A cityscape of Tel Aviv is seen during the night-time in Israel May 27, 2017. Picture taken May 27, 2017..
(photo credit: REUTERS/AMIR COHEN)
Was Israel’s start-up nation reputation allegedly used to try and defraud foreign investors into funneling millions of shekels into a technology going nowhere?
That is one of the key questions in the case of businessman Zhabargali Kesikbaev, from Kazakhstan, against Israeli entrepreneur Max Bluvband for defrauding him out of around NIS 10 million and trying to defraud him out of another NIS 10m.
According to Kesikbaev, he was conned into investing millions into a technology that was not viable when Bluvband and others used Israel’s tech reputation and knowingly made false misrepresentations to him about the technology’s potential.
In contrast, Bluvband said that Kesikbaev’s claims are a smokescreen to derail attention from his violation of their investment agreement for which Bluvband is suing for around NIS 10m.
The case is expected to go to trial in the Tel Aviv District Court in June.
All parties agree that Kesikbaev initially invested around $2m. in the company Live Lens, which was developing an application for smart phones.
In exchange for his initial investment, Kesikbaev received 51.68% of the company’s shares and became its controlling shareholder.
However, Kesikbaev alleges that around six months later, Bluvband and other defendants asked him to invest an additional $3m. into the venture.
To pressure him, they allegedly said that if Kesikbaev does not invest the additional funds, other potential investors would step in and dilute his control of the company.
He claims that these other potential investors were fictitious and were part of a scheme to fool him into throwing more money into Bluvband's company.
Bluvband said that the request for additional invested funds and the negotiations over that investment was legitimate.
In June 2014, Kesikbaev signed an agreement to invest the additional $3m. However, he now challenges the validity of that agreement, saying he signed it due to misrepresentations by Bluvband.
A lawyer for Bluvband said on Thursday that they would be submitting an expert report in the near future to prove that Live Lens and its product were viable.
According to Kesikbaev, regulatory restrictions of the Central Bank of Kazakhstan blocked him from sending the full $3m. in one lump sum.
A lawyer for Bluvband questioned whether the bank issue was legitimate or an excuse for violating the investment agreement.
Instead, Kesikbaev said that, in February 2015, he and Bluvband signed a new agreement that split the $3m. into six payments of $500,000 each over time.
After he transferred the first payment, he said that the bank asked for clarifications about the company when it turned out that its income was only NIS 8,000.
This was the point when Kesikbaev said he learned that the company had made false representations all along about the viability of its technology since other parallel products had penetrated the market before Live Lens.
Bluvband disputes these allegations.
Kesikbaev ceased any further funds transfers to Live Lens.
The court previously dismissed some legal motions by Kesikbaev and required him to amend some of his legal claims, but Kesikbaev’s lawyer said that these were procedural issues and that his claims are now moving forward.
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