{"id":6475,"date":"2022-08-17T22:00:39","date_gmt":"2022-08-17T22:00:39","guid":{"rendered":"https:\/\/cryptoheretostay.com\/?p=6475"},"modified":"2022-08-17T22:00:40","modified_gmt":"2022-08-17T22:00:40","slug":"slaying-the-dragonchain-a-tale-of-fear-and-mania","status":"publish","type":"post","link":"https:\/\/cryptoheretostay.com\/?p=6475","title":{"rendered":"Slaying the Dragonchain: A Tale of Fear and Mania"},"content":{"rendered":"<p> <script type=\"text\/javascript\">\r\namzn_assoc_placement = \"adunit0\";\r\namzn_assoc_tracking_id = \"totafreearti-20\";\r\namzn_assoc_ad_mode = \"search\";\r\namzn_assoc_ad_type = \"smart\";\r\namzn_assoc_marketplace = \"amazon\";\r\namzn_assoc_region = \"US\";\r\namzn_assoc_default_search_phrase = \"crypto\";\r\namzn_assoc_default_category = \"All\";\r\namzn_assoc_search_bar = \"false\";\r\namzn_assoc_title = \"\";\r\namzn_assoc_rows =\"1\";\r\n<\/script>\r\n<script src=\"\/\/z-na.amazon-adsystem.com\/widgets\/onejs?MarketPlace=US\"><\/script><br \/>\n<\/p>\n<h3>Key Takeaways<\/h3>\n<p>Once one of crypto\u2019s most hyped projects, ICO-era startup Dragonchain and its founder were charged today by the SEC for the sale of $16.5 million in unregistered securities.<br \/>\nThe charges follow years of alleged mismanagement and reportedly tyrannical leadership under CEO Joe Roets, whom employees claim managed the company with \u201cfear and intimidation.\u201d<br \/>\nDragonchain\u2019s lavish spending and poor financial management quickly resulted in the project\u2019s deterioration and drew the attention of regulators in the U.S. <\/p>\n<p>Share this article<\/p>\n<p>Dragonchain once had big ambitions to bring the \u201cmagic of blockchain technology\u201d to businesses around the country. Today, the Securities and Exchange Commission is charging the project and its founder, Joe Roets, with having sold $16.5 million in unregistered securities from 2017 to 2022. <i>Crypto Briefing<\/i> takes a deep dive into the startup\u2019s rise and fall.<\/p>\n<h2>The Dragon Awakens<\/h2>\n<p>Dragonchain was originally developed in 2015 from one of the Walt Disney Company\u2019s incubators as the <i>Disney Private Blockchain Platform<\/i>. That is until the architect behind the project, John Joseph Roets (who goes by \u201cJoe\u201d Roets), went rogue, according to his early collaborators.<\/p>\n<p>Roets spun the project out as a non-profit, wresting control of the intellectual property and brand from Disney and cutting ties with his former collaborators entirely. In August of 2017, Dragonchain Inc. was announced, a for-profit startup keen on cashing in on the cryptocurrency mania.\u00a0<\/p>\n<p>The startup aimed to build a \u201cturnkey blockchain platform for business.\u201d Like many competitors, it promised \u201csecurity and flexibility unseen in the market,\u201d positioning Dragonchain for \u201c\u200b\u200bexponential\u200b \u200bgrowth\u200b.\u201d<\/p>\n<p>Dragonchain announced it would raise money by selling its own cryptocurrency, called \u201cDragon tokens.\u201d Furthermore, beyond building its own technology to compete with other enterprise blockchains, like Hyperledger and R3, Dragonchain sought to form an incubator to help other startups raise their own rounds on the Dragonchain platform.\u00a0<\/p>\n<p>Shortly after announcing the launch of its for-profit corporation, Dragonchain held two initial coin offerings, or ICOs. Enthusiasm around the sale was tremendous, with investors from Asia to Europe excited by Disney\u2019s potential involvement, despite the project no longer having any affiliation with the media giant.\u00a0<\/p>\n<p>Taking advantage of the name association, Dragonchain was able to raise over $15 million in Bitcoin and Ethereum over the course of four months. At the insistence of Roets, participation in the sale was available to anyone in the world without restrictions.<\/p>\n<p>As a result of surging cryptocurrency prices, the startup\u2019s hoard was worth over $50 million by December. At its peak in January 2018, Dragon tokens were worth over $5 each, giving the company a valuation of over $1.2 billion.<\/p>\n<h2>Spending the Treasure Hoard<\/h2>\n<p>On the back of the successful fundraising, Dragonchain was able to more than just grow its team and open a new office. It generously sponsored many of the newly sprouted blockchain conferences and events in Washington state, as well as funding one of its own\u2060\u2014Blockchain Seattle. The startup even helped fund the formation of the Washington Technology Industry Association\u2019s Cascadia Blockchain Council (WTIA), where Joe Roets sits as a steering committee member.