California crypto firm accused of inflating Katy Perry NFTs and fraud

4 years in the past, California startup Theta Labs’ cryptocurrency was hovering, and its future appeared vivid when it landed a partnership with pop star Katy Perry.

The Bay Space firm had constructed a market for digital collectibles generally known as nonfungible tokens, or NFTs, and had teamed up with Perry to launch NFTs tied to her Las Vegas live performance residency. Its THETA token jumped by greater than 500% in early 2021, reaching a peak of greater than $15, making it one of many world’s most beneficial cryptocurrencies. Later within the yr, the highlight shone on the corporate when it introduced the Perry partnership.

“I can’t wait to dive in with the Theta group on all of the thrilling and memorable artistic items, so my followers can personal a particular second of my residency,” Perry mentioned in a June 2021 information launch.

Right this moment, like many cryptocurrencies, THETA is 95% off its 2021 peak. It took successful this week after former executives accused it of manipulating markets to dupe shoppers into shopping for its merchandise. On Tuesday, it was buying and selling at lower than 30 cents.

Two former executives from Theta Labs sued the startup, alleging in separate lawsuits that the corporate and its chief government, Mitch Liu, engaged in fraud and manipulated the cryptocurrency marketplace for his profit. Liu retaliated towards them after the workers refused to interact in misleading enterprise practices and raised considerations, the lawsuits say.

A number of the alleged misconduct concerned inserting faux bids on Perry’s NFTs, participating in token “pump and dump” schemes and utilizing movie star endorsements and “deceptive” partnerships with high-profile corporations akin to Google to deceive the general public, based on the December lawsuits filed in Los Angeles Superior Court docket.

Perry just isn’t accused of any wrongdoing within the go well with, and Theta denies the costs.

The lawsuits towards Theta Labs are the newest controversy to rattle an business beset by scandals.

Cryptocurrency alternate FTX collapsed, and its founder, Samuel Bankman-Fried, was sentenced to 25 years in jail in 2024 after being discovered responsible of a number of fraud prices. Binance founder and former Chief Government Changpeng Zhao additionally received jail time after he pleaded responsible to violating cash laundering legal guidelines, however President Trump pardoned him this yr.

The U.S. Securities and Change Fee beforehand charged celebrities akin to Kim Kardashian, Lindsay Lohan, Jake Paul and Ne-Yo for selling crypto with out disclosing they have been paid to take action.

Theta Labs created a community that rewarded individuals with cryptocurrency for contributing spare bandwidth and computing energy to boost video streaming and decrease content material supply prices. The corporate describes Theta Community as a “blockchain-powered decentralized cloud for AI, media and leisure.” The community has two tokens: THETA, used to safe the community, and TFUEL, used to pay customers for companies and energy operations.

The whistleblowers suing Theta Labs are Jerry Kowal, its former head of content material, and Andrea Berry, beforehand the corporate’s head of enterprise growth.

“Liu used Theta Labs as his private buying and selling car, perpetrating fraud, self-dealing, and market manipulation,” mentioned Mark Mermelstein, Kowal’s legal professional, in a press release. “His calculated ‘pump-and-dump’ schemes repeatedly worn out worker and investor worth. This go well with is about demanding accountability and proving nobody is above the legislation.”

Theta, Liu and its guardian firm, Sliver VR Applied sciences, deny the allegations and “intend to show with proof the fallacy of the tales being advised within the lawsuits,” based on Kronenberger Rosenfeld, the legislation agency representing the defendants. The lawsuits are an try to color the corporate in a adverse gentle in hopes of securing a settlement, a lawyer for the agency mentioned.

Kowal has sued his former employers earlier than. In 2014, he accused Netflix of spreading false claims that he stole confidential info and Amazon of wrongful termination.

The most recent lawsuits allege that Liu profited from shopping for and promoting THETA tokens utilizing insider information about partnerships with celebrities, studios and others within the leisure business.

“Liu’s true motive in pursuing such partnerships was to not develop a sustainable content material enterprise however to generate publicity that could possibly be used to artificially inflate token costs for Liu’s private achieve,” Kowal’s lawsuit says.

Kowal labored for Theta from 2020 to 2025.

In 2020, Liu traded and bought tokens realizing that the corporate would shut a content material licensing take care of MGM Studios, based on the lawsuit. After the deal’s announcement, THETA token’s market capitalization elevated by greater than $50 million in simply 24 hours, the lawsuit says.

When NFTs began to take off in 2021, Kowal closed offers with high-profile companions akin to Perry, Fremantle Media and Resorts World Las Vegas for the startup’s NFT market.

As a part of the take care of Perry, the singer acquired $8.5 million and extra warrants for the proper to license her picture and likeness for the NFTs.

To inflate the worth and demand for these digital collectibles, Liu allegedly made bids on NFTs and directed staff to do the identical. This led to individuals overpaying for the Perry NFTs.

Representatives for Perry didn’t instantly reply to a request for remark.

A number of examples of alleged manipulation are outlined within the lawsuits. In a single occasion from 2022, the startup launched a brand new token referred to as TDROP that staff additionally acquired as a part of a bonus.

Liu gained management of 43% of the availability of the cryptocurrency, based on Kowal’s lawsuit. When the TDROP token reached a excessive, he then bought the token, and its value collapsed by greater than 90% inside months.

Berry’s lawsuit additionally alleges that Theta Labs introduced “deceptive” or faux partnerships with high-profile corporations akin to Google and entities together with NASA to pump up the worth of the THETA token. Theta paid for Google Cloud merchandise however claimed it was a associate when it was a Google buyer, based on the lawsuit.