If You’re Going To Get Into Bitcoin Avoid Doing Business With This Man

Peter Vessenes is a divisive character, and has been since he became a “prominent” player in the Bitcoin scene. Like many of the prominent in the Bitcoin scene, Vessenes made it there with big talk, as opposed to big results. But, does that make Vessenes “The biggest danger to Bitcoin?” Or is he just a scapegoat?

He’s been involved in drama-fueled courtroom episodes with multiple companies, and has also been close to companies which lost millions in customer funds. His lesser known accomplishments – like naming Roger Ver “Bitcoin Jesus” – don’t hold a candle to his shadier dealings, at least in the eyes of many.

We at Bitcoinomics wanted to try and get the story straight. Unfortunately, what we found has only left us with more questions. But first, who is Peter Vessenes? From one of the few biographies we found online:

A born entrepreneur, Peter started his first technology company at age 13. With degrees in both Cryptography and Mathematics from Brown University, Peter’s fervent curiosity along with his midwestern work ethic has enabled Peter to found multiple tech startups successfully resulting in a variety of widely used products and systems. Peter has served on several boards and is a popular speaker on Bitcoin and the world of cryptocurrency. As the current CEO of CoinLab, Inc., Peter is also Founding Member/Chairman of the Board of the Bitcoin Foundation. He’s convinced that Bitcoins can change the world. Just ask him.

CoinLab

Based in Seattle, CoinLab raised $500,000 in seed funding from angel investors like Tim Draper and others in April 2012. CoinLab, co-founded by Seattle entrepreneurs Peter Vessenes and Mike Koss, had planned “to help video-game companies make money from people who play free games, without requiring game companies to deal in Bitcoin directly.” As Geekwire explains of the plan,

Under the plan, game makers will offer their users a chance to voluntarily install a program that makes their idle computing resources available for use by CoinLab, in exchange for in-game virtual goods and points…CoinLab then plans to sell that spare computing time to the Bitcoin network, for use in Bitcoin “mining” — using computer processing to generate units of the virtual currency. The startup will pay game companies for the computing resources made available by their customers.

Under the slogan “All your gamers are gold,” CoinLab signed up game companies GraFighters and Wurm Online at the time of the fundraising.

Two months prior to the fundraiser, in February, Mt. Gox and CoinLab announced a strategic partnership. As Mt. Gox wrote in a Press Release:

Dear customers,

Mt. Gox, the owner of the world’s dominant Bitcoin exchange, announced today that they have selected CoinLab as their exclusive partner in the United States and Canada. As of March 29, all US and Canadian customers currently transacting with Mt.Gox will transact through CoinLab, Inc.

“This move will bring local product delivery, liquidity and customer service to a huge group of Bitcoin fanatics,” said CEO of CoinLab, Peter Vessenes. “We’re excited by, and awed at the responsibility we have caring for our over 100,000 new customers and over a half-billion dollars in annualized trade volume.”

Mt.Gox will continue to provide back-end exchange clearing services, and transition over handling of customer accounts, deposits, withdrawals, and other functions to CoinLab’s US-based team.

“This should be a huge win for everyone — faster deposit and withdrawal times, easier-to-reach customer service, and better access for United States financial markets, market makers and liquidity providers” said Mark Karpeles, Managing Director of Mt.Gox.

CoinLab plans for the customer base? “Service, Service, Service. Oh, and also, Liquidity, Liquidity, Liquidity,” said Vessenes. “Also, we’re planning on launching some pro trading tools; we have some samples up for comment and review ahead of launch at http://coinlab.com/liquidity.”

Mt. Gox is the world’s largest Bitcoin exchange, providing at least 80% of global bitcoin trading volume. It resides in Shibuya, Tokyo, Japan.
CoinLab is the world’s first US Venture-backed Bitcoin Company; it was funded in April 2012 by a group of progressive investors, including Tim Draper, Roger Ver, and Geoff Entress.

Regards
Mt.Gox Co. Ltd Team.

The $75 Million Dollar Lawsuit

By the end of April 2013, two months later, CoinLab and MtGox were in the press. Already CoinLab had filed a lawsuit against MtGox. Vessenes and CoinLab were suing MtGox for $75 million due to breach of contract. MtGox had “failed to provide data” according to CoinLab, and thus failed “to abide by their revenue share agreement.” Vessenes wrote on the CoinLab blog:

I have more news on the Mt. Gox transition. Today, CoinLab regretfully filed a formal complaint in Federal Court against Mt. Gox.
In the last month, many of you have contacted me directly and asked for more details on our transition, and I would say (charitably) that I’ve been frustratingly vague — I just haven’t been able to talk about it.