<\/p>\n<p><em>Corey LaJoie\u2019s No. 72 Sponsored by Dragonchain<\/em><\/p>\n<p>Other expenditures were a little more lavish. Dragonchain\u2019s non-profit purchased a penthouse worth $2.2 million atop the Bellevue Pacific Tower to entertain clients and investors. In July 2018, it sponsored NASCAR Cup Series driver Corey LaJoie in Daytona. In 2019, the startup commissioned a media company to produce a documentary series about Dragonchain.<\/p>\n<p>Despite the impressive spending, however, it wasn\u2019t long after Dragonchain\u2019s token sale before trouble began.<\/p>\n<h2>The Problem with ICOs<\/h2>\n<p>After its successful raises, Dragonchain wanted to help other blockchain projects raise their own multi-million dollar rounds. Within months, it signed on tens of startups looking to raise money.\u00a0<\/p>\n<p>At least one company was able to raise money on top of the Dragonchain platform. Look Lateral, a company trying to sell shares of art through cryptocurrency, held a token sale facilitated by Dragonchain in 2018.<\/p>\n<p>However, around this time, regulators began scrutinizing the untamed ICO scene. Many of these token sales were unregistered securities offerings, according to guidelines from regulators.<\/p>\n<p>These rules, enforced by the Securities and Exchange Commission (SEC), ensure that investors receive consistent and accurate financial information about the companies they invest in. The regulator is particularly vigilant about securities investments offered to the general public.<\/p>\n<p>Around 2017, the SEC started ramping up its cryptocurrency offerings enforcement. In December 2017, the Commission issued its first cease-and-desist proceedings against a company selling tokens issued on a blockchain.\u00a0<\/p>\n<p>Through 2018, the regulator continued to tighten enforcement. That year, it halted multiple fraudulent offerings, shut down an unregistered cryptocurrency exchange, and even charged boxer Floyd Mayweather Jr. and music producer DJ Khaled for unlawfully promoting ICOs.<\/p>\n<p>Nevertheless, Joe Roets was voracious when it came to fundraising, pushing companies to raise money through Dragonchain while the market was still hot, said Brandon Kite, the former software development lead at Dragonchain. \u201cBut there\u2019s no way anybody could use Dragonchain for that stuff legally, that\u2019s why they don\u2019t have any customers,\u201d Kite said. Two former executives at the company have gone as far as to say that Roets and two other employees were directly subpoenaed by the SEC in 2019. <i>Crypto Briefing <\/i>confirmed this date after one source shared the subpoena they received from the SEC.<\/p>\n<p>The scrutiny had an impact on business. For example, blockchain identity startup LifeID was one of the startups that considered joining Dragonchain\u2019s incubator. The founder of the company, Chris Boscolo, told <i>Crypto Briefing<\/i> that his company had been in negotiations to conduct an ICO through Dragonchain in late 2017. But, based on guidance from his legal counsel, he was told to limit the offering to accredited investors in order to remain in compliance with securities laws.<\/p>\n<p>That is when the deal broke down with Dragonchain. According to Boscolo, the company informed him that they were only interested in supporting his token sale if there were no restrictions on who could participate\u2060\u2014just like Dragonchain\u2019s own ICO.<\/p>\n<p>The insistence would prove to be a dealbreaker. \u201cLifeID has decided to follow the guidance of their legal team and due diligence for their ICO. Upcoming presale has been canceled,\u201d said Dragonchain on social media.<\/p>\n<h2>Ruling Through Fear<\/h2>\n<p><i>Crypto Briefing<\/i> interviewed more than 10 employees at the company and reached out to more than 30 people connected to the company in total. Many declined to comment, wanting to avoid litigation or harassment. Those that did speak said that the Roets\u2019 managed the company through \u201c fear and intimidation,\u201d with some describing the experience as \u201ctraumatic.\u201d<\/p>\n<p>In conversations with former employees, many cited the same reason for leaving\u2060\u2014their poor treatment by Joe Roets and his wife, Shirly Roets, who was second in command.