodities, prices may rise or fall based upon
`
`supply and demand, but there is no centralized mechanism for creating more such commodities.
`
`5.
`
`In contrast, other digital assets are similar to traditional securities in that they
`
`represent one’s investment in a project that is to be undertaken with the funds raised through the
`
`sale of the tokens and more specifically here, Nodes. Like traditional securities, investors purchase
`
`these tokens with the hope that their value will increase as the issuer that created the token uses
`
`its managerial efforts to create some use—typically described to investors in a “whitepaper”—
`
`that will give the token value.
`
`6. But despite the fact that the Strongblock tokens and nodes are securities, none of
`
`them are registered with the U.S. Securities and Exchange Commission (“SEC”) or with state
`
`regulators. This means that purchasers including Plaintiffs did not have access to disclosures that
`
`accompany the issuances of traditional securities. Rather, investors including Plaintiffs
`
`received—at most—only whitepapers, flash papers, blogs, and other articles (“Promotional
`
`Materials”), which described the tokens and nodes, but which did not satisfy the requirements for
`
`a prospectus under the securities laws. These Promotional Materials were often supplemented by
`
`Defendants with advertisements, social media postings, and Ask me Anything or “AMA” sessions
`
`hosted by Moss himself, that further promoted the Strongblock tokens and nodes for sale.
`
`7. Defendants promoted Strongblock as a “Blockchain Revolution” that provided
`
`consumers the ability to participate in, and profit from, the growth of blockchain infrastructure.
`
`
`
`3
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 4 of 42
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`To participate, Defendants required Plaintiffs first purchase Strongblock tokens that they could
`
`then use to purchase Strongblock nodes. Once a Strongblock node was purchased, Plaintiffs were
`
`guaranteed lifetime uncapped rewards to be paid to Plaintiffs in Strongblock tokens.
`
`8. Virtual networks like blockchains consist of groupings of data blocks stored on
`
`nodes that are linked together and exchange information between each other to ensure their
`
`information is contemporaneously maintained. As nodes store, distribute, and maintain
`
`blockchain data they are both common and vital to a blockchain’s infrastructure. The more nodes
`
`a blockchain has, the more reliable, and thus valuable, that blockchain is to users and, in turn,
`
`owners of the nodes.
`
`9. Generally, nodes are classified as either “Full” or “Lightweight” nodes. “Full
`
`Nodes” act analogously to servers for a decentralized network by: (1) establishing consensuses
`
`between other nodes; (2) confirming transactions on a blockchain; and, (3) maintaining copies of
`
`a blockchain’s data. “Full Nodes” are also often the only nodes that may vote on matters affecting
`
`the future of the blockchain and therefore play an integral role in the network’s governance.
`
`Strongblock marketed and advertised the nodes purchased by Plaintiffs as Full Nodes.
`
`10. The Strongblock nodes purchased by Plaintiffs were seen as a traditional securities
`
`investment in that Plaintiffs directly purchased nodes from Defendants for ten (10) Strongblock
`
`tokens1 and were promised each node would then earn Plaintiffs a fractional amount of
`
`Strongblock token back on a per-diem basis in perpetuity, which Strongblock called NUBI
`
`rewards. Plaintiffs gave Defendants STRNG and STRNGR tokens in exchange for the creation of
`
`
`1 The native token currently used by the Strongblock system is the STRNGR token. STRNGR is
`a derivative of its predecessor native token STRNG which was retired from meaningful use upon
`the projects need for an “upgrade” to STRNGR. The upgrade to STRNGR was based upon, inter
`alia, a prevailing need to mint additional native tokens which was provided for in the STRNGR
`smart contract. Strongblock did not have the ability to mint new STRNG tokens under the STRNG
`smart contract.
`
`
`4
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`

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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 5 of 42
`
`a Strongblock nodes with a per-diem “lifetime” reward to be paid in STRNG or STRNGR tokens.
`
`11. In February 2020, Strongblock appeared in the cryptocurrency space as a pioneer
`
`with the first working platform that incentivized individuals and entities alike to own nodes
`
`because it was the only platform providing rewards to node-holders. As Strongblock exploded
`
`with popularity, the Strongblock token price soared to an all-time high of approximately $1,200.00
`
`per token. Defendants have sold over 500,000 Strongblock nodes, some for over $10,000 a piece.
`
`In selling their Strongblock nodes, Defendants promised daily rewards, in perpetuity, to
`
`Strongblock nodes owners.
