Smietana v. Stephens
| Docket Number | 22 C 708 |
| Decision Date | 30 May 2023 |
| Parties | BRANDON SMIETANA and SKYCOIN GLOBAL FOUNDATION LIMITED, a Singapore company, and SYMBOLIC ANALYTICS INC. a Delaware Corporation, Plaintiffs, v. BRADFORD STEPHENS, et al., Defendants. |
| Court | United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois) |
Plaintiffs Brandon Smietana, Skycoin Global Foundation Limited (“Skycoin”), and Symbolic Analytics Inc. (“Symbolic”) created a cryptocurrency called the Skycoin Token, which Skycoin sold on cryptocurrency exchanges. Plaintiffs bring this action against Defendants Bradford Stephens, Aaron Kunstman, Harrison Gevirtz, Ryan Eagle, Far Ahead Marketing, LLC (“FAM”), Joel Wayne Cuthriell, Morgan Peck, Catherine Byerly, Steven Leonard, Joshua Ogle, American Publishers, Inc., and unknown individuals and companies, alleging that they engaged in a campaign of fraud, harassment, and extortion to interfere with Skycoin's business and to obtain money from Plaintiffs. Plaintiffs have effectuated service on Defendants Stephens, Eagle, Byerly, and FAM.[1]
In their second amended complaint, Plaintiffs bring claims against Stephens, Eagle, Byerly, and FAM for misappropriation of trade secrets in violation of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836(b); tortious interference with Skycoin's business; civil conspiracy and unjust enrichment. Plaintiffs also bring claims against Stephens for violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961; breach of contract; and violation of the Illinois Hate Crime Act (“IHCA”), 720 Ill. Comp. Stat. 5/12-7.1. Additionally, Plaintiffs bring claims for fraud against Stephens and Byerly. Finally, Plaintiffs bring a claim for breach of fiduciary duty against Stephens, Byerly, and FAM. Defendants Stephens, Eagle, and Byerly have each moved to dismiss Plaintiffs' second amended complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).[2] Separately, FAM has moved to dismiss the second amended complaint for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2).
Because Plaintiffs have not alleged that FAM had sufficient contacts with Illinois, the Court does not have jurisdiction over FAM and dismisses the second amended complaint as to FAM. Further, because Plaintiffs have failed to adequately allege that Stephens violated RICO, or that Stephens, Byerly, or Eagle violated the DTSA, the Court grants their motions to dismiss as to the RICO and DTSA claims. The Court dismisses the second amended complaint without prejudice and defers consideration of the state law claims until Plaintiffs plead a sufficient basis for subject matter jurisdiction.[3]
BACKGROUND[4]
In 2013, Skycoin introduced a cryptocurrency called the “Skycoin Token.” Smietana is the Chief Software Architect and authorized representative of Skycoin and Symbolic. Skycoin created 100 million Skycoin Tokens, which were traded on various cryptocurrency exchanges. In January 2018, Skycoin Token reached its peak market capitalization at $5 billion.
On January 8, 2018, Plaintiffs engaged Stephens and Gevirtz to provide marketing services for Skycoin. Seeing an opportunity, Stephens and Gevirtz devised a plan to defraud, extort, and steal money and assets from Skycoin with the assistance of the other Defendants. Stephens represented himself as the owner of a marketing startup company called Smolder LLC. But unbeknownst to Plaintiffs, in 2014 the Federal Trade Commission (“FTC”) obtained an order preventing Stephens and Gevirtz from engaging in certain marketing activity. Stephens and Gevirtz knew about the order but failed to inform Plaintiffs about the order and instead agreed to provide Plaintiffs with marketing services that violated the order. Plaintiffs made several payments to Stephens and Gevirtz, including an initial payment of $107,948 for the marketing services, $800,000 in Skycoin Tokens for an internet advertising campaign, $14,752.44 for work performed by Byerly, $38,000 to combat a third-party attack on Skycoin's website, $14,314 for Stephens and Gevirtz to attend a conference, and payments of $842,400, $121,337, $23,212, $80,929, $56,457, and $14,679 for various other marketing services.
During their relationship with Skycoin, Stephens, Gevirtz, and Byerly sought reimbursement for unauthorized charges that were not related to legitimate business activity. On one occasion, Stephens submitted an invoice for $50,000 for cash withdrawals he made in Las Vegas. He, however, refused to provide receipts and could not explain on what he had spent the money. Stephens, Gevirtz, and Byerly also all submitted bills for subcontractors for dates both before and after their relationship with Skycoin, as well as for subcontractors that did not exist. Stephens, Gevirtz, and Byerly all submitted bills for nonexistent costs or unapproved expenses and falsely represented to Skycoin that they had received prior approval.
