In a high-profile legal battle shaking the cryptocurrency industry, a group of over 20 investors has filed a lawsuit against Phoenix Community Capital, its CEO Daniel Ianello, and associated entities, alleging a multi-million dollar exit scam. Filed on January 8, 2025, in the U.S. District Court for the Middle District of Tennessee, the case accuses Ianello of orchestrating a fraudulent scheme that defrauded investors of tens of millions through deceptive practices. As the crypto market continues to grapple with fraud allegations, this lawsuit highlights the vulnerabilities investors face and the challenges of regulating digital assets.
Background on Phoenix Community Capital
Phoenix Community Capital emerged in early 2022 as a cryptocurrency investment platform promising high returns through its proprietary «fire» tokens and «nests.» According to its now-deleted website, the company leveraged a «large capital pool of community assets» to access exclusive investment opportunities unavailable to retail investors. Investors could purchase fire tokens, with ten tokens forming a «nest» that promised daily returns of 0.225 fire tokens, enabling investors to recover their investment in just 45 days and profit thereafter. The platform also boasted an in-house incubation program to fund and manage new projects, offering high-percentage profit sharing to token holders.
At its peak, Phoenix Community Capital was valued at approximately $800 million and cultivated ties with UK all-party parliamentary groups (APPGs) on blockchain and the metaverse, enhancing its perceived legitimacy. However, in September 2022, the company abruptly vanished. Its website went offline, social media accounts fell silent, and an estimated 8,000 investors were left unable to access their funds, sparking widespread concern about potential fraud.
The Alleged Exit Scam
The lawsuit, titled Riley et al v. Phoenix Community Capital et al, alleges that Daniel Ianello took control of the company in October 2022, shortly after its public disappearance. According to the plaintiffs, Ianello executed a sophisticated exit scam by shutting down the smart contracts that powered the investment platform, effectively locking investors out of their accounts. The complaint claims he transferred hundreds of thousands of dollars in investor funds to his control, deleted incriminating posts on the company’s Discord channel, and removed earlier versions of the Phoenix website to erase evidence of the platform’s operations. Furthermore, Ianello announced that the smart contracts would not be restored, leaving investors with no means to recover their investments.
The plaintiffs, including individuals from various states and countries, assert that these actions were part of a broader scheme to defraud them of tens of millions of dollars. The lawsuit also names Xeta Capital LLC and other individuals, including Gavin Minty, Eric Marshall, and Matthew Sgherzi, as defendants, alleging they used deceptive language and misleading statements to obscure the true nature of their operations.
| Case Details | Information |
| Case Name | Riley et al v. Phoenix Community Capital et al |
| Court | U.S. District Court for the Middle District of Tennessee |
| Case Number | 3:25-cv-00036 |
| Filed | January 8, 2025 |
| Plaintiffs | Over 20 individuals, including Nicholas Sgherzi, Rodney Riley, John Sauter |
| Defendants | Phoenix Community Capital, Xeta Capital LLC, Daniel Ianello, others |
| Allegations | Fraud, exit scam, misappropriation of funds, violation of Securities Exchange Act |
Ianello’s Defense
In response, Daniel Ianello filed a motion to dismiss the lawsuit on July 2, 2025, arguing that the Tennessee court lacks personal jurisdiction over him. As a Michigan resident, Ianello claims he had no purposeful contact with Tennessee, rendering the court’s authority over him invalid. He further contends that he did not sell any securities, as he only acquired Phoenix Community Capital’s assets after the alleged sales occurred, and made no statements regarding the investments. Ianello asserts that the plaintiffs are wrongly associating him with the actions of the company’s original founders, including Luke Sullivan, who established the platform in 2022.
Legal Proceedings and Current Status
The lawsuit is ongoing, with Ianello’s motion to dismiss pending review by Judge Waverly D. Crenshaw, Jr. If the motion is denied, the case will proceed to discovery, allowing plaintiffs to present evidence supporting their claims of fraud and misappropriation. The case also invokes the Racketeer Influenced and Corrupt Organizations Act (RICO), reflecting the plaintiffs’ belief that the defendants engaged in a coordinated criminal enterprise. The outcome could hinge on whether the court accepts Ianello’s jurisdictional argument or determines that the crypto assets involved constitute securities under U.S. law.
Broader Implications for the Crypto Industry
This lawsuit is part of a growing wave of legal actions targeting alleged cryptocurrency scams, as investors seek accountability for losses in a largely unregulated market. The collapse of Phoenix Community Capital follows a pattern of high-profile crypto frauds, with CertiK reporting $2.47 billion in losses from hacks, exploits, and scams in the first half of 2025 alone. The case raises critical questions about the classification of crypto assets as securities and the jurisdictional challenges of prosecuting fraud across state lines.
For investors, the Phoenix Community Capital case serves as a cautionary tale about the risks of investing in platforms promising outsized returns without transparent operations. As the crypto industry matures, such lawsuits may drive stronger regulatory frameworks to protect investors and deter fraudulent schemes.
Looking Ahead
The resolution of this case could set important precedents for how courts handle crypto-related fraud and jurisdictional disputes. Investors are advised to conduct thorough due diligence, verify the legitimacy of crypto platforms, and consult legal professionals before investing. As the Tennessee court deliberates, the crypto community watches closely, aware that the outcome could shape the future of investor protections in the digital asset space.