<\/p>\n<p>Chin-One Chan, Dragonchain\u2019s Marketing Manager for Asia during its ICO, spoke with <i>Crypto Briefing <\/i>about her work at Dragonchain. Three months into her engagement, she claimed that Dragonchain tried to coerce her into signing a non-disclosure agreement after she raised concerns about promises made to her prior to the ICO. When she refused, Dragonchain fired her and withheld her wages along with Dragon tokens she was supposed to receive for the work she conducted, according to Chan.<\/p>\n<p>Another employee alleged that after they were fired, the company tampered with their W-2 filings with the IRS and three colleagues in an alleged attempt to increase their tax bill as punishment.<\/p>\n<p>Several employees also said they had Dragon tokens promised to them for their work that was \u201cclawed back.\u201d A total of 20% of Dragon tokens issued were allocated to founders and early employees, similar to stock options. One of these employees showed <i>Crypto Briefing<\/i> an employment agreement detailing their allocation of tokens.<\/p>\n<p>Employees said they were asked to return these tokens for tax purposes and that they\u2019d be returned at a later date. They claim to have never received them, and when they pressed Dragonchain about the tokens, the company used it as negotiating leverage or simply didn\u2019t distribute them at all. Transactions on the blockchain line up with stories from these employees.<\/p>\n<p>Not only would the company attempt to intimidate people financially, but Dragonchain would also do so legally. \u201cJoe Roets is litigious, to say the least,\u201d said one former employee. More than two employees involved with the company said that Joe Roets initiated \u201cfrivolous lawsuits\u201d against them after they left.<\/p>\n<p>One striking example of the conditions at Dragonchain is from a former executive, who spoke with <i>Crypto Briefing<\/i> on condition of anonymity. They said that after raising concerns about \u201cinconsistencies\u201d in Dragonchain\u2019s finances, Joe Roets \u201cpulled a gun out in front of me, pointed it at me, and then pointed it at himself,\u201d saying \u201cmaybe I ought to end it all.\u201d Shortly after the incident, Joe and Shirly Roets fired the executive, they said.<\/p>\n<h2>Evidence of Financial Distress<\/h2>\n<p>Since its inception, there has been little evidence that Dragonchain has generated meaningful revenue from companies using its platform.\u00a0<\/p>\n<p>Though this isn\u2019t unusual for a high-risk startup, the company seemingly sabotaged deals with prospective customers. \u201cJoe Roets went out of his way to scare off Starbucks,\u201d said August Harper, formerly Roets\u2019 executive assistant.\u00a0\u00a0<\/p>\n<p>Another former executive corroborated the two incidents, saying that \u201cwhen we were close to signing new customers, including Starbucks, Joe would drive them away.\u201d Brandon Kite added that, \u201cJoe was more interested in maintaining the value of his Dragon [tokens] than he was in running a business.\u201d Without reliable revenue, the company turned toward dependence on the money it raised through its ICO.\u00a0<\/p>\n<p>However, these funds are only worth a fraction of what they were during 2017. Since then, the value of the Dragon token has collapsed. Previously, one of these tokens commanded as much as $5. By the end of 2018 they traded below $0.10; now, they go for less than $0.02.\u00a0<\/p>\n<p>There were other signs that the company was experiencing financial difficulty as well. In May of 2019, the company sold its penthouse at a $242,000 loss. Around the same time, the company was delinquent on over $119,000 in taxes.\u00a0<\/p>\n<p>Lawrence Lerner, the company\u2019s former President of Consulting Services and a former bigwig at now defunct blockchain project RChain, told <i>Crypto Briefing<\/i> he left because \u201cthey didn\u2019t have any money to pay me.\u201d Other service providers also reported that they could not collect payments from Dragonchain.<\/p>\n<p>Meanwhile, Joe and Shirly Roets were collecting salaries of $200,000 and $180,000, according to one former executive. Even with these outstanding bills, Dragonchain made a $500,000 investment in Coinme, a Seattle-based Bitcoin ATM company, at the beginning of 2020.<\/p>\n<p>On condition of anonymity, one of the company\u2019s former controllers told <i>Crypto Briefing <\/i>that, while they were organizing the company\u2019s books, they found \u201cthings missing.\u201d Some transactions conducted in cryptocurrency \u201cdidn\u2019t make its way back to the company,\u201d they said. They attempted to track down these transactions, and when they pressed the issue, the former controller said they were fired.