Vanbex Sells IP Amid Criminal Probe Into $22 Million ICO

Vanbex, a Canadian blockchain company mired in a criminal investigation and several lawsuits, has sold its intellectual property to Toronto-based crypto brokerage Hyperion for an undisclosed price.

“This acquisition allows the value of the products and the business models they represent to continue under Hyperion’s banner,” Lisa Cheng, co-founder of Vanbex, said in a press release issued Wednesday

Acquiring Vanbex’s tokenization and tax products “was a strategic move enabling us to focus on a larger market share,” said Michael Zavet, CEO of Hyperion, in the release.

The FUEL token, which Vanbex issued in the initial coin offering (ICO) at the center of the investigation, will still be used “to pay for transaction fees, API integrations, and services provided in the digital asset ecosystem between Hyperion and the Vanbex blockchain technology products,” Vanbex stated.

The announcement didn’t seem to fully assure some investors in Vanbex’s Telegram group, who asked CEO Kevin Hobbs about the token’s fate. One said he was “hoping there is something legally binding in the agreement” requiring Hyperion to continue accepting FUEL.

Neither Vanbex nor Hyperion responded to requests for comment.

Vanbex will now operate as a blockchain consulting company “with a focus on supporting Hyperion’s growth from its offices in Vancouver,” the release said.

Moving out

Vanbex disclosed that it was in talks to sell its assets months ago.

A corporate update posted on Vanbex’s website June 25 said the company planned to move its tech products to a new company, “removing all the negativity surrounding Vanbex and its founders.”

According to the post, Cheng would become CEO of the new company, and Hobbs would stay with Vanbex and its consulting arm to keep fighting for its reputation.

In an ask-me-anything (AMA) session that day with FUEL token holders on Telegram, Hobbs clarified that the “new company” was an existing firm negotiating to buy the IP.

It is unclear whether that entity was Hyperion or another party, and this week’s announcement says nothing about Cheng joining the acquirer.

The investigation

The Royal Canadian Mounted Police (RCMP) began investigating Vanbex in May 2018. Soon after, the Canadian Revenue Agency began a tax probe.

Canadian authorities froze the bank accounts of Hobbs and Cheng and seized their property in March of this year. The Director of Civil Forfeitures claimed Vanbex’s founders misappropriated the $22 million raised in the 2017 ICO and failed to deliver the product promised to investors.

Vanbex’s founders denied all the allegations, saying no evidence has been provided to the court to support them. However, some evidence soon surfaced.

According to records presented by RCMP, Etherparty, one of the companies Hobbs and Cheng operated, received its first ICO pre-sale contribution reported to Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) on Aug. 17, 2017.

Then, from Aug. 21 to Dec. 4, Etherparty and Hobbs received nine transactions worth over $5.5 million from over-the-counter (OTC) trading desk Cumberland. On Dec. 7, Hobbs withdrew over $4.1 million from his personal accounts at Cumberland, the document says, and on the next day, Hobbs and Cheng purchased a condominium for that same amount in cash.

According to a July 19 ruling by Supreme Court of British Columbia judge Elliott M. Myers, the investigators demonstrated that Hobbs and Cheng sold $5.5 million worth of bitcoin right before going on a spending spree.

Not buying it

Vanbex argued in a court filing that the director of civil forfeitures hadn’t proved Hobbs’ and Cheng’s wealth boost was a result of the ICO; rather, it could be Hobbs’ gambling winnings.

“Hobbs recorded nearly $60,000 per month in winnings from casinos alone,” the document states.

However, the police were not convinced, according to Judge Myers:

“The RCMP investigator deposes that Mr. Hobbs apparently had no substantial wealth or assets prior to the ICO. As of September 29, 2017 Mr. Hobbs had only CDN$15,122.99 in his personal bank accounts. Ms. Cheng does not appear to have any active personal Canadian bank accounts. Mr. Hobbs lives in a residence owned by Ms. Cheng’s parents.”

Neither was the judge, who added: “Mr. Hobbs’s winnings can in no way explain the amount of the property purchased by him and Cheng.”

The court left Vanbex founders’ property under arrest. The investigation is ongoing.

Investor lawsuit

In the meantime, the company was hit by a new legal challenge: two investors filed a lawsuit to the Supreme Court of British Columbia, saying Hobbs and Cheng violated Canada’s securities law by failing to register their ICO as a security offering, and that they misled investors about the state of their business.

Plaintiffs Andrew Beck and Craig Petersen claim they purchased $30,000 worth of FUEL each and now can’t sell the tokens, which fell considerably in price.

Hobbs told CoinDesk the lawsuit is “another attempt to blackmail” the company, blaming a former employee, Kip Warner, who reported Vanbex to the Canadian police.

Vanbex is now suing Warner for defamation.

‘I got suspicious’

For his part, Warner said he had trouble getting paid for his work at Vanbex and was surprised by the firm’s focus on marketing rather than development.

“There were no actual engineers, everybody was doing marketing stuff, so I got suspicious,” he told CoinDesk.

After quitting Vanbex, Warner shared the information with his friend at the Canadian police. Then the police started investigating Vanbex “independently on their accord,” Warner said, but Hobbs figured out who started the fire.

“He sued me because he believes I’m the genesis for his downfall,” Warner said.

Lisa Cheng image via CoinDesk archives