The Mukamal family has filed a lawsuit against asset manager Bitwise, seeking $2 million in damages. Filed on Monday, July 8th, the lawsuit implicates Bitwise executives CEO Hunter Horsley, CIO Matt Hougan, and President Teddy Fusaro in alleged fraud, breach of contract, negligence, and a pump-and-dump scheme that resulted in substantial financial losses for investors.
Theodore Mukamal, a member of the family, claimed that Bitwise executives misled investors and violated securities laws. Mukamal accused Bitwise of orchestrating a pump-and-dump scheme that benefitted its executives while causing the Bitwise 10 Crypto Index Fund (BITW) to trade between 35% and 60% below its net asset value (NAV) for three years, leading to significant investor frustration and losses.
The lawsuit, filed in the New York Supreme Court, highlighted that the Mukamal family invested $1.3 million in BITW. In April 2020, Bitwise allegedly changed the investment terms, violated agreements, and converted the fund to an OTC product without consulting investors. By November, Bitwise reportedly encouraged investors to sell their shares at a loss.
The family liquidated their shares in March 2021, turning a profit. However, they allege that misleading assurances and misrepresented terms from Bitwise executives led to another investment of $4.85 million. These newly acquired shares were liquidated in March and April 2024, resulting in a net loss of $1.9 million.
The lawsuit accuses Bitwise of negligence, conspiracy to commit fraud, violation of fiduciary duty, and violation of the Securities Exchange Act of 1934. The Mukamal family is demanding compensation for their losses, legal fees, and other expenses to be settled in court.
Despite the serious allegations, influential investors supporting Bitwise, such as Daniel Loeb and Stanley Druckenmiller, were not mentioned in the court filings. An article published in February criticized Bitwise’s operations, highlighting high management fees of 2.5% and a perceived lack of investment purpose.
Lawsuits are common in the crypto sector, often initiated by the U.S. Securities and Exchange Commission (SEC). The SEC has recently cracked down on major centralized exchanges such as Coinbase and Binance. On May 6th, Robinhood warned of an imminent lawsuit from the SEC, claiming that the commission sent its crypto unit a Wells notice that could potentially lead to legal action.