`
`12. As explained in further detail below, Defendants 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, without notice and in contravention to their own
`
`express statements that node rewards would never go to zero. Further, these egregious unilateral
`
`changes by Strongblock constituted a material alteration of the terms, representations, and
`
`circumstances under which Plaintiffs bought the Strongblock nodes from Defendants to the
`
`detriment of Plaintiffs, something Defendants knew or should have known would cause severe
`
`damage to Plaintiffs.
`
`13. Defendants sold millions of dollars of nodes to Plaintiffs based on the promise they
`
`would earn “lifetime” NUBI rewards. Defendants willfully and intentionally, or negligently,
`
`misrepresented the NUBI reward system to Plaintiffs to the material detriment of Plaintiffs.
`
`14. Because Defendants (1) sold bodes in violation of federal securities laws;
`
`(2) fraudulently induced Plaintiffs to buy Strongblock token and node securities; (3) fraudulently
`
`or negligently misrepresented Strongblock; (4) converted Plaintiffs assets; (5) defrauded Plaintiffs
`
`into transacting for nodes under the promise of “lifetime” rewards; (6) breached the promises
`
`
`
`5
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`

`

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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 6 of 42
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`made in selling nodes; and (7) mislead Plaintiffs as to the viability and sustainability of the
`
`“lifetime” rewards, Plaintiffs bring claims to recover damages, including at least the consideration
`
`they paid for Strongblock tokens and nodes, trading fees, interest thereon, as well as attorneys’
`
`fees and costs, and all other damages to the fullest extent permitted by law.
`
`
`
`PARTIES
`
`15.
`
`Plaintiff Crowl is an individual residing within New York City, is otherwise sui
`
`juris, and invested approximately $37,966.11 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`16.
`
`Plaintiff Wade is an individual residing within New York City, is otherwise sui
`
`juris, and invested approximately $8,087.51 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`17.
`
`Plaintiff O’Reilly is an individual residing within the State of New York, is
`
`otherwise sui juris, and invested approximately $143,569.51 purchasing Strongblock tokens and
`
`nodes from Defendants.
`
`18.
`
`Plaintiff Parker is an individual residing within the State of New York, is
`
`otherwise sui juris, and invested approximately $203,607.71 purchasing Strongblock tokens and
`
`nodes from Defendants.
`
`19.
`
`Plaintiff Hey is an individual residing within the State of New York, is otherwise
`
`sui juris, and invested approximately $61,493.01 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`20.
`
`Plaintiff Cohen is an individual residing within the State of Massachusetts, is
`
`otherwise sui juris, and invested approximately $208,776.83 purchasing Strongblock tokens and
`
`
`
`6
`
`

`

`
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 7 of 42
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`nodes from Defendants.
`
`21.
`
`Plaintiff Glick is an individual residing within the State of Massachusetts, is
`
`otherwise sui juris, and invested approximately $93,459.24 purchasing Strongblock tokens and
`
`nodes from Defendants.
`
`22.
`
`Plaintiff Sepassi is an individual residing within the State of Virginia, is otherwise
`
`sui juris, and invested approximately $433,353.60 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`23.
`
`Plaintiff Neely is an individual residing within the State of Virginia, is otherwise
`
`sui juris, and invested approximately $269,680.17 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`24.
`
`Plaintiff Watson is an individual residing within the State of Texas, is otherwise
`
`sui juris, and invested approximately $237,407.29 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`25.
`
`Plaintiff Handley is an individual residing within the State of Nevada, is otherwise
`
`sui juris, and invested approximately $905,857.15 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`26.
`
`Plaintiff QWNTM Capital Limited Liability Limited Partnership is a Wyoming
`
`Limited Liability Limited Partnership and invested approximately $695,183.82 purchasing
`
`Strongblock tokens and nodes from Defendants.
`
`27.
`
`Plaintiff Ward is an individual residing within the State of Oregon, is otherwise
`
`sui juris, and invested approximately $254,287.54 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`
`
`7
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 8 of 42
`
`28.
`
`Plaintiff Paez is an individual residing within the State of Arizona, is otherwise
`
`sui juris, and invested approximately $187,974.97 purchasing Strongblock tokens and nodes from
`
`Defendants.
`
`29.
`
`Plaintiff Alobaid is a foreign citizen residing within the Country of Kuwait, is
`
`otherwise sui juris, and invested approximately $430,879.90 purchasing Strongblock tokens and
`
`nodes from Defendants.
`
`30.
`
`Defendant, STRONGBLOCK is an unincorporated general partnership operating
`
`within the United States. Moss, Abramson, Lederer and Shkut, along with other John Does, are
`
`partners in Strongblock.
