Tokensoft, Inc. v. James Poole

Overview

This case arises from Defendant James Poole's brazen violation of federal securities laws by selling restricted tokens in his calculated campaign to destroy Plaintiff Tokensoft, Inc. Poole was a "co-founder" of Tokensoft—a once leading digital asset compliance firm worth $35 million at its height.

Between July 22 and September 11, 2024, Poole secretly dumped hundreds of thousands of restricted SOFT tokens onto the open market in seven strategically timed sales with one goal in mind: Kill the price of SOFT and bring Tokensoft down with it. While Poole's plan worked, Poole's illegal token dump devastated the nascent SOFT token market, destroyed investor confidence in the SoftDAO project, and triggered the dissolution of Tokensoft.

Poole is liable to Tokensoft for tens of millions of dollars in consequential damages. Tokensoft brings this action to recover the staggering damages caused by Poole's breaches, hold him accountable for his misconduct, and establish that he is the largest debtor—and certainly not a creditor—of the now-dissolved company.

Parties

Plaintiff: Tokensoft, Inc. — A former Delaware corporation incorporated on August 3, 2017, with its principal place of business in Beverly Hills and Los Angeles, California. At the times relevant, Tokensoft had been valued at $35 million. As a direct consequence of Defendant James Poole's misconduct, Tokensoft was dissolved on July 16, 2025. Tokensoft brings this action pursuant to Section 278 of the Delaware General Corporation Law, which authorizes dissolved corporations to prosecute actions while winding up their affairs.

Defendant: James Poole — A "co-founder" of Tokensoft who, upon information and belief, resides in Chattanooga, Tennessee.

Mason Borda — While not a party to this action, is the primary founder of Tokensoft, who served as its CEO at all relevant times. Borda was Tokensoft's sole director at its time of dissolution and authorized this suit pursuant to Section 278 of the Delaware General Corporation Law.

Key Allegations

The Assignment & Vesting Conditions

On September 12, 2022, Poole received the right to SOFT tokens subject to lockup restrictions and vesting conditions requiring his continuous employment under Tokensoft's employee participation plan, pursuant to a partial "Assignment & Assumption of Token Subscription Agreement" (the "Assignment").

Under the terms of the Assignment, Poole represented that he was acquiring SOFT tokens "entirely for [his] own account to hold for the long term" without any "present intention of selling or otherwise disposing of all or any portion" of the tokens. Poole further represented that he was an "accredited investor" as defined in Rule 501(a) of Regulation D under the Securities Act of 1933.

All tokens allocated to Poole were "Unvested Tokens" until the twelve-month anniversary of the Effective Date (September 12, 2023). To vest even a single token, Poole was required to have been "continuously employed by" Tokensoft. Poole's last substantive work for Tokensoft was serving as an advisor on a Bank of America deal through approximately March 2023. The deal fell through, and Poole ceased rendering any substantial services to Tokensoft or its affiliates.

Because Poole did not continuously render substantial services through the First Vesting Date, the vesting condition was never satisfied. No SOFT tokens vested. One hundred percent of Poole's token allocation remained "Unvested Tokens." Under Section 3.2 of the Assignment, Poole was expressly prohibited from transferring Unvested Tokens "at any time" without "the prior written consent of the Assignor and the Company." No such written consent was ever given.

Under Section 4.3 of the Assignment, the Company's Repurchase Option "shall be deemed to have been automatically exercised as of all Unvested Tokens as of 11:59 PM PT on the date that is ninety (90) days after the Termination Date." Because Poole ceased rendering substantial services in or around March 2023, the Repurchase Option was automatically deemed exercised no later than approximately June 2023. The Company never declined in writing to exercise its Repurchase Option. As of approximately June 2023, Poole had forfeited all right, title, and interest in any SOFT tokens.

Securities Law Transfer Restrictions

The SOFT tokens were originally issued under an exemption from registration pursuant to Regulation D of the Securities Act, Rule 506(b), structured by the Company's securities counsel, Fenwick & West LLP. The offering was facilitated by a registered broker-dealer, and each recipient—including Poole—self-certified their status as accredited investors.

