A New York federal judge has dismissed several claims in a $1 million fraud lawsuit brought by Cypress Holdings III LP against Sport-BLX, an athlete investment startup, ruling that the plaintiff is conflicted from pursuing certain derivative claims. Cypress alleges that Sport-BLX and its executives defrauded investors by mishandling funds and lying about their business plans.
Derivative Claims Dismissed Due to Conflict
U.S. District Judge Lorna G. Schofield found that Cypress Holdings, a minority shareholder in Sport-BLX, is conflicted in pursuing both direct and derivative claims. The judge ruled that Cypress could potentially recover more through its direct claims, creating a conflict of interest that violates Rule 23.1, which requires plaintiffs in derivative actions to represent the interests of all similarly situated shareholders fairly.
Judge Schofield also noted that since several individual defendants are indemnified by Sport-BLX, any recovery on derivative claims could come from the same pool of money as the direct claims. This overlap further complicated Cypress’ ability to fairly pursue both types of claims.
Cypress Holdings $1M Fraud Suit : Allegations of Fraud and Mismanagement
Cypress Holdings first filed the suit in 2022, accusing Sport-BLX of mishandling investors’ money, including paying $500,000 per year in rent to a company owned by one of Sport-BLX’s founders. Cypress claimed the money should have been used for technology development, legal expenses, and marketing, instead of what they described as a siphoning of funds.