`
`31.
`
`Defendant, Moss, is the CEO and Founder of Strongblock and an individual who,
`
`upon information and belief, is a citizen of the United States and a resident of California.
`
`32.
`
`Defendant, Abramson, is the Chief Technical Officer of Strongblock and an
`
`individual who, upon information and belief, is a citizen of the United States and a resident of
`
`California.
`
`33.
`
`Defendant, Lederer, is the Chief Product Officer of Strongblock and an individual
`
`who upon information and belief, is a citizen of the United States and a resident of Oregon.
`
`34.
`
`Defendant, Shkut, is the Lead Developer of Strongblock and an individual who
`
`upon information and belief, is a citizen of the United States and a resident of Washington.
`
`
`
`JURISDICTION AND VENUE
`
`35.
`
`Jurisdiction is proper under 28 U.S.C. § 1331 because the Complaint asserts
`
`claims under Sections 5 and 12(a)(1) of the Securities Act of 1933 (the “Securities Act”), 15
`
`U.S.C. §§ 77e, 77l(a)(1), 77o. This Court further has jurisdiction over the Securities Act claims
`
`pursuant to Section 22 of the Securities Act, 15 U.S.C. §77v.
`
`
`
`8
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 9 of 42
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`36.
`
`Jurisdiction over Plaintiffs state law claims is proper under 28 U.S.C. § 1367(a)
`
`because district courts shall have supplemental jurisdiction over all other claims that are so related
`
`to claims in the action within such original jurisdiction that they form part of the same case or
`
`controversy under Article III of the United States Constitution. Therefore, the elements of federal
`
`question and supplemental jurisdiction have been met.
`
`37.
`
`This Court has personal jurisdiction over Defendants because Defendants
`
`transacted business, maintained substantial contacts, and/or committed overt acts in furtherance
`
`of the challenged conduct throughout the United States, including in this District. Defendants’
`
`acts were directed at, and had the intended effect of, causing injury to persons residing in, located
`
`in, or doing business throughout the United States, including this District.
`
`38.
`
`This Court also has personal jurisdiction over Defendants and proper venue over
`
`this action under Section 22 of the securities Act, 15 U.S.C. § 77v.
`
`39.
`
`Venue is proper in the United States District Court for the Southern District of
`
`New York pursuant to 28 U.S.C. § 1391(b) and (c) because Defendants are deemed to reside in
`
`any judicial district in which it is subject to the Court’s personal jurisdiction, and because
`
`Defendants provide and market their services within the United States of America, and in this
`
`District, thereby establishing sufficient contacts to subject them to personal jurisdiction. Further,
`
`Defendants’ conduct against Plaintiffs has occurred, in part, within the State of New York as the
`
`harmful effects of Defendants’ alleged conduct were suffered within the State of New York, as
`
`well as, any other states that Plaintiffs are residents of.
`
`
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`9
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 10 of 42
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`SUBSTANTIVE ALLEGATIONS
`
`A. Blockchains and the Foundations of Digital Assets
`
`40.
`
`This case concerns crypto-assets.2 Crypto-assets are digital assets that use a variety
`
`of cryptographic principles to secure transactions, control the creation of additional units, and
`
`verify their transfer. The key technology allowing the creation of crypto-assets is a blockchain.
`
`41.
`
`The challenge that had previously prevented the creation of digital assets is the
`
`need to allow for secure transfers to exactly one recipient at a time. In general, digital files are
`
`transmitted by duplication; if someone emails a photograph to a friend, both the sender and the
`
`recipient now have copies of the photograph. While that duplication is helpful for a photograph,
`
`it would quickly make any digital asset valueless through duplication and inflation, as one
`
`individual could send the same digital asset to many counterparties. The elaborate measures used
`
`to prevent counterfeiting of physical currencies do not have effective digital analogues.
`
`42.
`
`Bitcoin, which was the first prominent digital asset, solved this problem with a
`
`digital ledger system called a “blockchain,” which tracks the ownership and transfer of every
`
`Bitcoin in existence. Each Bitcoin user has a digital “address” used to receive Bitcoin. The Bitcoin
`
`blockchain lists, publicly, every address and the number of Bitcoin associated with that address.
`
`By looking at the Bitcoin blockchain, anyone can see every Bitcoin transaction in which that
`
`address has engaged.
`
`43.
