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Kris Marszalek, CEO of Crypto.com, talking at a 2018 Bloomberg occasion in Hong Kong, China.
Paul Yeung | Bloomberg | Getty Pictures
Kris Marszalek desires everybody to know that his firm, Crypto.com, is secure and in good fingers. His TV appearances and tweets make that clear.
It is an comprehensible strategy. The crypto markets have been in freefall for a lot of the 12 months, with high-profile names spiraling into chapter 11. When FTX failed final month simply after founder Sam Bankman-Fried mentioned the crypto change’s belongings had been advantageous, belief throughout the business evaporated.
Marszalek, who has operated out of Asia for over a decade, subsequently assured shoppers that their funds belong to them and are available, in distinction to FTX, which used consumer cash for all kinds of dangerous and allegedly fraudulent actions, in keeping with court docket filings and authorized specialists.
Bankman-Fried has denied understanding about any fraud. Regardless, FTX shoppers at the moment are out billions of {dollars} with chapter proceedings underway.
Crypto.com, one of many world’s largest cryptocurrency exchanges, could be in advantageous well being. After the FTX collapse, the corporate printed its unaudited, partial proof of reserves. The discharge revealed that just about 20% of buyer funds had been in a meme token referred to as shiba inu, an quantity eclipsed solely by its bitcoin allocation. That share has dropped for the reason that preliminary launch to about 15%, in keeping with Nansen Analytics.
Marszalek mentioned in a Nov. 14 livestream on YouTube that the pockets addresses had been consultant of buyer holdings.
On Friday, Crypto.com printed an audited proof of reserves, testifying that buyer belongings had been held on a one-to-one foundation, that means that every one deposits are 100% backed by Crypto.com’s reserves. The audit was carried out by the Mazars Group, the previous accountant for the Trump Group.
Whereas no proof has emerged of wrongdoing at Crypto.com, Marszalek’s enterprise historical past is replete with pink flags. Following the collapse of a previous firm in 2009, a choose referred to as Marszalek’s testimony unreliable. His enterprise actions earlier than 2016 — the 12 months he based what would turn out to be Crypto.com — concerned a multimillion-dollar settlement over claims of faulty merchandise, company chapter and an e-commerce firm that failed shortly after a blowout advertising and marketing marketing campaign left sellers unable to entry their cash.
Court docket information, public filings and offshore database leaks reveal a businessman who moved from business to business, rebooting rapidly when a enterprise would fail. He began in manufacturing, producing information storage merchandise for white label sale, then moved into e-commerce, and at last into crypto.
CNBC reached out to Crypto.com with data on Marszalek’s previous and requested for an interview. The corporate declined to make Marszalek out there and despatched a press release indicating that there was “by no means a discovering of wrongdoing beneath Kris’s management” at his prior ventures.
After CNBC’s requests, Marszalek printed a 16-tweet thread, starting by telling his followers: “Extra FUD concentrating on Crypto.com is coming, this time a few enterprise failure I had very early in my profession. I’ve nothing to cover, and am happy with my battle scars, so here is the unfiltered story.” FUD is brief for worry, uncertainty and doubt and is a well-liked phrase amongst crypto executives.
Within the tweets, Marszalek described his previous private chapter and the abrupt closure of his e-commerce enterprise as studying experiences, and added that “startups are laborious,” and “you’ll fail over and over.”
‘Enterprise failure’ — defective flash drives
Marszalek based a producing agency referred to as Starline in 2004, in keeping with his LinkedIn profile. Based in Hong Kong, with a plant in mainland China, Starline built hardware products like solid state drives, hard drives, and USB flash drives. Marzsalek’s LinkedIn page says he grew the business into a 400-person company with $81 million in sales in three years.
There was much more to the story.
Marszalek owned 50% of the company, sharing ownership and control with another Hong-Kong based individual, who partnered with Marszalek in multiple ventures.
