Logan Paul's Manager Warned of SEC Oversight of Cryptozoo

New documents filed in a Texas court claim that YouTuber Logan Paul’s team feared his failed Cryptozoo project could attract the attention of the Security and Exchange Commission (SEC), which regulates financial products in the United States.

The amended complaint in a class action lawsuit against Paul and others involved in the project, including his manager Jeff Levin, cites text messages from the development team discussing potential ways to get rich off the project before it even launched.

Cryptozoo was pitched to fans as a “really fun game that makes you money.” The premise was that players would purchase animal-themed NFTs that they could trade and then “mate” to produce additional, unique animals. Before the game launched, they also offered NFTs called “base eggs,” which would in theory hatch when the game launched.

Potential players could also purchase a crypto token called $Zoo to purchase the animal NFTs at a 10% discount.

But the game never saw the light of day. Paul apparently quietly abandoned the project, before an eight-part series by YouTuber Coffeezilla, released in late 2022, forced him to speak publicly about it.

Investors claim to have invested more than $4.1 million in the project without ever having had a chance to get their money back.

The amended complaint cites text messages from Jake Greenbaum, aka Crypto King, and Eddie Ibanez, two developers Paul accused in a counter-complaint of actually being responsible for the project’s failure. Paul claims the two men hijacked his project for their own enrichment, manipulating the game’s internal marketplace to cash out their winnings early. Greenbaum told the Daily Dot at the time that the allegations were “completely false” and an attempt by Logan to “shift responsibility for his collusion.”

“He’s trying to shift the blame, but that will all be told in the court process,” Greenbaum said. However, he never formally responded to the lawsuit, claiming Paul was trying to drain him financially through the lawsuit.

Meeting notes from June 3, 2021, cited in the complaint show that the project was focused on “profit for the team” and that the founders “planned a private sale among themselves before going public,” the class action lawyers argued.

In a screenshot of an April 14, 2021 post, Ibanez, who was believed to be the lead developer of the project, explained that the tokens can be traded both as a security, which is a tradable financial asset, and as an NFT, which in theory is a unique license to own a piece of digital art.

“The same token can be traded as a security and as an NFT if we wish,” Ibanez wrote. The screenshot does not make it clear to whom the message is addressed. The SEC requires sellers to register securities if they want to sell them to the public, and trading in unregistered securities is a crime.

The lawsuit alleges that Paul and his associates willfully sold unregistered securities.

Paul also allegedly lobbied for a token presale, according to other texts cited in the amended complaint. In one, he salivated at the thought of how much money a presale could bring in.

“$20 million is a lot of money,” Paul texted his manager, Levin.

But Levin fired back, writing that “it’s against the SEC.”

“Everyone is pre-selling with parts,” Paul replied.

“I certainly don’t want to do anything that might attract other people’s attention,” Levin replied.

Paul claims that Ibanez and Greenbaum left him in charge of the project by collecting their money early.

But the amended complaint claims that Paul was also involved in discussions about an early withdrawal, before trading was open to the public.

The class’s attorneys claimed that Paul and others never registered the NFTs or crypto tokens for Cryptozoo, and speculated that they cashed out their winnings before the project went public through a pre-sale or “illegal liquidity pool trading.”

“Defendants never registered any Zoo Tokens or CZ NFTs and conducted… a pre-sale through illegal liquidity pool trading before the Cryptozoo products were made public,” the attorneys alleged in the lawsuit.

They say the discovery will reveal definitive proof of this.

The amended complaint also claimed that other messages showed Paul was cynically focused on profit when developing the project. They cite a message from Paul proposing to add a charitable component to the project such as “donating to animal rescues or something,” highlighting the potential tax benefits the project could generate.

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