U.S. Court Denies Request to Freeze Hector DAO’s Cryptocurrency Wallet

On Tuesday, February 13, 2024, the United States District Court for the District of New Jersey denied Newton AC/DC Fund L.P.’s request for a temporary restraining order against Hector DAO, an autonomous cryptocurrency organization, and its principal Farooq Hassan.

Newton AC/DC Fund had filed an emergency ex parte motion, seeking to freeze the assets held in Hector DAO’s crypto wallet. Newton purchased crypto tokens called HEC tokens from Hector DAO in June and July 2023. Hector DAO maintained a treasury wallet to hold assets derived from sales of HEC tokens. Newton claimed ownership of the HEC tokens entitled it to vote on redeeming the tokens for a share of the treasury assets.

In its complaint, Newton accused Hector DAO of mismanaging the treasury assets. It alleged millions had been lost in security breaches in 2022 and 2023 prior to Newton’s token purchases. Specifically, $652,000 was lost in June 2023 and $8 million in July 2023. Newton further claimed Hector DAO facilitated the theft of $2.7 million from the treasury in January 2024 by an unknown individual.

Through its emergency motion, Newton sought to freeze the treasury assets, held primarily in USDC, another form of cryptocurrency issued by Circle, to prevent further dissipation during the litigation. However, District Judge Robert Kirsch denied the temporary restraining order. In his memorandum opinion, Kirsch found Newton had failed to prove irreparable harm, a requirement for such extraordinary emergency relief.

While acknowledging the challenges of tracing cryptocurrency, Kirsch noted Newton only sought monetary damages recoverable after a trial if successful. Newton also delayed filing suit for over seven months after the major early 2023 security breaches. Further, Newton did not provide enough details on the total size and composition of the treasury assets, raising questions about impacts on other token holders.

Kirsch has scheduled an ex parte teleconference for February 20th to hear further from Newton on its requests for a preliminary injunction and alternative service of process. But for now, the court found Newton did not clear the high bar for immediately freezing Hector DAO’s cryptocurrency wallet through an ex parte temporary restraining order. The case will continue, with Hector DAO now able to respond to Newton’s claims.

Please contact BlockTribune for access to a copy of this filing.