The influencers behind the YouTube channel "Nelk Boys" must face civil fraud and conspiracy claims stemming from a $23 million offering and sale of digital assets, in a lawsuit a buyer has brought alleging they largely failed to make good on delivering certain perks they promised purchasers.
In an order entered Monday in California federal court, U.S. District Judge Fred W. Slaughter largely denied a dismissal bid brought by Nelk Boys co-founder Kyle Forgeard and John Shahidi, who is president of all channel-branded businesses. The judge found that nonfungible token purchaser Trenton Smith had included sufficient details in his complaint supporting most of his claims that Forgeard and Shahidi never actually planned to deliver on their promises of benefits from their NFT, a blockchain-based token that usually represents ownership in a noninterchangeable piece of digital media.
For one thing, the court said, the defendants failed to show that Smith's claims were barred because they had announced a refund offer at one point for the digital assets, called Full Send Metacard Non-Fungible Tokens, that their company Metacard LLC sold.
In support of that finding, the judge pointed out that Smith "alleges that the refund offer was inadequate and seeks damages beyond what was offered," noting the refund offer of roughly $2,300 per NFT worked out to about $1,200 less than Smith had paid for one of his tokens.
Judge Slaughter also determined that Smith had adequately alleged a civil conspiracy with claims that "permit an inference that defendants formed a conspiracy to siphon funds from consumers by selling Metacards and continued making material misrepresentations about Metacard through social media channels to profit from royalties."
However, the judge did toss equitable relief claims under California's Consumers Legal Remedies Act to the extent that Smith's CLRA claim seeks equitable relief, saying the parties "do not dispute that a request for equitable relief is not at issue in this matter."
The Nelk Boys YouTube channel, which gained traction through its prank videos and podcasts, has 8.22 million subscribers, according to the ruling.
Once they had risen to prominence, the influencers behind the channel founded a brand called Full Send, and eventually hatched a plan for Metacard to sell NFTs that would supposedly serve as access to business investment opportunities in lounges, gyms, festivals, casinos and restaurants, as well as access to apparel, virtual stores, virtual festivals, Metaverse casinos and recording artists, the complaint said.
The defendants earned over $23 million when they launched sales of their NFTs in January 2022 that sold out within minutes, the suit says. But in the months that followed, the defendants failed to make good on their promised NFT benefits offerings and instead used the proceeds for their personal benefit, the purchaser alleged.
On Monday, Judge Slaughter said the suit alleges the "defendants did not simply fail to deliver on their promises, rather they never intended to perform them at all."
"Defendants' plan was to enrich themselves by diverting the vast majority of the $23 million raised from consumers and pocketing the proceeds, rendering performance of their promises economically impossible," the judge found. He cited data showing the vast majority of holdings in the Metacard treasury were drained in the four months following the offering, despite continued misrepresentations that the NFT purchaser perks were forthcoming.
Even though they emptied that treasury, the defendants continued to market the Metacards to earn an additional $4.3 million from NFT royalties "without adequately providing the promised benefits," the judge said, citing the complaint.
"At this stage of the proceedings, the court finds that plaintiff adequately alleges defendants did not intend to perform at the time the promises were made ," Judge Slaughter wrote.
Alongside the individual defendants and Metacard, the complaint named Nelk Inc., which does business as Full Send, and Nelk USA Inc.
On Wednesday, Tom Kherker, an attorney representing Smith, told Law360 via email: "We are pleased with the court's well-reasoned decision."
"We look forward to progressing further into the discovery phase to gather evidence we believe exists to show that the defendants never intended to develop the promised Metacard benefits," he said.
Counsel for the influencers did not immediately respond to requests for comment Wednesday.
Smith is represented by John P. Kristensen of Kristensen Law Group and Jarrett L. Ellzey, Leigh S. Montgomery, Tommy Kherkher and Josh Sanford of EKSM LLP.
Forgeard, Shahidi and Nelk are represented by William K. Pao, Ariana Bustos, Brian M. French, Rona S. Li, Katherine Bechtel and Luke C. Cadigan of Cooley LLP.
The case is Smith v. Nelk Inc. et al., case number 8:25-cv-00161, in the U.S. District Court for the Central District of California.
Nov 19
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