Obelisk and Nebulous: understanding their presale scheme
“This is a preorder agreement in which, as provided previously, when it comes to tech companies, this is the way that they fund the projects. Securities laws don’t apply to them because the SEC has stated so!”
— Obelisk Attorney at Small Claims on 12/10/2018
I was the Plaintiff in a Small Claims case against the company Obelisk — the a company sells cryptocurrency mining rigs. Two weeks after the preorder Obelisk changed the specifications and so I requested a refund. They refused and I published a request here, on Medium. I took them to court thinking for sure that I’d win.
Well, I lost. In the Massachusetts Small Claims system there is no appeal for Plaintiffs (only for Defendants). My hopes of a refund are lost.
However, we have gained something more important: a public record about Obelisk’s practices from trial that explains their scheme. By posting Obelisk’s practices online, I hope that others that are entangled with these troubles turn this Small Claims blow-out of my case into a Pyrrhic victory for Obelisk.
I’m also hopeful that this case will get the attention of consumer and securities regulators. Obelisk is deceiving thousands of purchasers of computer equipment based on presale specifications that the company sets. Only after Obelisk took consumers’ money, they declared that the whole presale to be a Kickstarter Campaign. Obelisk submitted evidence in the record that Kickstarter projects are late 85% of the time. On that basis, Obelisk won.
That’s one problem — Obelisk is NOT a Kickstarter Campaign. As far as I can tell, the company has no relationship at all with Kickstarter. Yet that was their case-in-chief at trial. In a subsequent court filing, Obelisk told the court more broadly: “[s]ites such as Kickstarter.com, indiegogo.com, and patreon.com all provide full platforms of projects similar to Obelisk.”
[Edit: see Kickstarter vs Obelisk comparison, at bottom: average Kickstarter raises $6,000, but Obelisk raised more than $13 Million with its presale]**
There’s the other problem — those aren’t just “sites” or “platforms of projects.” Crowdfunding initiatives are regulated initiatives. Here’s an SEC bulletin that explains that, Crowdfunding for Investors. Here’s an FTC enforcement action against a seller on Kickstarter that didn’t deliver what was promised. Consumers and regulators should compare what the SEC and FTC say about crowdfunding with Obelisk’s closing statement in my case, to-wit, “when it comes to tech companies, this is the way that they fund the projects. Securities laws don’t because the SEC has stated so.” The SEC has said no such thing!**
I am providing the Court’s recording here for everyone to access, and hopefully, use as a tool to inform consumers and regulators with an aim to to stopping Obelisk’s deceptive practices.
It’s never too late to do the right thing.
**[Edits 4/9/2019: Added FTC references + Comparison annex at bottom]
Court Recordings:
Ryan vs. Obelisk, 1801SC001155 Boston Small Claims Court
Soundcloud link:
https://soundcloud.com/patrick-s-ryan-1/ryan-v-obelisk-hearing
Notes: Mins 1–2: court; PLAINTIFF, mins 2:00–12:44; DEFENDANT OUTSIDE COUNSEL 12:44 on.
- I came in person but no Defendant came, only outside counsel;
- Excerpts from key in-court misrepresentations flagged; my transcription
- Several blatant misrepresentations about Kickstarter projects at trial
- Excerpts below are from hearing on Dec 10, 2018.
- Related cases: 1901SC000025EF, Ryan vs. Obelisk, Dismissed, 2/28/2019 (covered at end of recording but sound quality is poor)
December 10, 2018
[ME] [Min 2:51] “The attorney for the Defendant has made an Entry of Appearance . . . but I don’t know that the defendant is here. Is there a Defendant here?”
[Min 3:02, Cooley Atty Welsh] “I am here on behalf of Defendants.”
[MAGISTRATE]] [Min 3:25] “The Rules permit an attorney to represent their client in Small Claims Court. That’s all that I know.”
[Min 13:57, Cooley Atty Welsh] “[Obelisk] is a Kickstarter Campaign. A preorder. On the terms it says that ‘Obelisk is in the process of designing and manufacturing an Application.’ So that process in which they have not been created yet.”
[Min 15:04, Cooley Atty Welsh] “Note the fact for the record that when it comes to Kickstarters and those clients the idea is the fact that that you use those funds in order to develop the product. That is a priority in line.”
[Min 15:21, Cooley Atty Welsh] “Now, when it comes to Kickstarters, generally, they don’t meet the deadlines. In fact, I provide for evidence a CNN article from 2012 which references that at that point 85% of Kickstarters will not meet their estimated target date. That is a common process.” [Note: Atty put this article into evidence: bit.ly/OBELISK1]
[Min 16:34, Cooley Atty Welsh] “By accepting these terms Mr. Ryan accepted the fact that one of the risks was that the specifications for the Sia/Decred mining appliance are preorder estimates only and may not be accurate when compared to the final specifications on the Decred mining appliance.”