In 2009, Marzsalek’s company settled with a client over a faulty shipment of flash drives. The $5 million settlement consisted of a $1 million upfront payment and a $4 million credit note to the client, Dexxon. The negotiations over the settlement began at some point after 2007.
CNBC was unable to locate Marszalek’s business partner.
Court documents don’t show whether Starline made good on either the $1 million “lump sum settlement fee” or the $4 million credit note. Starline was forced into bankruptcy proceedings by the end of 2009, court records from 2013 show.
Over the course of 2008 and 2009, Marszalek and his partner were transferred nearly $3 million in payments from Starline, according to the documents.
Over $1 million was paid out to Marszalek personally in what the court said were “impugned payments.” His partner took home nearly $1.9 million in similar payments.
“It appears that there was a concerted effort to strip the cash from Starline,” Judge Anthony Chan later wrote in a court filing.
Some $300,000 was paid by Starline to a British Virgin Islands holding company called Tekram, the document says. That money went through Marszalek, and Tekram eventually returned it to Starline.
By 2009, Starline had collapsed. Marszalek’s representatives told CNBC in a statement that Starline went under because customers failed to pay back credit lines that the company had extended them during the financial crisis of 2007 and 2008. Starline borrowed that money from Standard Chartered Bank of Hong Kong (SCB).
“The bank then turned to Starline and the co-founders to repay the lines of credit and filed for liquidation of the company,” the statement said.
Starline owed $2.2 million to SCB.
Marszalek said on Twitter that he had personally assured the loans from the financial institution to Starline. In consequence, when the financial institution compelled Starline into liquidation, Marszalek and his companion had been compelled into chapter 11 as effectively.
The court docket discovered that the $300,000 switch to Tekram was “in fact a cost” to Marszalek.
Marszalek mentioned the cash within the Tekram switch was compensation of a debt Starline owed to Tekram. The choose described that declare as “inherently unimaginable.”
“There isn’t any reason why the compensation needed to be channelled by way of him or why the cash was later returned to the debtor,” the choose mentioned.
Driving the Groupon wave
Chapter did not sever the ties between Marszalek and his companion or maintain them out of enterprise for lengthy. On the similar time Starline was shutting down, the pair arrange an offshore holding firm referred to as Center Kingdom Capital.
Center Kingdom was established within the Cayman Islands, a infamous hub for tax shelters. The connection between Middle Kingdom and Marszalek and his partner, who each held half of the firm, was exposed in the 2017 Paradise Papers leak. The Paradise Papers, along with the Panama Papers, contained documents about a web of offshore holdings in tax havens. They were published by the International Consortium of Investigative Journalists.
Middle Kingdom was the owner of Buy Together, which in turn owned BeeCrazy, an e-commerce venture that Marszalek had started pursuing. Similar to Groupon, retailers could use BeeCrazy to sell their products at steep discounts. BeeCrazy would process payments, take a commission on goods sold, and distribute funds to the retailers.
Sellers and buyers flocked to the site, drawn in by considerable discounts on everything from spa passes to USB power banks. Buy Together drew attention from an Australian conglomerate called iBuy, which was on the verge of an IPO and pursued an acquisition of BeeCrazy as part of a plan to build out an Asian e-commerce empire.
Court filings and Australian disclosures show that to seal the deal, Marszalek and his partner had to remain employed by iBuy for three years and clear their individual bankruptcies in Hong Kong court. The partner’s uncle came forward in front of the court to help his nephew and Marszalek clear their names and debts, filings show.
While the judge called the uncle’s involvement “suspicious,” he allowed him to repay the debt. As a result, both Marszalek and his partner’s bankruptcies were annulled. A few months later, in October 2013, BeeCrazy was purchased by iBuy for $21 million in cash and stock, according to S&P Capital IQ.
A month and a half after buying BeeCrazy, iBuy went public. Marszalek was required to remain until 2016.
The company struggled after its IPO as competition picked up from bigger players like Alibaba. Marszalek was eventually promoted to CEO of iBuy in August 2014, according to filings with Australian regulators.
