Beitar Jerusalem soccer team owner and startup investor Moshe Hogeg is being sued by two American investors who claim he lured them into investing in a startup he founded, Mobli Media Inc., under false pretenses.
BRF Capital LLC, its owner Barry Friedman and businessman Marvin Mermelstein filed the suit, for NIS 6 million ($1.7 million), in Tel Aviv District Court on July 10 against Hogeg, former Mobli CFO Yaron Shalem, former Mobli board chairman Kenges Rakishev and Lloyd’s Bank (which they claim insured Mobli’s officeholders).
According to the plaintiffs’ claim, Hogeg and other representatives of the now-defunct mobile photo and video sharing platform made repeated misleading statements about the company’s financial strength and about celebrities who had invested or were supposedly going to invest in the company. As a result, the investors lost all their money, which totaled $1.55 million.
Hogeg, through a spokesman, dismissed the claims made in the lawsuit as “accusations without merit” and said “each and every issue” would be addressed “in court when the time comes and not over media.”
Mobli burst onto the Israel and global startup scene with great fanfare in 2011, as the US-based website TechCrunch and other media wrote about the fledgling social media app and predicted it would be a huge success. Two months after the application’s launch, TechCrunch writer Roi Carthy enthused, “Mark my words, Mobli will be the blowout photo sharing app of the year.”
He added, “try as I may, there’s just no special feature I can point to, nor breakthrough UX I can speak of. And yet, and yet … as cynical as I want to be, there’s just something in-between the pixels of Mobli that feels terribly right.”
Mobli announced in October 2011 that movie star Leonardo DiCaprio had invested in the Israeli startup. A 2011 press release by Blonde 2.0., Mobli’s PR firm, stated that DiCaprio had taken part in a $3 million investment round in the company. Other media reports put the amount raised at $4 million.
The company later reported that cyclist Lance Armstrong, tennis star Serena Williams and actor Tobey Maguire had invested in the company, to be followed by Kazakh oligarch Kenges Rakishev and Mexican billionaire Carlos Slim, who they said had led a $60 million investment round in Mobli.
Following these announcements, the company received even more extensive media coverage, some of it suggesting that the platform could potentially rival Facebook or Instagram.
“How Billionaire Carlos Slim Is Pushing Instagram Rival Mobli Onto Millions Of Phones,” read a November 2013 headline in Forbes. “Watch out Facebook! Mobli is on the Move,” read another November 2013 headline in MarketWatch.
The plaintiffs in the lawsuit against Hogeg charged that statements the company made regarding DiCaprio’s investment in the company were misleading. They pointed to a 2016 Bloomberg profile of Hogeg that asserted that DiCaprio’s investment in Mobli had in fact been less than $10.
“DiCaprio was touted as an investor in the startup’s initial $4 million round of financing,” the Bloomberg article said. “In 2011, the Oscar-winning actor made an investment of just $9.54 in exchange for almost a million shares, according to a securities document seen by Bloomberg.”
According to the plaintiffs, statements about investments by DiCaprio and other celebrities were intended to mislead.
“The claims about DiCaprio were a media gimmick to lure and underhandedly persuade potential investors, like the plaintiffs and others, to buy shares at inflated prices,” the plaintiffs alleged in their complaint.
The plaintiffs also charged that while Carlos Slim had indeed been an investor, he had not invested $60 million, as many media outlets reported, but no more than $10 million, and that these had been preference shares which gave Slim rights above and beyond those of other investors, a fact that had not been disclosed to the plaintiffs, they claimed.
The plaintiffs said they had been lured to invest in Mobli by the hype surrounding the company, and specifically cited an article in TechCrunch that claimed that the $60 million investment round supposedly led by Carlos Slim had pushed the company’s valuation to $1 billion.
“This investment will push Mobli’s valuation to around the $1 billion mark,” the November 2013 article stated, “although the company is not disclosing any figures.”
The role of the media
The plaintiffs complained that media reports in Israel and abroad regularly described Hogeg as a “financial wizard” and a rising star in the startup world, when, in fact, they alleged, “he has been caught in the act in this and in other scandals and has been revealed to be a dangerous actor and a serial failed entrepreneur who has caused grievous damage to the plaintiffs and other investors to the tune of many hundreds of millions of shekels.”
