Investors filed a class action lawsuit in a state court in Delaware over allegedly fraudulent practices by a cryptocurrency exchange that left them with worthless equity, rather than the $31 million repayment promised under their notes.

Eric Rosen and Constantine P. Economides, partners at Dynamis in its Miami and New York offices, and Christine M. Mackintosh, a partner at Grant & Eisenhofer in Wilmington, Delaware, said aspects of the case in which they represent Jonathan Chitty and Conor Stapleton, against Tides.Network Inc., operating as Portal, are similar to macroeconomic components across the crypto industry.

“There is this emerging, valuable technology ecosystem and developing Web3 industry that developed outside of any clear regulatory structure, and that leaves ambiguity in the protections that exist for other financial products, like currencies, investments, whatever you want to term it,” Economides said. “That is one relevant component here and that is industry-wide.”

Portal did not respond to a request for comment.

Now, the case is pending before Delaware Chancery Judge Nathan A. Cook in which the prospective class alleged eight claims, including seeking a declaratory judgment that the series notes have not been converted, breach of contract, and fraud in the inducement.

Founded in 2018 and headquartered in San Francisco, Portal is a financial services company that provides its users a platform to trade Bitcoin and other crypto assets anywhere in the world. 

In 2021, Portal raised $31 million through convertible promissory notes, promising repayment or conversion into equity if the company achieved a specified financing level by 2022, per the complaint. However, when crypto markets crashed and Portal’s financial health deteriorated, it allegedly failed to conduct the qualifying $10 million financing needed to convert the notes to equity.

Instead, the plaintiffs alleged in the complaint that Portal attempted to pressure noteholders into accepting “worthless” shares, citing a purported conversion based on limited investor consent. The plaintiffs argued that Portal misled investors about their rights, repeatedly insisting via email that noteholders had no repayment right despite clear contractual terms guaranteeing it.

When investors questioned the process, Portal declined to provide proof of majority approval for the conversion and, instead, threatened legal action against those who asked questions, according to the complaint. Plaintiffs also alleged that Portal’s financial statements, shared in mid-2022, failed to account for the $31 million raised, casting doubt on where the funds went. 

Meanwhile, Portal reportedly completed a $34 million fundraising round in 2024, raising concerns that investors’ initial contributions may have been redirected.

“The allegations in the complaint are about investors being bullied into signing these conversions and being lied to about the use of this money,” Rosen said. “That has been a theme for a long time in the crypto industry where companies are fast and loose with facts in their offering memorandum and a lot of them don’t have the best interests of their investors at heart.”