Alibaba headquarters in Hangzhou, China.
Bloomberg | Bloomberg | Getty Images
Marszalek renamed iBuy as Ensogo in an effort to retool the company. Ensogo continued to suffer, running up a loss in 2015 equal to over $50 million.
By the following year, Ensogo had already reportedly laid off half its staff. In June 2016, Ensogo closed down operations. The same day, Marszalek resigned.
After the sudden shuttering of Ensogo, sellers on the site told the South China Morning Press that they never received proceeds from items they’d already delivered as part of a final blowout sale.
“[Many] sellers had already sold their goods but had yet to receive any money from the platform at that time, their money thus vanished altogether with the online shopping platform,” according to translated testimony from a representative for a group of sellers before Hong Kong’s Legislative Council.
One seller told Hong Kong’s The Standard that she lost more than $25,000 in the process.
“It seems to us that they wanted to make huge business from us one last time before they closed down,” the seller told the publication.
Marszalek’s representative acknowledged to CNBC that “the shutdown angered many customers and consumers” and said that was “one of the reasons Kris was opposed to the decision.”
Welcome to crypto
Marszalek moved quickly on to his next thing. The same month he resigned from Ensogo, Foris Limited was incorporated, marking Marszalek’s entry into the crypto market.
Foris’ first foray into crypto was with Monaco, an early exchange.
With a leadership team composed entirely of former Ensogo employees, Monaco told prospective investors they could expect three million customers and $169 million in revenue within five years.
Monaco rebranded as Crypto.com in 2018.
The exterior of Crypto.com Arena on January 26, 2022 in Los Angeles, California.
Rich Fury | Getty Images
By 2021, the company had smashed its own goals, crossing the 10 million user mark. Revenue for the year topped $1.2 billion, according to the Financial Times. That’s when crypto was soaring, with bitcoin climbing from about $7,300 at the beginning of 2020 to a peak of over $68,000 in November of 2021.
The company inked a deal with LeBron James for a Super Bowl ad, aired a prior commercial with Matt Damon and spent a reported $700 million to put its name on the arena that’s home to the Los Angeles Lakers. It’s also a sponsor of the World Cup in Qatar.
The market’s plunge in 2022 has been disastrous for all the major players and goes well beyond the FTX collapse and the numerous hedge funds and lenders that have liquidated. Coinbase’s stock price is down 84%, and the company laid off 18% of its staff. Kraken recently cut 30% of its workforce.
Crypto.com has laid off hundreds of employees in recent months, according to multiple reports. Questions percolated about the company in November after revelations that the prior month Crypto.com had sent more than 80% of its ether holdings, or about $400 million worth of the cryptocurrency, to Gate.io, another crypto exchange. The company only admitted the mistake after the transaction was exposed thanks to public blockchain data. Crypto.com said the funds were recovered.
Marszalek went on CNBC on Nov. 15, following the FTX failure, to try and reassure customers and the public that the company has plenty of money, that it doesn’t use leverage and that withdrawal demands had normalized after spiking.
Still, the market cap for Cronos, Crypto.com’s native token, has shrunk from over $3 billion on Nov. 8 to a little over $1.6 billion today, reflecting a loss of confidence among a key group of investors. During the crypto mania at this time last year, Cronos was worth over $22 billion.
Cronos has stabilized of late, hovering around six cents for the last three weeks. Bitcoin prices have been flat for about four weeks.
Marszalek’s narrative is that he’s learned from past mistakes and that “early failures made me who I am today,” he wrote in his tweet thread.
He’s asking customers to believe him.
“I’m proud of my scar tissue and the way I persevered in the face of adversity,” he tweeted. “Failure taught me humility, how to not overextend, and how to plan for the worst.”
Correction: Crypto.com’s Super Bowl ad featured LeBron James, not Matt Damon. The commercial with Damon came out in late 2021.
Clarification: This story has been updated to more accurately reflect where in Asia Marszalek has operated.
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