A prominent conservative political commentator and general counsel in the digital asset space filed a complaint in a Washington, D.C., court against a crypto startup whose executives, he alleged in an interview, “pocketed large sums of money” and then “fell off the face of the earth.”
Derek Khanna, who holds several roles and side hustles, including head of policy and general counsel for the Bitcoin Advocacy Project and chief operating officer and general counsel for the Chamber of Digital Commerce, sued the defendants, Menlo Inc., Menlo Corp. and several of its executives and top employees.
“I just want my money back,” Khanna said. “I’ve been around a lot of startups, and I’ve seen ups and downs. But the evidence started to accumulate that this was more than just an investment that went bad.”
The defendants did not respond to a request for comment.
Now, the case is pending before D.C. Superior Court Judge Juliet J. McKenna. Khanna alleged nine counts in the complaint, including violations of the Securities Act, fraudulent misrepresentation, unjust enrichment and civil conspiracy, and is seeking the promised payout of at least $1.25 million over the loss of his $250,000 investment in the startup.
In December 2017, defendant Matthew Nolan hatched the idea for the MET/One token, pontificating on social media that there are only two-use “cases crypto does better than fiat [money]: illegal things, and investing in startups via ICOs,” referring to initial coin offerings. “So Im [sic] fixing the ICO” with the token.
Nolan then assembled a team and promoted the offering and sale of the tokens at conferences, such as the World Crypto Economic Forum in San Francisco, through the company’s and his social media posts, in which he claimed that Menlo is a “real project” as opposed to the rest of the crypto community and used hashtags like #duediligence” and precise language instructing his followers to manufacture a “bull run.”
Menlo formed an offshore entity in the Cayman Islands to shield itself from liability and circumvent various U.S. regulations, according to the complaint. Menlo held a token presale in the summer of 2018 and, around the fall, launched the initial coin offering, which closed at least $3 million in funding.
However, soon after the initial coin offering, the token’s value plummeted by 95%, sparking allegations of a “pump-and-dump” scheme on crypto forums, per the lawsuit. Khanna alleged that based on current legal standards, the tokens are “securities” subject to federal and state securities laws, and Menlo failed to register them.
Despite the alleged rug pull, Khanna said he regularly checked the website and spoke with others on a Telegram chat who wondered when Menlo would launch its platform with the proceeds it collected in the initial coin offering. Khanna initially thought the launch was delayed by “poor execution.”
“It’s a mystery what happened to these guys,” Khanna said. “At some point, they came to the realization that they were not going to launch the platform. At a minimum, you could give people the money back that hasn’t been spent at that point.”