`
`By providing a full transaction history of each Bitcoin, the blockchain allows for
`
`the secure exchange of all Bitcoin. Any attempt to duplicate a Bitcoin or to transfer it to multiple
`
`
`2 One commonly used umbrella term that collectively describes the many different types of
`digital assets and the many hundreds of digital tokens in circulation is “cryptocurrencies.” In
`order to avoid embedding any assumptions about the nature of these assets in this umbrella term,
`Plaintiffs herein use the term “crypto-assets” to describe the full range of digital assets. It may or
`may not be appropriate to call any particular digital or crypto asset a currency.
`10
`
`
`

`

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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 11 of 42
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`people at once would be futile, because a Bitcoin user could use the blockchain to verify each
`
`transaction involving that Bitcoin. There is thus no effective way to counterfeit Bitcoin.
`
`44.
`
` The blockchain has become the foundational technology for crypto-assets. While
`
`crypto-assets vary tremendously, they generally rely on the blockchain to ensure that transactions
`
`are secure and non-duplicable.
`
`45.
`
`Control of crypto-assets is attested primarily through control of cryptographic
`
`keys. These cryptographic keys have two components: a public key and a private key. This
`
`cryptographic system of transfer and exchange is generally the same across most crypto-assets.
`
`46.
`
`To use Bitcoin as an example, the public key is used to produce the Bitcoin address.
`
`A Bitcoin address is a destination for transfers of Bitcoin, like the account number of a
`
`conventional bank account. Bitcoin addresses are long strings of alphanumeric text, often
`
`abbreviated by a small group of numbers and letters appearing in the string, such as 1s5F or R3w9.
`
`A private key allows the owner of a Bitcoin address to access it, like a long PIN or password for
`
`a conventional bank account.
`
`47.
`
`Those who wish to transfer Bitcoin need to know the recipient’s Bitcoin address,
`
`just as one transferring funds to a conventional bank account needs to know the account number
`
`for that account. When they have the recipient’s address, transferors can use their private keys to
`
`authorize the transfer of Bitcoin, just as one would use a PIN or password to authorize a transfer
`
`between traditional bank accounts.
`
`48.
`
`A transfer of Bitcoin is public to the extent that anyone can see the transferor’s
`
`Bitcoin address, the recipient’s Bitcoin address, and the quantity of assets transferred. That is,
`
`anyone could see that Bitcoin address 1s5F transferred 10.3 Bitcoin to Bitcoin address R3w9. The
`
`names of the individuals or entities that control these addresses, on the other hand, are not recorded
`
`
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`11
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 12 of 42
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`on the blockchain and not accessible to the public.
`
`49. While the blockchain allows for secure and non-duplicable transfers of digital
`
`assets, it does not do anything to connect users to each other or to automate both sides of a transfer.
`
`The desire for locations that enabled the trading of digital assets led to the creation of crypto-
`
`exchanges. Crypto-exchanges emerged to enable smoother and faster trading between investors,
`
`just as stock and commodities exchanges emerged to enable easy trading of securities.
`
`50.
`
`There are two primary types of crypto-exchange: decentralized exchanges and
`
`centralized exchanges.
`
`51.
`
` Decentralized exchanges may use the blockchain itself to match and execute
`
`transactions among traders. There is no intermediary individual or corporation that matches or
`
`clears transactions; instead, they use a blockchain technology called a “smart contract” to
`
`automatically facilitate trading. While different decentralized exchanges use different approaches,
`
`what they have in common is that the crypto-assets are transferred between individual accounts.
`
`Thus, if Angela exchanges one Bitcoin for 10 Ethereum using a decentralized exchange, her one
`
`Bitcoin will be sent to David, another user on the platform, and David’s 10 Ethereum will be sent
`
`to Angela.
`
`52.
`
`These decentralized exchanges resemble Ebay or Craigslist in their operation. Just
`
`like a purchase of a collectible baseball card on Ebay or Craigslist involves one user sending
`
`money and the other sending the card, so too do transactions on decentralized exchanges involve
`
`customers sending each other the goods being transacted. These decentralized exchanges, like
`
`Ebay and Craigslist, do not own or hold the assets in question—they simply provide a platform
`
`for exchanges between users, along with some features designed to facilitate trading (e.g., Ebay’s
`
`listings, Craigslist’s message boards, or a decentralized exchange’s smart contracts), possibly in
`
`
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`12
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 13 of 42
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`exchange for advertising revenue or a transaction fee.
`
`53.
`
`Strongblock’s native tokens STRNG and STRNGR could only be transacted for
`
`through decentralized exchanges, and the nodes were purchased from Defendants directly through
`
`the use of their Strongblock website Strongblock.io.