Securities issued under Regulation D are, by definition, "restricted securities" that cannot be freely resold absent registration or an available exemption. Section 2.10 of the Assignment expressly acknowledged this restriction, providing that the SOFT tokens "have not been, and are not expected to be, registered with the Securities and Exchange Commission."

Section 2.12 of the Assignment expressly prohibited Poole from transferring any SOFT tokens unless one of three conditions was met: (1) the tokens are registered under the Securities Act, (2) exemptions from registration are available, or (3) the tokens do not constitute securities. No registration statement was ever filed for SOFT. As set forth below, neither an exemption nor the third condition was available for Poole's sales.

Rule 144 Unavailable

Rule 144 is categorically unavailable for SOFT tokens under paragraph (i) of the rule, which bars the safe harbor for resale of securities issued by an entity with no or nominal operations whose assets consist of cash, cash equivalents, and nominal other assets. DDS (Devs Do Something Ltd.) was such an entity—a special purpose vehicle created specifically for the token issuance, with no independent employees, offices, or business operations.

Even setting aside the categorical unavailability of Rule 144 under paragraph (i), Rule 144 would still be unavailable to Poole because its conditions are not satisfied. For securities of a non-reporting issuer, Rule 144 requires a minimum one-year holding period regardless of affiliate status. Poole did not receive or take possession of any SOFT tokens until on or about July 21, 2024, when he affirmatively claimed them from a token distribution smart contract. On July 22, 2024, Poole bridged tokens to Base and commenced selling them approximately ninety minutes after the bridge deposit arrived. Poole held his SOFT tokens for zero days before selling them. The one-year holding period was not satisfied by any measure.

Material Nonpublic Information

In addition to the securities law violations, Poole possessed material nonpublic information concerning the SOFT token ecosystem. Through his retained access to Tokensoft's GitHub repositories under his company email account, Poole had access to the SoftDAO project's source code and development activity—proprietary technical information that was not publicly available.

Second, Poole was a participant in a private group chat with other SOFT token investors and insiders. Through that private group chat, Poole learned the identities of specific institutional investors who intended to deploy capital into SOFT liquidity pools—including CMS Holdings, an institutional investor that ultimately deployed $250,000 into those pools. While the deployment of capital into a liquidity pool is visible on the blockchain, the identity of the deployer is not.

Poole exploited this material nonpublic information. After Poole's initial sales shocked the SOFT ecosystem, he learned through the private investor group chat when and by whom additional capital would be deployed into the liquidity pools to stabilize the project. Poole used that information to coordinate and time his subsequent sales for maximum impact—selling directly into liquidity he knew had been provided by identified institutional investors, at times calculated to drain their capital before the market could react.

The Token Sales & Market Impact

Poole claimed 1,017,411 SOFT tokens from the TrancheVestingMerkle contract on the Ethereum blockchain on July 21, 2024. The following day, he bridged one million of those tokens to Base (a Layer 2 blockchain) and commenced selling them on the same day—approximately ninety minutes after the bridge deposit arrived.

Between July 22 and September 11, 2024, Poole executed seven illegal token sales on Aerodrome, a decentralized cryptocurrency exchange:

• July 22, 2024 @ 7:08 AM PT: Sold 100,000 SOFT for 4,967.17 USDC ($0.0497/token) — Baseline
• July 25, 2024 @ 7:53 AM PT: Sold 100,000 SOFT for 4,046.93 USDC ($0.0405/token) — -18.5%
• August 1, 2024 @ 11:10 AM PT: Sold 100,000 SOFT for 3,634.88 USDC ($0.0363/token) — -26.8%
• August 6, 2024 @ 7:27 AM PT: Sold 100,000 SOFT for 2,485.57 USDC ($0.0249/token) — -50.0%
• August 16, 2024 @ 5:53 PM PT: Sold 100,000 SOFT for 2,077.34 USDC ($0.0208/token) — -58.2%
• September 3, 2024 @ 7:57 AM PT: Sold 100,000 SOFT for 879.91 USDC ($0.0088/token) — -82.3%
• September 11, 2024 @ 11:51 AM PT: Sold 100,000 SOFT for 864.87 USDC ($0.0086/token) — -82.6%

