Barron v. Helbiz Inc.

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RYAN BARRON, FILIPPO BULGARINI, GRANT ECHOLS, ANTHONY CALIXTE, DENIS DESARL, ILLIA CHEHERST, ANDREW SKZLAREK, MARAT GARIBYAN, RISHI KHANCHANDANI, DANIILS LEBEDEUS, DONG SEOK LEE, KAMIL JIWA, TAREK RAHMAN, FRANCISO PEREIRA, and ABHISHEK SIKARIA, for themselves and a class of others similarly situated, Plaintiffs, v. HELBIZ INC., SALVATORE PALELLA, ANTHONY DIIORIO, DECENTRAL INC., PAYSAFE LTD., LORENZO PELLEGRINO, SKRILL USA INC., ALPHABIT DIGITAL CURRENCY FUND, BINARY FINANCIAL, GIULIO PROFUMO, JONATHAN HANNESTAD, JUSTIN GIULIANO, SAEED ALDARMAKI, and unknown Defendants Defendants.

No. 20 Civ. 04703 (LLS)

United States District Court, S.D. New York

September 1, 2023

OPINION & ORDER

LOUIS L. STANTON U.S.D.J.

Plaintiffs allege Defendants participated in a pump-and-dump scheme and deceived them into purchasing HelbizCoin cryptocurrency offered in an initial coin offering ("ICO") and on the market, with false promises that HelbizCoin would be the exclusive payment method for the transportation smartphone application that Defendants were building. Based on those allegations, Plaintiffs brought common law claims sounding in breach of contract, trespass and conversation of chattels constructive trust, quiet title, and spoliation, and state statutory claims under section 20-701 of the New York City Administrative Code and section 349 of the New York General Business Law.

Although labeled as state law claims, I considered the complaint to be substantively asserting federal securities claims for fraud brought under Section 10(b). Accordingly, in my Opinion and Order of January 22, 2021 (the "Opinion"), I applied Morrison v. Nat'l Australia Bank Ltd. 561 U.S. 247 (2010) and dismissed the complaint for failure to state a claim because HelbizCoin was never listed on a domestic exchange nor purchased or sold in the United States. I also denied leave to amend. See Barron v. Helbiz Inc., No. 20 CIV. 4703, 2021 WL 229609 (S.D.N.Y. Jan. 22, 2021).

The Opinion was vacated and remanded by the Second Circuit in Barron v. Helbiz, Inc., No. 21-278, 2021 WL 4519887 (2d Cir. Oct. 4, 2021), which held, when viewed most favorably to Plaintiffs, that the Complaint alleged that Defendants did not fulfill the promises they made to induce Plaintiffs into purchasing HelbizCoin and that Morrison does not apply to such state law claims. The Second Circuit further concluded that amendment was not futile. Id. at 4.

Plaintiffs filed the First Amended Complaint, alleging additional facts concerning the domesticity of the sale and purchase of HelbizCoin and asserting additional federal securities, commodities, and racketeering claims. Defendants move to dismiss the case.

For the reasons that follow, Defendants' motions are granted in part and denied in part.

I. Background

The following facts are drawn from the allegations in the First Amended Class Action Complaint.^[1] Dkt. No. 131 ("FAC"). The Court assumes the parties' familiarity with them and recounts only what is necessary.

A Defendants

Defendant Helbiz Inc. ("Helbiz") is a Delaware corporation with its principal place of business in New York City. FAC ¶ 59. Defendant Salvatore Palella, a New York resident, is the founder, owner, and Chief Executive Officer of Helbiz. FAC ¶¶ 75, 292. Palella, with his alleged co-conspirators, used Helbiz to create HelbizCoin and steal from investors, through a series of false facts, omissions, and promises that would not be, over $350 million. FAC ¶ 76.

Defendant Giulio Profumo, a New York citizen, is the CFO of Helbiz. FAC ¶ 81. Defendant Justin Giuliano was the President of Blockchain Operations for Helbiz. FAC ¶ 85. Defendant Jonathan Hannestad is the Create and Strategic Director of Helbiz. FAC ¶ 86.

Defendant Paysafe LTD ("Paysafe"), a Bermuda Corporation with a principal place of business in the United Kingdom, provides electronic payment systems and services for cryptocurrencies. FAC ¶ 61. Defendant Skrill USA Inc. ("Skrill"), a Delaware corporation with its principal place of business in New York, is a subsidiary of Paysafe that offers digital wallet services. FAC ¶ 66, 70. Defendant Lorenzo Pellegrino is the CEO of Skrill and an employee of Paysafe. FAC ¶ 67. Paysafe and Skrill were allegedly partners with Helbiz. FAC ¶ 69. Pellegrino served as an advisor, in his individual capacity and as an agent of Skill and Paysafe, to Helbiz during the ICO. FAC ¶ 79.

Defendant Anthony Di Iorio, who is well-known within the cryptocurrency industry, runs Decentral Inc., a cryptocurrency incubator and another named Defendant. FAC ¶ 91. Di Iorio was an advisor to Helbiz. FAC ¶ 96.

