When news traveled worldwide about the Tuesday stabbing death of tech executive Bob Lee in San Francisco, it put a sudden and awkward spotlight on his little-known employer, the cryptocurrency company MobileCoin Inc.
The San Francisco-based startup presents itself as a means of payment at the forefront of privacy, used on the secrecy-focused Signal messenger app with the goal of making transactions untraceable.
The secrecy and untraceability of the company’s cryptocurrency, also called MobileCoin, had fans among advocates of blockchain technology and internet privacy.
“Much like encrypted messengers support free speech, MobileCoin supports free commerce,” Lee said in the company statement announcing his hiring as chief product officer in December 2021.
But MobileCoin has been the subject of warnings from others concerned about its potential use as a money-laundering tool and its cameo role in the collapse of cryptocurrency platform FTX.
Securities and Exchange Commission Chairman Gary Gensler, who has promised to crack down on cryptocurrency, had his eye on this development as early as 2019. In testimony before Congress, he named the incipient Signal-MobileCoin alliance as one of a number of electronic exchanges, phone apps and digital wallets that presented new challenges for detecting and combating money laundering.
MobileCoin's connection to problems with FTX prior to its collapse was described by experts interviewed by The Standard as emblematic of cryptocurrencies’ risks. Launched on the platform in 2020, the coin experienced a brief surge in value in early 2021 before plummeting.
A buyer had apparently purchased a large amount of MobileCoin, artificially driving up the price, and then borrowed against it on FTX. The platform had to buy out the trader to protect itself, and survived thanks to a loan from sister company Alameda Research, resulting in a loss as great as $1 billion, the Financial Times reported.
Experts interviewed by The Standard described the MobileCoin-FTX episode as a parable for understanding cryptocurrencies’ most important weaknesses.
“This is the worst side of crypto: You find an illiquid token, it's subject to manipulation, and someone else is left holding the bag,” said Kerry Miller, an attorney with Fishman Haygood representing investors currently suing backers of FTX.
(Editor’s note: One of the defendants in the case is Sequoia Capital Operations LLC. Initial funding for The Standard was provided by Michael Moritz, a partner at Sequoia Capital.)
William Riggs, an associate professor at the University of San Francisco’s School of Management, said FTX’s move of lending hundreds of millions of dollars against assets made of thin air was not unusual.
“It’s the wild, wild West still in terms of the number of coins out there that aren’t asset-backed,” he said. “They’re basically backed in the same way that our mortgages were backed pre-2008.”
Risky Business
Bob Lee was an early investor in MobileCoin Inc. and an advisor to the startup. He later joined the company, becoming its chief product officer. His job at MobileCoin was to help create a private payment app for use on various platforms beyond the Signal alliance that had raised concerns from now-SEC Chair Gensler.
MobileCoin's selling point is its anonymity, as transactions cannot be identified on a public blockchain ledger like Bitcoin and other tokens. Cryptocurrencies less secret than MobileCoin have already been adopted by ransomware, narcotics and other criminal groups.
“I see the risks [in cryptocurrency] as facilitating money laundering, and moving ill-gotten gains from one person to another. You could be helping kleptocrats, human trafficking, oligarchs, child exploitation, narcotics cartels and the like,” said Constantine Lizas, former lead counsel at the Federal Deposit Insurance Corporation.
Gensler as SEC chair has pledged to step up government crackdowns against cryptocurrency companies. And the 2022 IRS Criminal Investigation Annual Report indicates that the $7 billion in cryptocurrency it seized last year—double the previous year’s amount—is just a start.
With cryptocurrency—even less secrecy-first ones than MobileCoin—“it’s hard to find out if you’re money laundering or evading your taxes,” said John Benkert, CEO of Cigent Technology, a cybersecurity firm.
But others see positive uses for secret, untraceable currency like MobileCoin, said Gabriella Kusz, CEO of Global DCA, a cryptocurrency industry group.
“You're looking at uses like making payments for abortion providers or making payments for things like alcohol usage if you're really not interested in having that disclosed,” she said.
In response to an emailed request for comment, MobileCoin CEO Joshua Goldbard directed The Standard to the company’s GitHub page.
Signal’s Wallet
MobileCoin was founded in 2017 by Goldbard and Shane Glynn as a fast, secure cryptocurrency for everyday transactions.
From early on, the company had a close association with Signal, widely regarded as one of the most secure encrypted messaging apps. Its founder, Moxie Marlinspike, was an initial advisor to MobileCoin.
Signal would eventually integrate MobileCoin as a payment currency usable in the app.
By August 2021, MobileCoin had raised $107 million in venture funding from sources like Binance Labs, Alameda Research and Salesforce CEO Marc Benioff’s Time Ventures, Tech Crunch reported at the time.
While it was Bob Lee’s death that brought MobileCoin into the news this week, the company may have more unwanted public attention in store.
The Biden administration, and its top cryptocurrency cop Gensler, are demanding greater transparency from cryptocurrency companies.
But that’s “somewhat opposite to the whole idea of cryptocurrency,” Lizas said.
This is especially true of MobileCoin, which as of Thursday was trading at $1.40 per token, one-fifth of its value following its April 2021 collapse.