INVESTORS FILED A $100M FRAUD and racketeering lawsuit in federal court this week against a group of individuals and companies involved with Cere Network, a San Francisco-based cloud data storage venture.
According to allegations in the complaint, the creator and operator of Cere — the complaint calls him a “ringleader” — was Fred Jin, a San Francisco entrepreneur previously associated with Funler, a mobile gaming company, and Bitlearn, an education-blockchain platform.
According to the complaint, Jin met Lujunjin “Vivian” Liu, an investor from Cupertino, and pitched her on his vision of creating a decentralized data storage system across a network of independent servers that would be well-positioned to service the predicted explosive growth in demand for secure cloud-based data storage.
The secret sauce of Jin’s idea was that Cere would use blockchain technology to store its customers’ data. Blockchain refers to a system of electronic ledgers maintained on multiple computers to ensure that every transaction on the system is secure and can be verified. Blockchain technology is used to maintain cryptocurrencies like Bitcoin and Ethereum.
Jin’s cloud storage network would use the blockchain technology to create a “native” crypto token — Cere Token — that could be used to pay for transactions on the network and provide a governance structure for the token holders.
Jin told Liu, she alleges, that the Cere Token was going to be listed on the Binance exchange and that Jin intended to raise funds from private investors to fund the development of Cere’s operations by way of sales of tokens to investors and ultimately to the public through an “initial coin offering.”
Jin engaged Liu as a “senior strategic advisor” to aid him in the process, in particular, by working on “execution strategy, token, planning and fundraising,” in return for payment in Cere Tokens, according to the complaint.
From 2019 through 2021, Liu says that she worked on average 10-20 hours a week introducing Jin to investors and preparing pitch decks and related materials in advance of the initial coin launch.
Liu and an investment group with which she was affiliated — Goopal Digital Ltd. — also invested in the enterprise by buying Cere Tokens.
The initial coin offering was in November 2021 and between private and public sales, Cere raised close to $50 million.
The complaint says that as is common in initial coin offerings, it was represented that Jin and other insiders could not sell their tokens right away, but they would be locked up so token buyers would be sure the promoters wouldn’t dump their tokens and crash the value.
Liu says those representations were false. Jin and other insiders allegedly sold tens of millions of dollars’ worth of tokens immediately after the initial coin offering. The price of the Cere Token fell from $.45 per token at the time of the launch to $.06 by December 2021. As of Tuesday, Cere was quoted at $.0012 per token, 99.7% below its peak value.
The complaint said that many of Jin’s statements to Liu and other investors about the cloud storage business were also false or misleading, including misrepresentations about the pace of adoption of the Cere Network by major Fortune 1000 clients, the technical readiness of the cloud storage network, and the timing of the launch of cloud services.
Liu alleges that Jin and the other defendants used the proceeds of their sale of Cere Tokens to enrich themselves. They accuse Jin of orchestrating a “pump and dump” scheme where the value of the enterprise was falsely built up, leaving investors holding the bag when the insiders dumped their holdings, collapsing the market price.
Jin was, in the words of the court filing, “the ringleader in one of the largest crypto frauds in history.”
Their suit raises many legal claims, but fraud and racketeering are at the top of the list. Liu and her co-plaintiff Goopal seek $25 million for their losses and another $75 million in punitive damages because of the “sheer size and scale of the fraud perpetrated by the defendants,” according to the complaint.
The plaintiffs’ attorney John Ly said the lawsuit was significant because “people rely on promises made by tech founders, and, in doing so, they invest enormous amounts of their time and their money into start-ups.” He added, “When those promises turn out to be false, as alleged in the complaint, both the plaintiffs and the public suffer the consequences.”
No lawyer has yet entered an appearance in the case for Jin and the other defendants, and they have not yet responded to the allegations.
A request for comment from Cere Network was not immediately returned.