[Min 19:48, Cooley Atty Welsh] “There was a bargained-for exchange in which the preorder . . . there was an exchange for paying up front and allowing the company to develop create and manufacture these miners.”
[Min 20:06, Cooley Atty Welsh] “With that comes risks. Part of the risk is that they are developing at the time and it’s not the same as purchasing a shirt off of Amazon in which this is the shirt that we’ll be sending to you. They’re going to be CREATING them with the funds.”
[ME] [Min 20:29] “You said this is a Kickstarter arrangement. Can you show me where in the agreement this points out that this is a registered Kickstarter arrangement, or where the word ‘Kickstarter’ is mentioned AT ALL?”
[Min 20:56, Cooley Atty Welsh] “The preorder terms! It’s EXACTLY the same thing as a preorder! It’s a Kickstarter.”
[ME] [Min 21:02] “You said this is ‘KICKSTARTER.’ You just read the contract and it did NOT have the words ‘KICKSTARTER’ in there, did it?”
[Min 21:07, Cooley Atty Welsh] “So you’re saying there’s a difference between those two?”
[ME] [Min 21:09] “I’m saying that ‘Kickstarter’ is absolutely a defined concept here and you’re claiming now that this is a ‘Kickstarter Campaign’ where ‘KICKSTARTER’ is not mentioned in any single contract, in anything that I’ve ever seen. So if it’s here, I’d like to see it.”
[Min 21:21, Cooley Atty Welsh] “The idea of a ‘Kickstarter’ is you take the money in at first in order to manufacture; to pool the funds and invest and create the machine. Every single one of those defined terms is in there.”
[Min 24:07, Cooley Atty Welsh] “‘KICKSTARTER’ is a term of art. There are certain types of Kickstarters in which you need to register with the Securities and Exchange Commission. Those come funding a program in which — — in exchange for doing that, they’re going to provide something ELSE to you.”
[Min 24:19, Cooley Atty Welsh] “This is a preorder agreement in which, as provided previously, when it comes to tech companies, this is the way that they fund the projects. Securities laws DON’T APPLY TO THEM because the SEC has stated so!”
Obelisk’s accompanying brief:
“[S]ites such as Kickstarter.com, indiegogo.com, and patreon.com all provide full platforms of projects similar to Obelisk. For example, Kickstarter describes itself as follows: ‘Kickstarter is a ‘crowdfunding’ platform where you support the new products of entrepreneurs by pre-ordering them (at a deep discount) for later shipment.’ On the site, numerous products yet to be made are offered for pre-order. Unfortunately, many of them are delayed. If Ryan’s contention were true, the SEC would be allowing companies to openly violate securities laws daily in plain site without effort. Clearly this is not the case.”
— Defendant’s Brief at p. 12, here
(copy of Terms also available in Brief)
Obelisk Founder David Vorick:
Obelisk co-founder David Vorick (“Taek” on the Grin Forum) speaks publicly, even today about their projects as a crowdfunding initiative. Vorick quotes my question to him in the Grin Forum on March 28, 2019 he and responds as follows:
Why not issue refunds? Obelisk Founder David Vorick says
“Had we gone the refund route, everyone would have received a fraction of what they paid, and Obelisk would have gone fully bankrupt.”
Kickstarter vs. Obelisk, compared
Kickstarter average fundraise is $6,000 and Obelisk’s DCR sale raised more than $13 MILLION. Are they really even comparable as Obelisk insists?
The numbers help illustrate why Obelisk’s comparison with Kickstarter is such a gross misrepresentation — Kickstarter fundraises are small, about $6,000, and Kickstarter is not selling its own products; it is an intermediary offering a platform for the benefit of others. Kickstarter keeps no intellectual property nor any ownership in the projects on the platform.
In this situation, Obelisk is manufacturing, marketing and selling its own equipment and retaining all intellectual property itself. The financial investment raised more than $13m dollars. Compare:
- Kickstarter’s average per-person contribution is $25 and an average fundraise per campaign of $6,000[cite].
- Obelisk sold 6,349 DCR-1s. Assuming an average price of $2,100 each that’s 240x the average Kickstarter contribution. Obelisk’s total fundraise was $13,332,900.00, which is 555x the average Kickstarter fundraise.
- No Kickstarter Campaign raises $20k from any single customer nor has the ability to raise $13m of capital for its members (as Obelisk did on it’s own behalf).
