The United States District Court for the Central District of California has issued a summons to video game virtual goods company OPSkins Group and Worldwide Asset eXchange (WAX) in response to a complaint filed by Crypto Asset Fund.

The allegations

On Aug. 15, the court issued a summons to OPSkins Group, WAX and several of their high-level employees in response to a civil complaint filed on Aug. 12 by Crypto Asset Fund and affiliate Digital Capital Management. The complaint included 12 charges — including fraud, unlawful business practices and violation of the Securities Acts of 1933 and 1934. In particular, these concerned the accused’s initial coin offering (ICO) of WAX tokens.

According to the complaint, Crypto Asset Fund and affiliate Digital Capital Management invested $1.2 million worth of Ether (ETH) in a presale for WAX’s ICO in Oct. 2017, an ICO that they say WAX should have registered with the Securities and Exchange Commission (SEC). 

Chaos in the ICO

After Crypto Asset Fund’s initial investment, WAX allegedly released 1.85 billion tokens rather than the originally planned 185 million. In the subsequent confusion, WAX delayed delivering the promised tokens to Crypto Asset Fund for several days — during which the tokens’ price reportedly peaked, leaving Crypto Asset Fund unable to capitalize on their investment.

The complaint further claimed that WAX’s ICO was never intended to create a functioning token, but was rather an illegal means of securing investment for an online gambling operation. According to the plaintiffs, WAX “effectively treated and used the ICO process as a license to print money.”

In the initial complaint, Crypto Asset Fund requested both an unstated amount of compensation for lost profit and an order banning OPSkins and WAX from future involvement in online gambling. 

Uncertain future

It remains unclear just how much money WAX’s ICO brought in, with the complaint saying that:

“It was reported that Defendants were the tenth largest ICO of 2018 with a fundraise of $68 million. However, in a November 30, 2017 press release, Defendants claimed that they raised ‘over $80 million’ from ‘thousands of participants’ in their token sale. OPSkins CEO and WAX President Malcom CasSelle later claimed in a July 18, 2018 article by PC Games Insider that in 2017 Defendants ‘raised over $150 million to launch the WAX platform.’”

(Mostly) certain precedent

Crypto Asset Fund’s complaint joins a growing list of belated legal action against ICOs from the largely unregulated explosion of offerings in 2017 and 2018. 

On Aug. 20, the SEC announced that it had settled with an ICO research firm that the regulator alleged had not been transparent about funds it received from ICOs in the first half of 2018. On Aug. 14, Cointelegraph reported on two similar settlements for $6.3 million and $7 million respectively.