The Winklevoss lawsuit against Charlie Shrem provides some gossipy insights about early bitcoin adopters set against a backdrop of dry Dickensian procedural minutiae and sharp elbows. It’s also a lesson in tactics — if your first salvo in litigation is to shoot your heavy artillery, you better think ahead to what will happen if you miss your target.
Please sir, can you buy us some bitcoin?
A little bit of background, taken from the lawsuit. The plaintiff here is Winklevoss Capital Fund, LLC, not the Winklevoss brothers personally. At issue is $61,000 — no, I am not missing a zero — which Winklevoss (again, the firm not the twins) says should have been used to buy bitcoin on its behalf. But — and here’s the heart of the claim — Shrem allegedly used it to buy bitcoin for himself. The lawsuit was filed secretly on September 11, 2018, but only unsealed on October 26, 2018 (more on that below).
Plaintiff alleges that in 2012/2013, it gave Charlie Shrem $750,000 to buy bitcoin. They say of that total amount he took $61,000 for himself and used that to buy 5,000 bitcoin, which he kept. Using blockchain records, plaintiffs pointed to a transaction on the Bitcoin blockchain on December 31, 2012. They say it shows that particular amount of bitcoin being transferred to an address they allege was controlled by Shrem. (As you will see below, Shrem disputes this).
Winklevoss sued Shrem for breach of fiduciary duty, fraud, a constructive trust, and an accounting. (I am speculating a little bit, but it’s possible that a six-year statute of limitations may have been in mind when the plaintiff filed this lawsuit in September 2018. If they waited longer, they might have been time-barred).
The lawsuit gives a chatty narrative explanation of how the Winklevii met Shrem and what their relationship involved. They say they were “intrigued by the potential of a peer-to-peer money protocol, the underlying blockchain technology, and this new ‘Internet of Money.’” In order to “court an investment” in his business BitInstant, Winklevoss Capital alleges that Shrem promised to buy $750,000 in bitcoin for it “at the best price” and for no commission or transaction fee. The firm received 39,876.34 bitcoin “at an average cost basis of $18.81 per bitcoin.” According to the firm, it stopped working with Shrem when it became suspicious of his accounting for the purchases but continued to buy bitcoin on the open market.
Read more: Winklevoss lawsuit against Charlie Shrem peeled out in top gear, but now may be stuck in neutral