The Rise and Fall of Theta Labs’ Cryptocurrency
Four years ago, Theta Labs, a startup based in California, saw its cryptocurrency THETA reaching impressive heights, especially after securing a partnership with renowned pop artist Katy Perry. The company had developed a marketplace for digital collectibles, known as non-fungible tokens (NFTs), and collaborated with Perry to introduce NFTs related to her Las Vegas concert series. In early 2021, the value of THETA skyrocketed by over 500%, peaking at more than $15, which positioned it among the top cryptocurrencies globally. The announcement of the partnership with Perry further amplified the company’s visibility. “I can’t wait to dive in with the Theta team on all the exciting and memorable creative pieces, so my fans can own a special moment of my residency,” Perry stated in a June 2021 press release. However, the situation has drastically changed; today, THETA has plummeted 95% from its 2021 highs and was trading at under 30 cents after facing allegations of market manipulation.
Allegations of Fraud and Market Manipulation
Two former executives from Theta Labs have initiated lawsuits against the firm, claiming that both the company and its CEO, Mitch Liu, engaged in fraudulent activities and manipulated the cryptocurrency market for personal gain. The lawsuits suggest that Liu retaliated against these employees after they raised concerns about unethical practices and refused to participate in deceptive business tactics. Specific accusations in the lawsuits include the use of fake bids on Perry’s NFTs, involvement in “pump and dump” schemes, and leveraging misleading celebrity endorsements and partnerships with major firms like Google to mislead consumers. It’s crucial to note that Perry herself is not implicated in any wrongdoing, and Theta Labs has denied these allegations.
Industry Context and Similar Scandals
The legal troubles facing Theta Labs are just one of many scandals currently impacting the cryptocurrency sector. The collapse of the FTX exchange and the subsequent conviction of its founder, Samuel Bankman-Fried, who was sentenced to 25 years in prison in 2024 for various fraud charges, has cast a shadow over the industry. Furthermore, Binance’s founder, Changpeng Zhao, also faced imprisonment after admitting to money-laundering violations, though he received a presidential pardon this year. Additionally, the U.S. Securities and Exchange Commission has previously charged celebrities, including Kim Kardashian and Lindsay Lohan, for promoting cryptocurrencies without revealing they were compensated for their endorsements.
Theta Network and Its Functionality
Theta Labs established a network that incentivizes users with cryptocurrency for donating spare bandwidth and computational resources, aiming to enhance video streaming quality and reduce content delivery costs. The Theta Network is touted as a decentralized cloud solution for AI, media, and entertainment, operating with two tokens: THETA, which secures the network, and TFUEL, which compensates users for their contributions and powers various operations.
Whistleblowers and Their Claims
The whistleblowers behind the lawsuits are Jerry Kowal, the former head of content, and Andrea Berry, who previously served as the head of business development at Theta Labs. Kowal’s attorney, Mark Mermelstein, asserted that Liu exploited Theta Labs for personal trading, engaging in fraudulent practices that harmed both employees and investors. “His calculated ‘pump-and-dump’ schemes repeatedly wiped out employee and investor value. This suit is about demanding accountability and proving no one is above the law,” Mermelstein remarked.
Denial of Allegations and Legal Defense
Theta, Liu, and their parent company, Sliver VR Technologies, have refuted the accusations and plan to present evidence countering the claims made in the lawsuits. According to the law firm representing the defendants, these lawsuits aim to tarnish the company’s reputation with hopes of achieving a settlement. Kowal has a history of litigation against former employers; in 2014, he accused Netflix of making false claims regarding stolen confidential information and also sued Amazon for wrongful termination.
Insider Trading and Manipulative Practices
The ongoing lawsuits allege that Liu capitalized on insider information regarding partnerships with celebrities and studios to profit from trading THETA tokens. Kowal’s lawsuit contends that Liu’s primary intent in pursuing such collaborations was not to build a sustainable content business but rather to create hype that would artificially inflate the value of tokens for his benefit. Kowal, who was with Theta from 2020 to 2025, claims that Liu engaged in trading and selling tokens while aware of impending deals, such as a licensing agreement with MGM Studios that boosted THETA’s market cap by over $50 million within a day.
Allegations of Price Manipulation
As part of his arrangement with Perry, she received $8.5 million along with additional warrants to license her image for the NFTs. To artificially boost the demand and price of these digital assets, Liu reportedly made bids on Perry’s NFTs and instructed employees to do the same, resulting in inflated prices. Perry’s representatives have yet to comment on these allegations. The lawsuits detail various instances of alleged market manipulation, including a 2022 event where Theta Labs introduced a new token called TDROP. Employees received TDROP tokens as bonuses, and Liu controlled a staggering 43% of the total supply. After selling the token when its price peaked, its value plummeted by over 90% shortly thereafter.
Misleading Partnerships and False Claims
Berry’s lawsuit also brings forward claims that Theta Labs announced misleading or fictitious partnerships with high-profile companies like Google and organizations such as NASA to enhance the perceived value of the THETA token. The lawsuit alleges that while Theta paid for Google Cloud services, it falsely claimed to have a partnership with the tech giant, presenting itself merely as a customer.
