For the sake of readability, the individuals referred to as Investors 1 and 2 by the Oklahoma Department of Securities have been given the pseudonyms Tyler and Harry in this article, respectively. Their real names are being withheld due to the ongoing nature of their case.

A few months after first investing in MANNA Robotics — a blockchain-backed drone delivery startup run by the founder of Stanford’s robotics club — Harry started to suspect he’d been scammed.

“The fact that he lied about who his partner was; the fact that one of his main ‘investors’ is not an investor; the fact that he’s told me his company is worth $10 million but I don’t believe that that’s true,” Harry said of Stanford drop-out and MANNA CEO Eric Smalls — “as all this was coming together, I started realizing, ‘Wow, this isn’t just a really bad situation, but I’m actually the victim of clear-cut investment fraud.’”

Allegations of fraud against Smalls came to a head on Oct. 30 when the Oklahoma Department of Securities mailed him a cease-and-desist letter, as first reported in campus newsletter The Fountain Hopper. The letter alleged that he violated state law by selling unregistered securities and misleading potential investors, including Harry and a second investor, Tyler.

“All allegations made are false and racist!” Smalls wrote in a statement to The Daily. He deemed the allegations a “racially motivated SLAPP Suit” — or strategic lawsuit against public participation, intended to censor debate or intimidate critics — and any reporting on them “clickbait instead of real journalism.”

MANNA Robotics has now been ordered to halt all actions and business in violation of Oklahoma’s securities act and can face civil penalties of up to $5,000 for a single violation — or $250,000 for multiple violations — in addition to the costs of the Department of Securities investigation, according to the department’s letter.

Smalls was never registered as a legal agent authorized to sell securities in Oklahoma, the letter says, and shares of MANNA Robotics were also unregistered — making the sale of those stocks to investors in Oklahoma illegal.

Oklahoma’s cease-and-desist gave Smalls a 30-day window in which to request a hearing on his case. Smalls filed a request on Tuesday, according to the Oklahoma Department of Securities’ website.

“He’s a good talker, good manipulator, but not a good businessman,” Tyler said of Smalls. “But the house of cards has fallen.”

Smalls wrote in a statement to The Daily that both Tyler and Harry are “racists and friends with each other conspiring and accusing [him] of stealing.”

The two individuals at the center of the claims became involved with Smalls indirectly: Tyler through a mutual friend who’d gone to school with Smalls, and Harry through Tyler, they told The Daily.

“His credibility is all in his network,” Tyler said, “and he’s very sensitive about his network.”

Harry told The Daily that, after being put in contact with Smalls, he talked to Smalls for about eight hours via phone over the course of a few days, and — impressed with Smalls’ having founded Stanford Robotics as well as coverage of his company in outlets like Forbes — felt comfortable enough to wire the CEO an investment of $15,000.

The cease-and-desist letter alleges that Harry bought that much MANNA stock in July, adding that Smalls told Harry he thus had a 0.0015 direct ownership stake in the company, which he said was valued at $10 million.

Wanting to find out more about MANNA, Harry says he eventually flew out to Stanford and met with Smalls. Smalls was “careful” about sharing details about the company’s operations, Harry said, but Harry viewed it as a mix of Smalls being “a sort of robot genius nerd type person” and also being protective about MANNA’s technology.

Harry says Smalls then told him that he’d be a good fit for a leadership position at MANNA — “We agreed on chief operating officer” — but for that to happen, he’d need to invest more money in the company. Excited to change career paths and viewing it as an investment in himself, Harry says he wired Smalls another $45,000 about a month later, on July 24.

The cease-and-desist letter states that Harry bought $45,000 of MANNA stock and that Smalls told him he had 0.0045 additional ownership in the company.

Two days later, Harry says he was meeting with a personal mentor when MANNA came up. The mentor — a former Silicon Valley venture capitalist from the dotcom boom — raised concerns about how unwilling Smalls seemed to be to share details about the company.

“It’s not like the movies, where people are so careful about their secret sauce,” Harry said his mentor told him. “Typically they’re very open about things, because they want you to be comfortable and invest.”

In fact, Harry says that at one point he had pushed back on Smalls, asking why MANNA needed a relatively small investment from Harry if Smalls was supposedly so well-connected in the tech world. Harry says Smalls replied that, having come from a poor family, he didn’t want to make the rich richer when he could instead work with “normal people” and spread the wealth.

“So,” explained Harry, “he kind of had a good story.”