After each sale, Poole deposited the USDC proceeds into Aave, a decentralized lending protocol, earning approximately $272.88 in interest before withdrawing the full balance of 19,229.55 USDC to an external wallet on November 5, 2024. This systematic pattern—claim, bridge, sell, deposit into a yield-generating protocol, and ultimately withdraw—reflects calculated execution, not good faith liquidation.

At the time of Poole's first sale, SOFT's one-billion-token supply carried a market capitalization of approximately $50 million at $0.05 per token—a price that had remained relatively stable for approximately three months following the token's launch. By the end of Poole's seventh and final sale barely seven weeks later, the price had collapsed to less than $0.009 per token—an 82.6% decline—reducing the market capitalization to under $9 million.

By comparison, during the July-to-September 2024 period encompassing Poole's sales, Bitcoin declined approximately 15% and Ethereum declined approximately 30%. SOFT's over 82% collapse demonstrates that the token's collapse was not the product of broader market forces, but the direct result of Poole's targeted, repeated selling into a thin liquidity pool.

Damage to Tokensoft

Throughout the selling period, Poole concealed his sales from Borda and Tokensoft. Despite his January 11, 2024 promise to provide prior notice before any sale, Poole gave no notice whatsoever—not before, during, or after any of his seven sales.

In reliance on Poole's promises, and unaware that Poole had begun secretly selling SOFT tokens, Tokensoft continued to actively support and promote SoftDAO during the July-September 2024 selling period. Tokensoft encouraged its community members—Tokensoft investors, shareholders, and current and former employees—to provide liquidity to SOFT trading pools on decentralized exchanges, including on Aerodrome. Tokensoft's community members trusted Tokensoft's reputation and, at its encouragement, deposited capital into those pools. For example, CMS Holdings, an investor and SAFE holder in Tokensoft, deployed $250,000 in capital into the Aerodrome liquidity pools.

Unbeknownst to Tokensoft or its community, Poole was simultaneously selling his SOFT tokens directly into that very liquidity—effectively draining capital that Tokensoft had encouraged its community members to commit. By the time Tokensoft discovered Poole's sales, the community-provided liquidity had been substantially depleted, community members had suffered significant financial losses, and Tokensoft's goodwill with its investor and supporter base was irreparably damaged.

As a result of Poole's conduct:

• The SOFT market capitalization plummeted by millions of dollars
• Tokensoft lost between $3,807,231 and $5,861,236 in business opportunities directly attributable to the reputational injuries caused by Poole's misconduct
• Tokensoft's enterprise value collapsed from its $35 million all-time high to zero
• Tokensoft was forced to dissolve in July 2025
• Tokensoft incurred approximately $1,000,000 in dissolution and winding-up costs
• Tokensoft lost the foundation of its value proposition—the credibility and participation of its community

Claims & Legal Theories

First Cause of Action: Breach of Contract

Tokensoft and Poole entered into the Assignment, a valid and enforceable contract governed by Delaware law. Under the Assignment, Poole received the right to SOFT tokens in exchange for his express agreement to comply with the resale restrictions. Tokensoft performed all obligations required by transferring the right to receive SOFT tokens to Poole.

Poole materially breached the Assignment in multiple independent respects by selling SOFT tokens on public decentralized cryptocurrency exchanges between July 22 and September 11, 2024. Those breaches include: (a) violating the transfer restrictions of Section 2.12, because none of the three conditions permitting transfer were satisfied, and each sale constituted a violation of Section 5 of the Securities Act; (b) violating the prohibition on transfer of Unvested Tokens under Section 3.2, because no tokens vested and no written consent was given; and (c) selling tokens over which the Company's Repurchase Option had already been automatically exercised under Section 4.3.

