Is Crypto.com in trouble? Crypto.com published audited proof of reserves amid a report that its “CEO has history of red flags including bankruptcy and quick exits”
The sudden collapse of the crypto exchange FTX has sent panic in the crypto industry, causing investors to worry about the future of the crypto market. More than a month after FTX filed for Chapter 11 bankruptcy, media attention is now shifting to one of the world’s largest cryptocurrency exchanges: Crypto.com. Which leads to the question: Is Crypto.com going the way of FTX?
As you may recall, just a day before the crypto exchange FTX filed for bankruptcy, FTX founder and former CEO Sam Bankman-Fried said in a post on Twitter: “A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine.” It later turned out to be a lie.
Over the past two weeks, rumors have swirled that Crypto.com might be in financial trouble. But CEO Kris Marszalek wants everyone to know that his company is safe and in good hands. Marszalek made a couple of TV appearances and tweets to reassure customers that their digital holdings are safe and secure.
In a post on Friday, Crypto.com published an audited proof of reserves, certifying that customer assets were held on a one-to-one basis, meaning that all deposits are 100% backed by Crypto.com’s reserves. According to the tweet, the audit was carried out by the Mazars Group, the former accountant for the Trump Organization.
“As promised, our audited Proof of Reserves. Mazars Group, a reputable audit firm, confirmed that our on-chain reserves exceed customer liabilities for all in-scope assets and that we have full control over the wallets. Users can now verify 1:1 backing cryptographically,” Marszalek said in a tweet.
As promised, our audited Proof of Reserves.
Mazars Group, a reputable audit firm, confirmed that our on-chain reserves exceed customer liabilities for all in-scope assets and that we have full control over the wallets.
Users can now verify 1:1 backing cryptographically. https://t.co/rc9rDJGp9d
— Kris | Crypto.com (@kris) December 9, 2022
But despite releasing the proof of reserves, that has not quelled the news from major news outlets such as CNBC saying that “Crypto.com CEO has history of red flags including bankruptcy and quick exits.”
According to the report, Marszalek was involved in a series of ventures that ended in collapse prior to founding Crypto.com. Some of his ventures included one where suppliers claimed they were unable to access their earnings. In another venture that took place over a decade ago, CNBC said that “Marszalek and his business partner were paid millions of dollars by their manufacturing company, months before it entered bankruptcy.” But is this a red flag and did his past failures impact Crypto.com?
CNBC stated that it reached out to Marszalek. And after their request, Marszalek published a 16-tweet thread on December 6 informing his Twitter followers to be on the lookout for a FUD (short for fear, uncertainty, and doubt) about him and his company.
“1) More FUD targeting http://Crypto.com is coming, this time about a business failure I had very early in my career. I have nothing to hide, and am proud of my battle scars, so here’s the unfiltered story . It’s important to note that my early failures made me who I am today: an effective operator, who knows how to both grow a business and manage risk.”
2) It’s important to note that my early failures made me who I am today: an effective operator, who knows how to both grow a business and manage risk.
— Kris | Crypto.com (@kris) December 7, 2022
Marszalek went on to say that the failure happened a long time ago.
“3) Almost 20 years ago, in 2004, I co-founded a consumer electronics business, Starline. We manufactured in China and exported globally. By 2007 it was a medium size business with $81m in revenue and close to 400 employees. 4) Then the 2008 financial crisis hit. Our customers were offered credit lines through a banking instrument called factoring. When customers didn’t pay, the bank went after the business.”
He added: “5) My company went through a forced liquidation in 2009, owing US$2.5m to the bank. As one of the co-founders, I was personally guaranteeing the debt, so they went after me. Turning 30 and being bankrupt was a painful experience that taught me lessons I carry with me to this day.”
5) My company went through a forced liquidation in 2009, owing US$2.5m to the bank. As one of the co-founders, I was personally guaranteeing the debt, so they went after me. Turning 30 and being bankrupt was a painful experience that taught me lessons I carry with me to this day.
— Kris | Crypto.com (@kris) December 7, 2022
CNBC said that there is currently no evidence of wrongdoing at Crypto.com. However, the publication noted that “Marszalek’s business history is replete with red flags.”
For example, following the collapse of a prior company in 2009, CNBC said that a judge called Marszalek’s testimony unreliable. That was not all. Marszalek’business activities before 2016, the same year that he founded what would become Crypto.com, “involved a multimillion-dollar settlement over claims of defective products, corporate bankruptcy, and an e-commerce company that failed shortly after a blowout marketing campaign left sellers unable to access their money.”
According to his LinkedIn profile, Marszalek founded a manufacturing firm called Starline in 2004. The company, which was based in Hong Kong with a plant in mainland China, built hardware products like solid-state drives, hard drives, and USB flash drives. Marzsalek’s LinkedIn page also said that he grew the business into a 400-person company with $81 million in sales in three years.
However, CNBC said there was much more to the story than Marszalek let on. According to CNBC, 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 reported.
Court records from 2013 showed that Starline was forced into bankruptcy proceedings by the end of 2009. Court documents further showed that over the course of 2008 and 2009, “Marszalek and his partner transferred nearly $3 million in payments from Starline.”
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. Judge Anthony Chan, who was in charge of the case, later wrote in a court filing: “It appears that there was a concerted effort to strip the cash from Starline.”
Starline later collapsed in 2009. Before the collapse, Starline had borrowed 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.
As we reported on November 15, Crypto.com declined to say how many tokens it holds on its balance sheet even as CEO Marszalek tries to reassure customers their deposits are safe. But CNBC found as part of its research that 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,” the publication reported.
Founded in 2016, Singapore-based Crypto.com is a pioneer of payments and cryptocurrency with a mission to accelerate the world’s transition to cryptocurrency. The startup is working towards this goal with its portfolio of consumer products, including the Crypto.com Wallet & Card App, the MCO Visa Card, Crypto Invest, Crypto.com Chain, as well as Crypto Credit.
Before now, Crypto.com had over 5 million customers. The exchange said it provides customers with a powerful alternative to traditional financial services through the Crypto.com App, the Crypto.com Card, and the Crypto.com Exchange. The Crypto.com Wallet allows users to buy, sell, and pay with cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Ripple (XRP), Binance Coin (BNB), and Crypto.com’s MCO and CRO Tokens.