Blockchain gaming platform Gala Games is in a bit of a dire situation as the company’s co-founders are embroiled in a legal dispute, accusing each other of token theft and mismanaging corporate assets. The case has caused the value of the project’s native GALA token to nosedive.
What Is Happening?
On August 31, Gala Games CEO Eric Schiermeyer and co-founder Wright Thurston filed separate lawsuits against each other at a District Court in Utah, United States.
Schiermeyer alleged that Thurston unlawfully acquired and cashed out GALA tokens worth approximately $130 million, while Thurston counterclaimed that Schiermeyer mismanaged Gala Games, forcing the company to sell off its assets.
CEO Eric Schiermeyer filed his lawsuit on behalf of the shareholders of Blockchain Game Partners – the company behind Gala Games.
The case, which includes Thurston and his investment firm True North United Investment, alleges that the co-founder unlawfully acquired 8.645 billion GALA ($130 million at the time) in early 2021.
When confronted about the incident, Thurston said that he was only trying to safeguard the tokens for Gala Games by transferring them to a secure wallet.
However, the co-founder and True North United Investment began moving the “stolen” tokens from the wallets and exchanged or sold them “in a complex web of obfuscatory transactions” between September 2022 and May 2023 before the Gala Games could stop him.
An excerpt from the suit read that Thurston claims he sold some of the tokens to purchase ammunition for firearms but later said the tokens entirely belonged to him, which Schiermeyer’s case rejected.
The CEO also alleges the co-founder to have stolen the licenses to run Gala’s ecosystem nodes, which earn users rewards in GALA tokens, and sold them for his own benefit, keeping the proceeds.
Schiermeyer says Thurston is an absentee director of the company and has no full-time responsibilities like himself. Despite this, Thurston got paid more than ten times the compensation Schiermeyer had received for his role as CEO of Gala Games.
The CEO has requested the court to remove Thurston as Gala director while seeking disgorgement or restitution of the stolen assets and compensation for the damage caused to the company.
In response, Thurston filed a counter lawsuit on the same day, on behalf of Gala’s parent company, alleging that the CEO caused the firm to “sell off and waste millions of dollars in company assets” while he lent the funds to himself for personal enrichment.
According to the allegations, Schiermeyer burned off about $600 million in assets that belonged to Gala and its shareholders. The suit claims that the CEO took advantage of the situation by forcing the gaming company to lend the money to himself.
Schiermeyer allegedly created entities in Switzerland and Dubai and named himself as the controlling shareholder, which was used to take advantage of business opportunities that were meant for Gala Games.
True North claims that the CEO operated the shell company without permission from Thurston or any of the Gala directors, and submitted incomplete or incorrect information and corporate records to the Board of Directors “despite repeated requests”.
Thurston wants Schiermeyer to be removed from Gala Games for “corporate waste, conversion, unjust enrichment” and has sought at least $750 million in various damages and relief.
Can Gala Games Be Trusted?
Earlier in March, the U.S. Securities and Exchange Commission (SEC) sued Thurston, True North, and Green United – another company the Gala director founded – for selling investments in a fake crypto mining scheme.
According to a complaint filed at the Utah District Court, the SEC alleged that the company and its two representatives – Thurston and contracted promoter Kristoffer Krohn – offered fraudulent securities to investors between April 2018 and December 2022 and promised a 50% return-on-investment (ROI) per month.
Investors were told that Green United was developing a “public global decentralized power grid” called the Green Blockchain that would be powered by an Ethereum-based ERC-20 token called GREEN. They were offered $3,000 ‘Green Boxes’ and ‘Green Nodes’ intended to mine GREEN on the Green blockchain.
However, the SEC found that the hardware sold to customers did not mine GREEN as ERC-20 tokens use proof-of-stake consensus (PoS), which does not allow for mining, instead of the proof-of-work (PoW) consensus employed by the mining-enabled Bitcoin network. PoS tokens can only created when a user promises a certain amount of the native asset to the main blockchain.
In the case of Green, neither the blockchain nor the token were in existence when the first hardware was sold to consumers. Instead, the company was using investor funds to purchase S9 Antminers, which are mining rigs used to mine Bitcoin (BTC). These machines were passed off as ‘Green Boxes’ and ‘nodes’ to buyers, who were actually mining Bitcoin for the company.
To make matters worse for the customers, they did not have access to the tokens they mined.
Thurston and his partner told customers that GREEN’s value would rise based on their efforts to mine the token and promised them guaranteed returns of up to 50% every month. To earn their trust, the team later created Green tokens and distributed the assets periodically to create the appearance of a successful mining operation.
The SEC has asked the court to cease Green United’s operations and has sought civil penalties for securities law violations, asking the company and its executives to repay the $18 million in ill-gotten gains.
GALA Continues To Fall
While both Gala stakeholders are fighting against each other and claiming it to be in the best interest of the project, the GALA token continues to suffer a significant decline. As a result, the future of the once-promising blockchain gaming project is now in grave danger.
At the time of writing, GALA is trading at $0.0167 – down 8.7% in the last 24 hours.