Second Cause of Action: Promissory Estoppel

Poole made clear and unambiguous promises to Tokensoft and Borda that he would: (a) provide prior notice before selling any SOFT tokens; and (b) sell SOFT tokens only over-the-counter to accredited investors. Poole made these promises with the knowledge and expectation that Tokensoft would rely on them in continuing to publicly support the SoftDAO project. Tokensoft, in reliance on Poole's promises, took specific affirmative steps to support the SOFT ecosystem.

Had Poole honored his promises or provided the notice he guaranteed, Tokensoft would not have continued to encourage community participation and would not have staked its reputation on the project's integrity during the very period Poole was secretly destroying it.

Third Cause of Action: Fraud

On September 12, 2022, in the Assignment, Poole represented to Tokensoft that he was acquiring SOFT tokens "entirely for [his] own account to hold for the long term" without any "present intention of selling or otherwise disposing of all or any portion" of the tokens. On January 11, 2024, Poole further represented that he would not resell SOFT tokens except over-the-counter to accredited investors and would provide prior notice before selling.

These representations were false. Poole had no intention of holding SOFT tokens for the long term or complying with the resale restrictions. As demonstrated by his conduct—selling 700,000 SOFT tokens on public exchanges over seven transactions without any notice—Poole made these representations with the intent not to perform. As a compliance expert and Tokensoft co-founder, Poole understood the legal and market consequences of violating resale restrictions on restricted securities.

Poole also possessed material nonpublic information and exploited that information to time his sales for maximum personal gain. Poole's trading on material nonpublic information constituted an independent fraud on the market participants who purchased his tokens and on Tokensoft.

Beginning on July 22, 2024, Poole engaged in fraudulent concealment, concealing from Tokensoft the material fact that he was selling SOFT tokens on public exchanges in violation of his contractual and legal obligations.

Fourth Cause of Action: Tortious Interference with Prospective Economic Advantage

At all relevant times, Tokensoft had existing economic relationships and prospective business opportunities with third parties that contained a reasonable probability of future economic benefit. These relationships included existing and prospective investors, community members, and prospective business partners whose engagement depended on Tokensoft's reputation.

Poole knew of these relationships. As a co-founder and former officer of Tokensoft, Poole had intimate knowledge of Tokensoft's business relationships and investor base. Poole understood that Tokensoft's business depended on its reputation for integrity and compliance.

Each of Poole's seven sales constituted independently wrongful conduct, including violations of Section 5 of the Securities Act, common-law fraud, and breach of fiduciary duty. Poole intended to disrupt Tokensoft's economic relationships, or at minimum knew with substantial certainty that his conduct would do so.

Poole's conduct actually disrupted Tokensoft's economic relationships. The 82.6% crash in SOFT's price destroyed investor confidence, caused community members to lose capital at Tokensoft's encouragement, and rendered Tokensoft unable to maintain or develop business relationships that depended on its reputation and the viability of its projects.

Fifth Cause of Action: Declaratory Relief

An actual controversy has arisen regarding whether: (a) Poole is a creditor or debtor of Tokensoft; (b) Poole's sales violated the transfer restrictions and Section 5 of the Securities Act; (c) Poole's SOFT tokens vested or remained Unvested; (d) the Company's Repurchase Option was automatically exercised; (e) Poole owed fiduciary duties and breached them; (f) Poole's sales caused the token price collapse; and (g) Poole's conduct caused Tokensoft's dissolution.

Damages Sought

• Compensatory damages, including general and consequential damages, in an amount not less than $36M
• Punitive damages in an amount sufficient to punish Defendant's willful, malicious, fraudulent, and oppressive conduct and to deter similar misconduct
• Judicial declarations as to Poole's debtor status, the Company's automatic repurchase, Poole's fiduciary duties, and the causation of Tokensoft's damages
• Pre- and post-judgment interest as allowed under law
• Reasonable costs and attorneys' fees as allowable under law
• Such other and further relief as the Court deems just and proper

Court Documents