Only in 2016, when Bloomberg began questioning the hype surrounding Hogeg, did the plaintiffs realize their mistake, the complaint charged.
“Leonardo DiCaprio’s investment was revealed to be a red herring only in 2016, after the defendants publicized his supposed investment, after the plaintiffs had purchased shares in the company and after their shares were not liquid because the company had never been listed on the NASDAQ,” the complaint said.
The plaintiffs alleged that Hogeg and the other defendants had announced in March 2014 that Mobli would be listed on the NASDAQ Private Market, a NASDAQ-owned private company secondary market, but that this plan never came to fruition.
“Mobli did not have the equity or income necessary to be listed on the NASDAQ nor the ability to show audited financial reports,” the plaintiffs alleged.
As a result, when Friedman and Mermelstein realized the company was not doing well, they could not sell their shares and thereby minimize their losses, they charged.
The plaintiffs also charged that Mobli executives had misrepresented the number of users the application had, and had falsely claimed to them at one point that the number was 20 million.
“This was a complete falsehood,” the complaint alleged, asserting that many of these users “were fake or inactive or had been paid for by Hogeg and Mobli in order to inflate the price of the shares in the company and to enrich themselves as the company’s shareholders.”
The plaintiffs alleged that Moshe Hogeg had met with their representative, investment adviser Isaac Winehouse, and told him that Hogeg’s own venture capital firm had bought shares in the company at a price of $3 per share and offered to sell Barry Friedman shares at what they allegedly touted as a bargain price of $2 a share.
As a result of these misrepresentations, the complaint alleged, on January 2, 2014, Friedman purchased 500,000 ordinary shares in the company for $1 million from a company called Mysyrl Capital LLC.
Meanwhile, according to the complaint, Hogeg had allegedly told Winehouse and other investors in 2013 that Carlos Slim planned to invest a huge sum in the company at a price of $2 a share. Mermelstein proceeded to buy 150,000 regular shares at a price of $1 per share (which he thought was a bargain) from another shareholder, the complaint stated.
Mermelstein later bought 200,000 additional shares for $400,000 from a third party who owned shares in the company. According to the complaint, Mermelstein believed that he was paying less or the same amount per share as Carlos Slim. He even received a letter from what appeared to be the NASDAQ Private Market confirming the transfer of shares, the complaint charged.
Allegations that Carlos Slim got preference shares
The plaintiffs claimed that Carlos Slim invested $10 million in the company at the most, “at a price that was effectively much lower than $2 a share.” In exchange, they alleged that Slim received a “particularly generous options package as well as exclusivity on royalties and percentages on sales of the application in South America.”
The plaintiffs charged that Hogeg failed to disclose to them that Carlos Slim had received preference shares in the company that gave him extra rights compared to other shareholders.
The plaintiffs alleged that Mobli tried to put a positive spin on what they believed to be a fiasco for the company.
“Like many other announcements that Mobli issued, they manipulatively and misleadingly tried to present this deal as positive and a success, even though it was a massive failure to sell the patent for such a low price, in contrast to the vast sums of money that had been invested in Mobli that had evaporated into thin air.”
When Winehouse, the plaintiffs’ adviser, asked Hogeg to transfer some of the money from the patent sale to Mobli’s shareholders, he refused, according to the complaint, because Carlos Slim had preference shares and would be the first in line to receive such revenues.
The complaint alleged that Hogeg further told Winehouse that he planned to use the $7 million from the sale to invest in cryptocurrencies, and that this would allow him to return Mobli investors’ money in part or in full. However, the plaintiffs claimed that no such money ever materialized. They also charged that they repeatedly requested financial reports from Mobli and tried to learn what had happened to the $7 million, to no avail.
The plaintiffs further claimed that in the final days when Mobli.com was online, the company’s employees failed to vet its content and it began to host pornographic, pedophilic, illegal and offensive content, despite the repeated pleas of Isaac Winehouse, who hoped to preserve and retain user traffic to the site.
