New documents filed in a Texas court claim that YouTuber Logan Paul’s team worried their failed Cryptozoo project could draw scrutiny from the Security and Exchange Commission (SEC), which regulates financial products in the United States.
The amended complaint in a class action suit against Paul and others involved in the project, including his manager Jeff Levin, cites text messages from the development team discussing potential ways to enrich themselves from the project before it even launched.
Cryptozoo was sold to fans as a “really fun game that makes you money.” The premise was that players would purchase animal-themed NFTs they could trade and then “mate” to produce additional, unique animals. Ahead of the game’s launch, they also offered NFTs called “base eggs,” which in theory would hatch when the game launched.
Potential players could also buy a crypto token called $Zoo to buy the animal NFTs at a 10% discount.
But the game never got off the ground. Paul seemingly discreetly abandoned the project, before an eight-part series by YouTuber Coffeezilla released at the end of 2022 forced him to address it publicly.
Investors say they put over $4.1 million into the project without ever getting a chance to recoup their money.
The amended complaint cites text messages from Jake Greenbaum, AKA Crypto King, and Eddie Ibanez, two developers who Paul claimed in a countersuit were actually responsible for the project failing. Paul says that the two men hijacked his project for their own enrichment, manipulating the game’s internal market to cash out early themselves. Greenbaum told the Daily Dot at the time that the allegations were “completely false,” and an attempt by Logan to “shift blame for his conniving activites.”
“He’s trying to defer blame, but all will come out in the court proceedings,” Greenbaum said. However, he never responded to the complaint formally, claiming that Paul was trying to drain him financially through the lawsuit.
Meeting notes from June 3, 2021 cited in the complaint show that the project was focused on “profit for the team,” and that the founders “had planned a private sale amongst themselves before publicly releasing it,” the lawyers for the class-action suit argued.
In one screenshot of an April 14, 2021 message, Ibanez, who was supposed to be the project’s head developer, explained that tokens can trade as both a security, which is a tradable financial asset, and an NFT, which in theory is a unique license to own a piece of digital art.
“The same token can trade as a security & NFT if we wanted,” Ibanez wrote. It isn’t clear who the message is intended for from the screenshot. The SEC requires sellers to register securities if they’re going to sell them to the public, and trading unregistered securities is a crime.
The lawsuit alleges that Paul and his associates willfully sold unregistered securities.
Paul also allegedly pushed for a token presale, according to more texts cited in the amended complaint. In one, he salivated over the amount of money a presale could bring in.
“$20M is a lot of moneyyyy,” Paul texted his manager, Levin.
But Levin pushed back, writing that “It’s against the SEC.”
“Everyone does presale with coins,” Paul replied.
“Definitely don’t want to do anything that brings sec eyeballs,” Levin answered.
Paul claims that Ibanez and Greenbaum left him holding the bag with the project by cashing out early.
But the amended complaint makes the case that Paul was involved in discussions about cashing out early, before trading was open to the public, as well.
Lawyers for the class claimed that Paul and others never registered the NFTs or crypto tokens for Cryptozoo, and speculated that they cashed out before the project was publicly released through presale or “illegal liquidity pool trading.”
“Defendants never registered Zoo Tokens or CZ NFTs and did .. a presale through illegal liquidity pool trading before the Cryptozoo Products were publicly released,” the lawyers alleged in the lawsuit.
They say that discovery will reveal definitive proof of this.
The amended complaint also claimed that other messages showed Paul was cynically focused on profit during the project’s development. They cite one message from Paul proposing that they add a charity component to the project like “[d]onating to animal rescues or some shit,” highlighting the potenital tax benefits the project could reap.
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