<\/p>\n<h2>The Aftermath of Mania<\/h2>\n<p>On August 16, 2022, years after first subpoenaing Dragonchain executives and employees, the SEC formally charged Joe Roets and Dragonchain for selling unregistered securities. The agency claims Dragonchain raised $14 million from about 5,000 investors worldwide during its ICO, and cashed in another $2.5 million in the period from 2019 to 2022.\u00a0<\/p>\n<p>The SEC is seeking permanent injunctions, disgorgement with prejudgement interest, civil penalties, and conduct-based injunctions against Roets and Dragonchain\u2019s corporate entities.<\/p>\n<p>Joe Roets stated in an open letter that he was confident he had a \u201cvery strong case\u201d against the charges. He furthermore took the opportunity to extol the virtues of blockchain technology, calling it \u201cliberty encapsulated in software,\u201d and ended his letter with a quote from the revolutionary writer Thomas Paine: \u201cTyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph.\u201d<\/p>\n<p>Many of these issues weren\u2019t unique to Dragonchain. There were hundreds of startups from 2017 through 2018 that raised millions on the promise of blockchain technology. Some of these companies disappeared entirely. Others were shown to be fraudulent. Some are still waiting to see what happens.\u00a0<\/p>\n<p>Dragonchain was one of many companies swept up in the mania of 2017. It wasn\u2019t the only project that acted rashly\u2014or even fraudulently\u2014with the money it raised from investors. Like many of those startups looking to tap into the \u201ctransformative power of blockchain,\u201d they left former employees and investors with little to show for their work and the money entrusted to them.<\/p>\n<p>Things happen quickly and impulsively in the cryptocurrency space, but accountability moves slowly and deliberately. What seems like ancient history to crypto natives is still fresh in the minds of regulators, authorities, and law enforcement, and the SEC\u2019s actions against Dragonchain years after the fact demonstrate that its memory is long and its patience abundant.\u00a0<\/p>\n<p><em>Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.<\/em><\/p>\n<p>Share this article<\/p>\n<p>The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.<\/p>\n<p>You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.<\/p>\n<p>See full terms and conditions.<\/p>\n<p><script type=\"text\/javascript\">\r\namzn_assoc_placement = \"adunit0\";\r\namzn_assoc_tracking_id = \"totafreearti-20\";\r\namzn_assoc_ad_mode = \"search\";\r\namzn_assoc_ad_type = \"smart\";\r\namzn_assoc_marketplace = \"amazon\";\r\namzn_assoc_region = \"US\";\r\namzn_assoc_default_search_phrase = \"bitcoin\";\r\namzn_assoc_default_category = \"All\";\r\namzn_assoc_search_bar = \"false\";\r\namzn_assoc_title = \"\";\r\namzn_assoc_rows =\"1\";\r\n<\/script>\r\n<script src=\"\/\/z-na.amazon-adsystem.com\/widgets\/onejs?MarketPlace=US\"><\/script><br \/>\n<br \/><a href=\"https:\/\/cryptobriefing.com\/slaying-the-dragonchain-a-tale-of-fear-and-mania\/?utm_source=category_feed&#038;utm_medium=rss\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Key Takeaways Once one of crypto\u2019s most hyped projects, ICO-era startup Dragonchain and its founder were charged today by the SEC for the sale of $16.5 million in unregistered securities. The charges follow years of alleged mismanagement and reportedly tyrannical leadership under CEO Joe Roets, whom employees claim managed the company with \u201cfear and intimidation.\u201d [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":6476,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_wp_rev_ctl_limit":""},"categories":[4],"tags":[],"class_list":["post-6475","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-news"],"_links":{"self":[{"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/posts\/6475","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=6475"}],"version-history":[{"count":1,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/posts\/6475\/revisions"}],"predecessor-version":[{"id":6477,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/posts\/6475\/revisions\/6477"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=\/wp\/v2\/media\/6476"}],"wp:attachment":[{"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6475"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6475"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cryptoheretostay.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}