`
`54.
`
`Buying, selling, and trading cryptocurrencies on a decentralized exchange may
`
`only occur through the use of an electronic wallet connected to the decentralized network (“DeFi
`
`Wallet”). A DeFi Wallet is substantially similar in identity to that of a bitcoin address as it is
`
`identified by a unique string of alphanumeric characters, often abbreviated by a small group of
`
`numbers and letters appearing in the string, such as 1s5F or R3w9 (“DeFi Wallet Address”).
`
`55.
`
`56.
`
`All DeFi Wallet transactions are recorded and logged on a blockchain.
`
`Virtual networks like a blockchain consist of groupings of data blocks that are
`
`stored on nodes.
`
`57.
`
`Nodes on a blockchain are linked together and exchange information between each
`
`other to ensure information is contemporaneously maintained.
`
`58.
`
`As nodes store, distribute, and maintain blockchain data they are both common and
`
`vital to a Blockchain’s infrastructure.
`
`59.
`
`60.
`
`Generally, nodes are classified as either “Full” or “Lightweight” nodes.
`
`Full Nodes act analogously to servers for a DeFi Network by (1) establishing
`
`consensuses between other nodes; (2) confirming transactions on a blockchain; (3) and
`
`maintaining copies of a blockchain’s data.
`
`61.
`
`Full Nodes are also the only nodes that may vote on matters affecting the future of
`
`a Blockchain network and therefore play an integral role in a network’s community governance.
`
`B. Strongblock Generally
`
`
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`13
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 14 of 42
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`62.
`
`Strongblock is a DeFi NaaS protocol utilizing the native cryptocurrency tokens
`
`known as STRNG or STRNGR.
`
`63.
`
`Strongblock’s executive team is comprised of Moss, Lederer, Abramson, and
`
`Shkut.
`
`64.
`
`Moss, Lederer, and Abramson are former executives of a company known as
`
`Block.one, a company that raised approximately $4 billion dollars in an initial coin offering
`
`(“ICO”), which resulted in a class-action lawsuit brought against it, Williams, et. al. v. Block.one,
`
`Case No.: 1:20-cv-02809-LAK. Block.one additionally paid the SEC approximately $24 Million
`
`dollars in civil penalties resulting from a separate administrative proceeding in 2019.
`
`65.
`
`Defendants launched a website, Strongblock.io, and published various technical
`
`papers such as a “Flash Paper”, a “Light Paper”, a “Medium Article”, and a “Strongblock v3
`
`Paper” to market, advertise, and disseminate information about the Strongblock NaaS protocol,
`
`its native ERC-20 Tokens, and the NUBI rewards.
`
`66.
`
`Defendants additionally engaged in social media posts, AMA sessions, and
`
`communicated with digital media journalists for the purpose of marketing the Strongblock NaaS
`
`protocol, its native ERC-20 Tokens, and the NUBI rewards.
`
`67.
`
`At all times material to this action, the primary DeFi network for buying, selling,
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`and trading STRNG and STRNGR was the automated Ethereum-based cryptocurrency exchange
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`known as Uniswap (“Uniswap”).
`
`68.
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`STRNG and STRNGR are ERC-20 Tokens created by Strongblock and purposed
`
`for enabling decentralized protocol governance.
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`69.
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`Currently, STRNGR serves two main functions: (1) 10 STRNGR are required to
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`buy a node; and (2) STRNGR is the reward token distributed to node holders as NUBI rewards.
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 15 of 42
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`70.
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`The Strongblock system offers the ability to build nodes on various cryptocurrency
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`networks and Plaintiffs are or were owners of at least Strongblock Ethereum 1.0 Nodes (“S1
`
`Nodes”). Buying an S1 Nodes required Plaintiffs to enter into an electronic agreement (“Node
`
`Contract”). S1 Nodes were described, advertised, and marketed by Defendants as “Full Nodes”.
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`71.
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`NUBI rewards generated by S1 Nodes were referred to by Defendants as “lifetime”
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`rewards and have been provided to the S1 Node holders per diem, in the form of STRNG and
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`STRNGR tokens since as early as December of 2020.
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`72.
`
`On September 29, 2020, David Moss publicly advertised that Strongblock was
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`purposed for “creating a true public good by rewarding nodes, providing more stability to
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`blockchains, and increasing visibility to the nodes that keep Blockchains running.”
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`73.