Defendant Saeed Al Darmaki is the Managing Director of Defendant Alphabit Digital Currency Fund ("Alphabit") who also served as an advisor of Helbiz. FAC ¶¶ 109-10. Defendant Binary Financial is a sister company of Alphabit. FAC ¶ 110.

B. Overview of Alleged Helbiz Scheme

Defendant Palella launched a scheme to fraudulently raise capital for Helbiz through an Initial Coin Offering ("ICO") of HelbizCoin. To promote the ICO and drive up the value of HelbizCoin, Palella conspired with co-defendants by making false or highly misleading misrepresentations about Helbiz and HelbizCoin. FAC ¶¶ 2, 11, 181-207, 311, 353. Such misrepresentations include that HelbizCoin would be used to develop a decentralized smartphone application that allowed users to rent various modes of transportation. FAC ¶¶ 7, 17380, 287-95, 298, 302, 304-10. HelbizCoin, which ran off blockchain technology, was to be the only way users could make purchases in the app. The idea was that as the platform expanded, the demand and thus price for HelbizCoin would simultaneously rise. FAC ¶¶ 304-10. Defendants made such misrepresentations about Helbiz and HelbizCoin in the Helbiz Whitepaper, on the company's website and ICO website, on social media, at live events, and to the press, including industry publications. FAC ¶¶ 181-184.

Rather than keeping the promises to build the described platform, Plaintiffs allege that Palella used the funds from the ICO to develop a different platform that allowed individuals, with the swipe of a credit card or other fiat currency payment, to rent scooters. FAC ¶¶ 289, 461-66, 468-476, 758. They allege that he and his conspirators never had any intention of using HelbizCoin as the native token for Helbiz transactions.

The ICO took place in two stages, a pre-sale in January 2018 and a crowd sale in February-March 2018, with Helbiz allegedly raising $38.6 million and issuing approximately one billion HelbizCoins. FAC ¶¶ 185-86.

Following the ICO, Plaintiffs allege that Defendants further engaged in a campaign of misinformation as part of a "pump and dump" scheme. FAC ¶¶ 320-24, 335. They assert that this included Defendants engaging in "wash sales" and money laundering, FAC ¶¶ 218-58, before later dumping HelbizCoins, FAC ¶¶ 396-401, 432-44.

The scheme did not culminate there. Plaintiffs then assert that Palella announced a public stock offering of Helbiz. FAC ¶ 551. To effectuate his next plan, they claim he threatened to destroy HelbizCoin by deleting the "smart contract on the Ethereum contract."^[2] FAC at ¶ 578. Thus, they also allege that Palella and Helbiz improperly converted the Helbiz assets created from the ICO. FAC ¶¶ 758-59.

C Procedural History

Defendants Helbiz, Palella, Hannestad, Profumo, and Giulino (the "Helbiz Defendants") move to dismiss the FAC for failure to state a claim. Dkt. No. 163. As does Defendant Pellegrino. Dkt. No. 170.

Defendants Paysafe and Skrill (the "Paysafe Defendants") move to dismiss the FAC for lack of jurisdiction over Paysafe and for failure to state a claim against Skrill. Dkt. No. 155.

Likewise Defendants Alphabit, Dkt. No. 189, and Al Darmaki, Dkt. No. 233, separately move to dismiss on those same grounds.

Defendants Di Iorio and Decentral move to dismiss the FAC for failure to effectuate proper service and for not stating a claim. Dkt. No. 213.

II. Personal Jurisdiction and Service of Process

On a Rule 12(b)(2) motion, plaintiff "bears the burden of establishing that the court has jurisdiction over the defendant." DiStefano v. Carozz . N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001). Such a motion can be supported by affidavits outside of the complaint, S. New England Tel. Co. v. Glob. NAPs Inc., 624 F.3d 123, 138 (2d Cir. 2010), but the Court must construe the pleadings and affidavits in the light most favorable to the plaintiff and resolve all doubts in its favor, Dorchester Fin. Sec., Inc, v. Banco BRJ, S.A., 722 F.3d 81, 85 (2d Cir. 2013).

The FAC alleges that Alphabit and Paysafe participated in the New York-based HelbizCoin scheme directly and through agents which, plaintiffs argue, is sufficient to establish specific jurisdiction under the agency theory that "a corporation can purposefully avail itself of a forum by directing its agents or distributors to take action there," Daimler AG v. Bauman, 571 U.S. 117, 135 n.13 (2014), or under a conspiracy theory, which requires allegations "that (1) a conspiracy existed; (2) the defendant participated in the conspiracy; and (3) a co-conspirator's overt acts in furtherance of the conspiracy had sufficient contacts with a state to subject that co-conspirator to jurisdiction in that state," Charles Schwab Corp, v. Bank of Am. Corp., 883 F.3d 68, 87 (2d Cir. 2018).

A. Paysafe

The Court does not have jurisdiction over Paysafe, a foreign defendant, under either the agency or conspiracy theory.

The FAC alleges that "PELLAGRINO is PAYSAFE's employee and agent. He acted within the scope of his employment with regard to all his conduct alleged in this complaint." FAC ¶ 68. In support of that conclusory statement, the FAC alleges that Pellegrino was paid by Paysafe, was an...