Background
Parastate Labs, Inc invested 5 million USDT, then worth approximately US$5 million, in the Babel Alpha USDT Fund under a cryptocurrency management agreement with Babel Asia Asset Management Private Limited. The fund formed part of the asset-management business of the Babel group, which used accounts held by Moonalpha Financial Service Limited on the Deribit cryptocurrency exchange to trade customer assets.
The Babel group later became insolvent after it failed to meet margin calls and Deribit liquidated assets held in Moonalpha’s accounts. After the group’s holding company obtained court approval for a scheme of arrangement consolidating claims against group entities, Parastate pursued Wang Li, a Babel co-founder and former chief executive, personally for the value of its lost cryptocurrency. It alleged dishonest assistance, fraudulent misrepresentation, and unlawful means conspiracy. Parastate discontinued its claims against the other three defendants.
The Court’s Holding
The High Court dismissed the action against Wang Li in its entirety. Parastate did not establish a basis for holding him personally liable in dishonest assistance or for the alleged loss of its cryptocurrency investment.
The fraudulent-misrepresentation claim also failed. Some alleged statements were nonactionable sales puff or promises about future performance, and Parastate did not prove that any pleaded representation was false or made fraudulently. Its own witness accepted that the Babel group was not lying when it described the fund’s strategy and had not raised Parastate’s assets on a false pretext.
The unlawful means conspiracy claim failed because the alleged unlawful means—the fraudulent misrepresentations—had not been established. Parastate also produced no evidence of an agreement among the defendants or an intention to injure it, falling well short of the heightened evidential threshold for conspiracy.
Key Takeaways
- A claimant alleging fraud must prove with cogent evidence that a materially false representation was made knowingly, without belief in its truth, or recklessly.
- Promises about future investment returns or withdrawal rights ordinarily are not representations of existing or past fact, while obviously hyperbolic promotional claims may amount only to sales puff.
- An unlawful means conspiracy claim requires evidence of both a combination or agreement and an intention to injure; pleading the legal elements without supporting facts is insufficient.
Why It Matters
The decision illustrates the difficulty of converting losses from a failed cryptocurrency investment into personal liability against an executive of the investment manager’s corporate group. A fund’s collapse or subsequent liquidation does not, without more, prove that earlier marketing statements were false or fraudulent when made.
For sophisticated digital-asset investors, the case also underscores the importance of distinguishing contractual promises, promotional language, and actionable statements of fact—and of assembling direct evidence when alleging dishonesty, accessory liability, or conspiracy.