`
`On December 12, 2020, Defendants published the Flash Paper advertising their
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`NaaS Protocol as the first and only blockchain agnostic protocol to reward nodes for supporting
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`the infrastructure of their blockchain.
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`74.
`
`As stated through Defendants’ Flash Paper:
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`Why incentivize nodes? With limited resources and no financial incentive, many
`nodes run out-of-date software, maintain incomplete blockchain histories, and are
`intermittently off-line. There is no easy mechanism to fix this problem once a
`blockchain is launched. To solve this, StrongBlock has made it possible for anyone
`to create a node in seconds—or add their own node— and receive STRONG token
`rewards every day. More nodes equals more resilience. At the time of writing,
`StrongBlock is rewarding over 1700 Ethereum 1.0 nodes, representing more than
`15% of all Ethereum active nodes.
`
`75.
`
`The function and purpose of the NUBI reward system was to facilitate the creation
`
`
`
`of a blockchain ecosystem where node holders are rewarded for regularly maintaining compliant
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`nodes created on the Strongblock system.
`
`76.
`
`Defendants’ goals were to “shine a spotlight on the most undervalued group in
`
`blockchain: nodes.” Defendants marketed and advertised their NaaS protocol to persons across
`
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 16 of 42
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`the globe, “capitalizing on the network effect from engaged communities” with the intention of
`
`inducing individuals and entities into buying S1 Nodes from Defendants relying on the
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`representations of “lifetime” NUBI rewards.
`
`77.
`
`Defendants marketed the Strongblock system as part of the “blockchain
`
`revolution” and that through the NaaS app one could “launch a blockchain node in seconds and
`
`get rewards.” Defendants made it possible for anyone to create a node in seconds and receive
`
`token rewards daily with the intention of marketing and advertising the Strongblock system to all
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`persons, regardless of stature or circumstance.
`
`78.
`
`Defendants published a quick and easy five-step step process for joining in on the
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`“blockchain revolution” and creating nodes:
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`• Step 1: Get STRNG/STRNGR and Etherum (“ETH”);
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`• Step 2: Name your node;
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`• Step 3: Confirm Wallet Transactions;
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`• Step 4: Node Created; and
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`• Step 5: Start Earning
`
`The Node Contract
`
`79.
`
`Buying an S1 Node is done by way of executing a Node Contract and spending
`
`ten (10) STRNG/STRNGR tokens on the “Strongblock App”. The Strongblock system requires
`
`execution of the Node Contract prior to the creation of any node. Per the Node Contract node
`
`holders could not sell or transfer their nodes to other wallets. However, node owners can sell a
`
`wallet that possesses a node, as wallets are freely transferable digital assets.
`
`80.
`
`Defendants have sold over 500,000 nodes, including several hundred to
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`Plaintiffs, some at a price of several thousand dollars each.
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`Case 1:22-cv-07313 Document 1 Filed 08/26/22 Page 17 of 42
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`81.
`
`The Node Contract for S1 Nodes additionally requires the payment of a
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`maintenance fee of $14.95 USD upon creation of the S1 Node and payment in the same amount
`
`as a recurring monthly maintenance fee. Should a node holder fail to pay the monthly
`
`maintenance fee, the Node Contract terminates the overdue node in an automated fashion. S1
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`Node Holders are required to remit these payments manually because maintenance fees “cannot
`
`be automatically paid” from DeFI Wallets given the way Strongblock was developed by
`
`Defendants. Upon information and belief, Defendants have collected approximately Seven
`
`Million Dollars ($7,000,000.00) in monthly maintenance fees.
`
`82.
`
`In exchange for creating compliant S1 Nodes on the Strongblock system and
`
`remitting monthly maintenance fees toward each created node, S1 Node holders received daily
`
`NUBI rewards in the form of a flat amount of STRNG and STRNGR tokens.
`
`C. MOSS and Strongblock’s Public Representations
`
`83.
`
`David Moss intentionally engaged media outlets, to advertise Strongblock’s S1
`
`Nodes, and share information about the Strongblock team and system’s intentions and goals.
`
`84.
`
`In an article published by Robert Stevens in September of 2020, Former
`
`Block.one Execs Launch Tech to Make Ethereum More Secure: StrongBlock rewards people
`
`operating full blockchain nodes. It’s tapped Chainlink’s decentralized price oracle tech to help
`
`it out., Moss stated:
`
`Stronblock’s team and shareholders hold the bulk of the supply of the
`native token.
`
`There is zero possibility of the Strongblock team dumping the
`approximate 53% of the native token supply cumulatively held by the
`same.
`
`Strongblock’s go