Skycoin later learned that Stephens and Gevirtz were taking advantage of it. For instance, on January 12, 2018, Stephens and Byerly told Plaintiffs that an unknown third-party was attacking Skycoin by posting links to pornographic content on its website as an attempt to divert traffic from the website. Stephens and Gevirtz claimed that they needed an additional $38,000 to combat these attacks, which Skycoin paid. In February 2018, however, Skycoin learned that there had been no third-party attack. In fact, it was actually Stephens and Gevirtz themselves that instigated the attack so that they would receive more money. The attack damaged Skycoin's search engine optimization (“SEO”) ranking and significantly reduced the traffic to Skycoin's website.
From late January through early February 2018, Stephens demanded that Skycoin pay him $100,000 per month to combat third-party attacks, eventually increasing his demand to $300,000 per month. In early February 2018, Symbolic received invoices that it deemed “highly suggestive of fraud” and discontinued future payments to Stephens and Gevirtz. Doc. 59 ¶ 50. On February 8, 2018, Gevirtz told Skycoin's IT staff that he controlled the third-party attacks and that he could stop the attacks if Plaintiffs paid him the money he demanded. Plaintiffs did not pay the demands.
After Plaintiffs refused to pay the demands, in February 2018, Stephens, Gevirtz, and Smietana met in Shanghai, China, with Eagle attending via Zoom. During the meeting, they threatened to have Skycoin delisted from all cryptocurrency exchanges and to drive the price of Skycoin Tokens to $0 unless Smietana paid them $30,000,000 in Bitcoin as well as $1,000,000 in U.S. Dollars. Gevirtz also alluded to having connections to “organized crime cartels in Eastern Europe that would employ ‘unconventional debt collection' methods should Smietana not accede to their demands.” Id. ¶ 58. Stephens and Gevirtz also demanded that Stephens be named Chief Operating Officer and Gevirtz be named Chief Financial Officer of Skycoin. On February 9, 2018, in fear of the threats, Skycoin paid $127,000 to Stephens and Gevirtz. On February 22, 2018, after pressure from Skycoin's advisory board, Stephens and the other Defendants stopped providing marketing services for Skycoin. Plaintiffs requested a refund of any not yet spent prepayments they made for the marketing services, but Stephens and Gevirtz refused.
Around February 2018, Stephens and Gevritz also attempted to take over Skycoin through nefarious means. For instance, Stephens paid journalist Tristian Greene to publish an article titled “Skycoin: Anatomy of a cryptocurrency scam,” which damaged the price of Skycoin Tokens as well as its reputation. Id. ¶ 62. In an apparent attempt to takeover the company, Stephens told Skycoin's advisory board that Smietana ordered him to have the article published.
On June 12, 2018, Stephens, Gevirtz, and Eagle arranged for Yan Xiandong, Li Min, Sam Sing Fond, and Sun Fei (the “Assailants”) to kidnap Smietana and his girlfriend and to steal the $30,000,000 Skycoin had refused to pay. The Assailants invaded Smietana's home and “violently beat and tortured Smietana and his pregnant girlfriend for approximately six (6) hours in order to gain access to Smietana's computer systems, Skycoin's source code, Skycoin intellectual property, company accounts for operation of business, and cryptocurrency wallets.” Id. ¶ 73. Smietana eventually provided the passwords to his computer and the Assailants stole Bitcoin worth $139,160.33 and Skycoin worth $81,018.98. The Assailants called Stephens and complained that they did not find “the thousands of Bitcoin promised to them.” Id. ¶ 75. On October 18, 2018, Stephens and Gevirtz demanded over $150,000 before they would return Skycoin's “computer-based assets and media accounts,” which the Assailants stole. Id. ¶ 70.
In February 2018, Skycoin was poised to be added to a major cryptocurrency exchange called Bittrex. Knowing this, on February 25, 2018, Stephens told Smietana that unless he paid him, Gevirtz, and Eagle $30,000,000 in Bitcoin as well as $1,000,000 in U.S. Dollars, Stephens would approach Bittrex to stop Skycoin from being listed on its exchange. After Smietana refused to pay, Stephens “provided untrue information to Bittrex” leading to Bittrex not listing Skycoin on its exchange. Id. ¶ 68.
On May 24, 2018, Binance, another major cryptocurrency exchange announced that it would list Skycoin on its exchange. But because Smietana continued to refuse to pay Stephens' extortion demand, in June 2020 Stephens and Kunstman, along with the help of others, devised a plan to get...
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