US investors sue Moshe Hogeg for NIS 6m

Moshe Hogeg and Kenges Rakishev photo: Sivan Faraj

The lawsuit has been filed in the Tel Aviv District Court by two American-Jewish businesspeople who bought shares in Mobli for over $1.5 million.

More than two years after closing down startup Mobli, entrepreneur and investor Moshe Hogeg, owner of the Beitar Jerusalem soccer team, is being sued together with Mobli; Kazakh billionaire Kenges Rakishev, Hogeg's partner in the Singulariteam venture capital fund; and former Moblie CFO Yaron Shalem. The NIS 6 million lawsuit was filed in the Tel Aviv District Court by two American-Jewish businesspeople who bought shares in Mobli for over $1.5 million in 2013-2014.

Hogeg, known for his investments in the cryptocurrencies market, has become a serial respondent in lawsuits because of the startups that he founded in recent years. Today's lawsuit is the fifth filed against Hogeg and his companies in the past year, as reported in "Globes."

Mobli, which Hogeg founded in 2010 with his brother, Oded Hogeg, developed an application similar to Instagram for sharing pictures on mobile devices. In the venture's first three years, he reported raising $86 million from investors, among whom were Rakishev, Mexican billionaire Carlos Slim, and movie star Leonardo Di Caprio. In 2013, Hogeg and Rakishev founded the Singulariteam investment fund and appointed former Prime Minister Ehud Olmert as chairperson. Olmert remained in this position until being convicted of bribery in the Holyland Hotel affair in 2015. The fund is now headed by Hogeg and Rakishev.

Mobli, however, found competing with Instagram difficult, especially after the latter was acquired by Facebook in 2012. The venture faded, with dozens of employees being laid off in 2016, and terminated its activity completely a year later. In April 2017, reports appeared in the media that social media company Snapchat had bought Mobli's patent for $7 million. At the same time, the lawsuit filed today against Hogeg, Rakishev, Shalem, and Mobli Technologies 2010 Ltd. alleges, "The sale of the patent for a very small sum, compared with the huge amounts invested in the company that went down the drain, is a gilt-edged failure."

The statement of claim begins by stating that Hogeg orchestrated "fraud and trickery, unjust enrichment, and extreme negligence, while manipulating share prices" by Mobli and the other respondents against the two claimants, Barry Friedman, 47, and Marvin Mermelstein, 64. Friedman, a businessperson from New Jersey, is the owner of BRF Capital (also listed as a claimant in the case). He is also a relative of Azorim chairperson and controlling shareholder Hershey Friedman. Mermelstein, based in Chicago, is also a real estate businessperson in the US. Their lawsuit charges that they purchased shares in Mobli based on "false presentations to them by the respondents."

A fifth respondent is Lloyds Bank of the UK. The claim states, "To the best of their knowledge, the officeholders in Mobli hold directors and officeholders' liability insurance policies issued by Lloyds through Guest Krieger Ltd., its authorized broker."

The grounds listed for the lawsuit state, "Had the claimants been aware of the state of affairs in the company, and in particular, had they known that the investment of Carlos Slim amounted to only $10 million on preferential terms, that the company did not raise $60 million in the financing round in question, and that Leonardo Di Caprio invested less than $10 in the company, the claimants would not have bought shares in the company."

The statement of claim alleges, "The acts and failures of the respondents amount to fraud and deceit, and at a minimum, unjust enrichment and negligent misrepresentation aimed at enticing investors, especially the claimants, to invest huge sums in the company for the personal benefit of the respondents."

Lawsuit against Mobli in California still outstanding

Meanwhile, another lawsuit, for $5 million against Hogeg and Mobli filed by US haredi (Jewish ultra-Orthodox) billionaire Shlomo Rechnitz in a California court, in is still pending. As reported by "Globes," Rechnitz alleges that he bought shares in Mobli for $5 million following a false presentation by Jason Lyons, who served as an intermediary in the deal. Rechnitz is suing Lyons and Hogeg for violations of securities laws and unjust enrichment, and is also suing Lyons for fraud, false and negligent presentation, and violating the brokers registration law in California.

Sources inform "Globes" that two weeks ago, Rechnitz reached a tentative settlement in his lawsuit against Lyons, but his lawsuit against Hogeg is still pending. The California court this week postponed the next hearing in the case until September at Rechnitz's request, probably until the settlement he reached with Lyons receives final approval.

The lawsuit filed by Friedman and Mermelstein states that Hogeg was CEO of Mobli from when it was founded in 2010 and Rakishev was chairperson of the company, and "According to reports to the public, he invested $22 million in the company… The company's main activity was in Israel in its development center in Tel Aviv… Hogeg portrayed himself for years as a financial wizard, but his iniquity was revealed in this affair, as in others. He was exposed as a habitual offender and a repeatedly unsuccessful entrepreneur who caused serious damage to the claimants and other investors amounting to many hundreds of millions of shekels."

According to the statement of claim, "The respondents made false and misleading representations about the true number of users of Mobli's application and about Mobli in general. They announced with great fanfare that the company would be listed in the near future on the exclusive Nasdaq Private Market platform." The claimants stated, "Had it not been for the respondents' false statements and misrepresentations, including misleading presentations and reports about the huge investment by Slim, the major deal of Di Caprio in the company, and the impending listing of the company on Nasdaq, which would have provided liquidity and other options for selling, the claimants would not have purchased shares in the company, and would not have suffered substantial losses estimated in the millions of shekels."

"Slim did not invest $60 million"

The representative of Friedman and Mermelstein in the deal for the purchase of shares in Mobli was Israel-American entrepreneur and investment manager Isaac Winehouse, who according to the statement of claim "acted in the names of and was in constant direct contact with Hogeg and other officeholders in Mobli before, during, and after the transaction."

The lawsuit states, "Following a meeting that took place between Hogeg and Winehouse in January 2014, claimant Friedman (through BRF Capital LLC) purchased 500,000 ordinary shares in the company for $1 million from Mysyrl Capital." Mermelstein, the second claimant, bought shares in Mobli in two deals, investing $550,000 in the company's shares.

The claim goes on to allege, "As part of the contacts between the parties, Hogeg and others told Winehouse that Carlos Slim was going to invest substantial sums in the company at $2 per share. In November 2013, Mobile issued a press release about the company's cooperation with Slim and completion of a $60 million financing round through an investment by American Movil, one of the largest operators in South American, which Slim owned."

According to the claimants, "In contrast to the reports and presentations, Slim invested at most $10 million in the company, not $60 million, and his investment was at an effective price substantially lower than $2 per share. In return for his investment, he received an especially generous grant of options and exclusivity for receiving royalties and percentages of sales of the application in South America. Slim actually invested in the company in exchange for receiving preferred shares that gave him extra rights, which Hogeg deliberately omitted from his presentations to Winehouse."

The claimants in the case are represented by Adv. David Fohrer, Adv. Amir Avni, and Adv. Shlomit Harel from the Gross, Kleinhendler, Hodak, Halevy, Greenberg, Shenhav & Co. law firm.

Moshe Hogeg told "Globes" in response, "The statement of claim was not received until this moment, nor was there any earlier query. We first learned of the lawsuit from the media, which is indicative of the lawsuit. The operations of the company in question were closed down years ago. We will study the lawsuit and learn what it involves."

Published by Globes, Israel business news - en.globes.co.il - on July 10, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Moshe Hogeg and Kenges Rakishev photo: Sivan Faraj
Moshe Hogeg and Kenges Rakishev photo: Sivan Faraj
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