The plaintiffs concluded by alleging that Hogeg and the other defendants had enriched themselves at investors’ expense, maintaining luxurious lifestyles while losing millions in investors’ funds.
“The actions and omissions of the defendants are tantamount to fraud,” said the complaint, “and at the very least, they enriched themselves unlawfully through negligent misrepresentations whose entire purpose was to tempt investors to invest huge sums of money in the company and to advance their own interests while spending a lot of money on the company, withdrawing salaries and bonuses, and enriching themselves while living lives of opulence.”
A spokesman for Moshe Hogeg said that the claims made in the lawsuit “are accusations without merit. We will address each and every issue in court when the time comes and not over media.”
From startup rags to riches
Mobli’s Israel-registered company, Mobli Technologies 2010 Ltd., was founded in 2010 by Hogeg, Yossi Shemesh, Emmanuel Meralli and Menahem Perets, an Orthodox businessman who had recently moved back to Israel from the United States. Perets, through a company he jointly owned with Hogeg, Morrix Holdings Ltd., is described in media reports as Mobli’s earliest investor.
In a December 2014 Facebook post, Hogeg described the rags-to-riches story of his startup empire — how an unknown high school graduate and recently discharged soldier from Beersheba had come to preside over one of Israel’s largest venture capital funds, Singulariteam Ltd., and had also founded Mobli and other startups.
“Wow,” he wrote. “Five years ago I posted a status on Facebook [looking for an iPhone app and PHP developer]. It was a year after I had shut down my first startup and I was under heavy pressure from many loved ones to stop with the nonsense and go study law. I wrote the post because I didn’t have the money to pay a company. That’s how it all started. This post brought Yossi, who brought Emmanuel and together with Dima we sat in cafes in Tel Aviv and started Mobli.”
Hogeg described how at the time he had been living in a “40-square-meter cellar in Rishon Lezion” and burning through his savings from seven years working in the IDF.
“Five years later we have tens of millions of users, one is Carlos Slim, another is Leonardo DiCaprio, we have amazing partners from all over the world, [we have] 18 startups with exciting ideas and people who are turning them into reality… and hundreds of millions of dollars that are flowing and will continue to flow into the Israeli economy,” he wrote, presumably referring to the venture capital fund he founded, Singulariteam, with Kazakh oligarch Kenges Rakishev, whom Hogeg reportedly met in New York.
“The biggest risk is not to take a risk,” Hogeg concluded in the post.
The Mobli lawsuit is one of several that have been brought against Hogeg’s companies in recent months. A November 2018 petition to wind up a Hogeg-directed company, invest.com, was withdrawn and the case has been settled. A January 2019 lawsuit brought against Hogeg by a Chinese investor in Stox was dropped after an arbitrator persuaded the plaintiff that the proper jurisdiction for the lawsuit was not Israel but Gibraltar.
A new venture for the Mobli team
Meanwhile. most of the senior executives laid off from Mobli now work for a new venture, a nonprofit organization called the Saga Foundation. according to their LinkedIn profiles and other public information. The Saga Foundation, or Saga as it is known, seeks to transform the global financial system through cryptocurrency.
The Saga Foundation is registered in Switzerland and describes itself as a “Swiss non-profit organization with Israeli developers” that seeks to create the “first non-anonymous blockchain-based digital currency” and to “replicate the healthy, long-term credibility and trust that many national currencies enjoy, into a global scope.”
The organization is headed by Ido Sadeh Man, who was COO at Mobli and has been Moshe Hogeg’s partner in his venture capital firm Singulariteam Ltd. The local Israeli company Saga Core Ltd. is owned by Ido Sadeh Man together with a number of venture capital firms including Mangrove V Investments, Disruptive Technologies, Lool II Ventures and Vertex VC Fund. Saga has received the endorsement of some of the world’s most prominent economists. The company’s website claims Singulariteam also invested in the venture.
One of its advisers is former governor of the Bank of Israel Jacob Frenkel. Another is Nobel-Prize winning economist Myron Scholes, who said in a March 2018 press release that “the Saga project aims to develop a sustainable and efficient blockchain-based cryptocurrency that I support through becoming a member of its advisory council.”