Following the talk with his mentor, Harry started to get nervous — and as he dug further, he says he found more holes in Smalls’ story. For instance, Smalls had said Sean Greensalde was his current business partner, but Harry found out that Greenslade hadn’t worked with Smalls since the year prior. Greenslade wrote in an email to The Daily that he’s had “no involvement in MANNA for quite some time.”

Smalls also misrepresented MANNA’s support from investors, Harry said. When he actually asked one of those investors, Sam Lessin, Harry found that Lessin only gave Smalls a $15,000 grant “to experiment with drones” while Smalls was an undergrad. Lessin, a product manager for Facebook, told Harry he was frustrated that Smalls claimed him as an investor when the money was just given for an “academic fun check,” according to text messages obtained by The Daily.

Lessin did not respond to a request for comment.

Realizing that he knew less than he’d thought about MANNA’s business status, and having found through conversation with Tyler that they’d each been told a different version of the company’s business model, Harry started trying to get some of his money back from Smalls. After about a month, he directly accused Smalls of being a con artist.

The two made an agreement under which Smalls would repay Harry’s second investment of $45,000 over the course of three months, Harry said, adding that Smalls paid him back $20,000 — but the check for the next $15,000 bounced. Harry added that, when he asked Smalls what went wrong, Smalls said he’d intentionally left the account empty because Harry “voided the contract” by discussing his situation on Facebook.

“[Smalls] is saying that not only will he not pay the money back, but he’s also saying I don’t own the equity,” Harry said. “And I said, ‘It’s one or the other … If we wrote up a contract saying you’re going to pay me back $45,000, and then you don’t pay me back, then I still own the equity. And if there’s no equity there, that’s called fraud.”

According to the cease-and-desist letter, Harry has received neither shares of stock in MANNA nor the return of his principal investment. Further, the promissory notes and stock were not registered, the letter reads.

“He’s not a good business person, and he’s not a good criminal either,” Harry said of Smalls. “He wants everything official. He wants signatures, he wants agreements and contracts. But everything we’re talking about is blatant fraud.”

Tyler, the other investor in the Oklahoma letter, told a similar story. Smalls promised him he could double his money in three months, Tyler said, so they signed a contract in January and Tyler put in $2,500. The cease-and-desist letter says that Smalls issued a promissory note and security agreement promising a $5,000 return.

Three months later, in April, Tyler tried to deposit a check from Smalls for $5,000 and it bounced, documents obtained by The Daily confirm. But by then, he and Smalls had entered another agreement.

“I kind of ignored it, because he rolled that deal into another deal, and rolled that deal into another deal,” Tyler said. “And that’s where we are right now.”

According to the cease-and-desist letter, in April Tyler invested another $12,000 with Smalls in exchange for a $24,000 check post-dated for July. Come July, the letter continues, Smalls told Tyler he wasn’t able to pay back the check; however, he did pay Tyler $4,000, and also issued a $20,000 promissory note that promised to pay Tyler $32,500.

Tyler said Smalls still owes him that $32,500 plus late fees. The letter adds that Tyler has not received the return of his principal investment, the promised return on investment or collateral Smalls promised him.

In total, Tyler claims he has identified at least 20 people — himself and Harry included — who gave Smalls money in amounts ranging from $20 to Harry’s $60,000. 

Smalls, meanwhile, said in his statement that MANNA is “in contact with the accusers to settle matters privately with them admitting fault.”

However, Tyler said the last time he talked with Smalls was on Oct. 10 in a text saying, “I’ll see you in court,” and then “gave up on him.” Harry, meanwhile, said “there’s no settling things privately.”

“He has our money, we want it back and he’s refusing to give it to us,” Harry added. “The only way to settle it is for him to pay us money. He’s refusing to do so.”

If Smalls’ request for a hearing is granted, the hearing will be scheduled within 15 days of his Tuesday filing.

Update: On Feb. 20, the Oklahoma Department of Securities vacated a cease-and-desist order it had issued to MannaRobotics, Co. on the grounds that the company had been improperly named in the case. “It does not appear that the company is, or ever has been, affiliated with Eric Christian Smalls,” the order to vacate reads. Jennifer Shaw, an attorney with the securities department, confirmed that Smalls is still subject to the cease-and-desist order directed at him and that his hearing is set for April 30. Smalls did not respond to a request for comment on the matter. This article has been updated accordingly.

Contact Elena Shao at eshao98 ‘at’ stanford.edu and Brian Contreras at brianc42 ‘at’ stanford.edu.