- Hector DAO’s liquidation process may stall following a new lawsuit in the US.
- A group of investors are demanding transparency from the firm handling the receivership process.
- Several losses from alleged thefts and hacks have dogged Hector Network.
Hector Network investors are facing a new obstacle in their quest to reclaim their share of the failed DeFi project’s remaining $9.3 million treasury.
That’s because a group of investors under Newton AC/DC LP have filed a lawsuit in the US to freeze the project’s funds and aren’t backing down even after the project makes progress to make investors whole.
Last year, project investors voted to rage quit, moving to dissolve the project, liquidate its treasury, and repay investors. Last month, the Eastern Caribbean Supreme Court appointed the advisory firm Interpath BVI as interim receivers to oversee its liquidation.
The most recent lawsuit was filed days before Hector Network went into receivership. James Drury, an Interpath BVI director in charge of the receivership, told DL News the decision to appoint Interpath was taken without knowledge of the US court proceedings.
Now, Interpath says it has been forced to respond to the legal case in the US. The court proceedings may hinder the receivership process and even cost investors a part of their expected returns.
“Given that prevailing parties typically do not receive their attorney’s fees in the US, any such costs will, therefore, be borne from the treasury assets,” Interpath said in a note to investors last week.
Interpath accused the investor group of seeking preferential treatment by filing the case, adding that legal proceedings in the US would only hurt the collective interest of all investors. Interpath says the lawsuit will come at a significant cost to Hector tokenholders.
However, the investor group who initiated legal proceedings in the US say their actions are justified given the events that have unfolded in the Hector Network saga.
Interpath’s ‘conflict of interest’
One of the investors, known online as Bitfriend, said the group and a US court want access to the original receivership documentation to understand the process.
Bitfriend accused Interpath of a lack of transparency on the project’s community Discord server, saying the firm’s lawyers only provided highly redacted copies of the documentation after weeks of stonewalling summons from the US Court.
They also shared the group’s concerns about perceived conflict of interest.
“The law firm Harney Westwood and Riegels represented Hector DAO in BVI [and] the same firm represents the Receivers,” Bitfriend said on the Discord group. “We are not comfortable with the blatant conflict of interest.”
Interpath, however, rejected any conflict of interest claims.
Drury told DL News the firm engaged Harneys to apply to the BVI court as receivers for Hector DAO’s assets.
“They do not and have never acted for the members of Hector DAO’s project management team,” Drury said, referring to Harney’s relationship with the project’s team.
US lawsuit
The US lawsuit lists three defendants: Farooq Hassan, Hector DAO and an unidentified co-respondent. Hassan is purportedly one of the Hector DAO principals who controlled the treasury assets.
The complaint alleged the unnamed defendant is “not a stranger” to Hassan and Hector DAO, suggesting that the named defendants know who was responsible for the unauthorised withdrawal of $2.7 million from the treasury funds.
The lawsuit claims the unnamed third defendant was able to withdraw the funds with the help of the two named respondents. The suit also alleged the funds were transferred to wallets belonging to the named defendants.
That withdrawal happened in January when investors were expecting to reserve their share of the project’s liquidated treasury.
Apart from the January transactions, the suit alleged that Hector DAO principals squandered treasury funds and failed to protect the project’s reserves from malicious exploits.
As such, investors are left with only $9.3 million to share among themselves when the project was worth over $100 million in its heyday two years ago.
Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.