I’m going to take this chance to talk about it. I’m not here to complain, our filing contains and accurate summary of events, but I want to talk about what I see as most important for Bitcoin right now.

Bitcoiners have, on average, lost more money due to technology difficulties, frozen / lost banking relationships and shady characters like pirateat40 than due to any part of Bitcoin’s fundamental economics. I hate this fact, passionately. I have a vision in which high quality service and technology and ethics can be delivered to you, me, my kids, everyone who has a stake in Bitcoin.

It is my goal for CoinLab that we provide fundamental infrastructure to minimize these risks for everyone in our space, and I do mean everyone; from those on the Bitcoin Forums who dislike and distrust me personally, to the mom and pop cupcake makers in San Francisco, to my daughter who recently sold some knit products for .01BTC.

While I was willing to take a two year restriction on our venue (US and Canada only for two years was part of our contract), I have for a number of years now wanted to make sure that Bitcoin is properly situated for everyone’s good.

When we spun up our initial alpha customers, they included companies that from one perspective could reasonably be deemed to be our competitors, some of the best companies in our space. We worked extremely hard to provide them great service, because I want to build our ecosystem; I want a robust economy and a broad base of service and product for everyone.

What tipped us into filing was our complete inability to get Mt. Gox to deliver on the few simple things left that were needed for customers to move over en-masse; we were often left just apologizing to our alpha customers while their own businesses suffered. I’m just not willing to put any of our customers in that position — if we can’t do a good job for you, I won’t promise that we can.

What I hope is that Mt. Gox has this same interest in the good of Bitcoin, and Bitcoiners, and finds a way to work this out.

So, what’s next? I hope that we’ll be able to provide some good news on that front soon, from a financing and technology perspective at the very least, and ideally with news that we’ve settled this dispute. In the interim, my biggest hope is that Mt. Gox does an excellent job keeping Bitcoiners safe and liquid and trading on the exchange.

MtGox Counter-Suit

In its counterclaim, MtGox said that its agreement with CoinLab was void because the Seattle-based startup violated the agreement by not registered as a money-transmitter or money services business. MtGox has rescinded the agreement, and sought dismissal of CoinLab’s lawsuit. MtGox also demanded the return of more than $5 million in customers funds, claiming that MtGox had deposited $12,800,000 in CoinLab bank accounts. It had handed over most of the money, but held onto $5.3 million. According to the suit:

Defendants are informed and believe that in March and April, 2013 MtGox customers, at the suggestion of CoinLab, deposited $12,788,701.08 in to one or more CoinLab bank accounts; CoinLab then caused the amount of such funds to be credited to such customers’ MtGox accounts but CoinLab did not transfer the actual funds into the MtGox bank account. As a result, such customers’ MtGox account reflected a higher amount of currency funds available to such customers than were actually in the MtGox bank account. In April, 2013, and upon the demand of MtGox, CoinLab transferred a portion of those amounts, $ 7,473,490.29, to the MtGox bank account, leaving a balance of approximately $ 5,315,210.79 to be transferred to the MtGox account and which is being wrongfully held by CoinLab.

21. One of the major issues, if not the major issue, that MtGox was concerned about was legal compliance on the part of CoinLab to conduct the Bitcoin exchange services in the United States that were being discussed by the parties during the negotiations. Early in the negotiations, that is, in approximately May and June 2012 discussions took place among CoinLab and MtGox representatives, including meetings in Japan and over “Skype” video conferencing.In one or more of those early discussions Vessenes made statements to the effect that CoinLab was compliant with all laws and regulations relevant to conducting the Bitcoin exchange business that was the subject of the parties’ negotiations; and, that CoinLab was registered as a “prepaid access” provider and such was sufficient.

By November 2013, CoinLab’s woes continued. In the Fall of 2013, CoinLab announced its first spin-off, Alydian. By November the company filed for Chapter 11 bankruptcy. The company closed down with less than $50,00 in assets and more than $3 million in debt. Peter Vessenes seemed to take over as interim CEO. Vessenes led the bankruptcy in Seattle. The bankruptcy request was rejected.

Alydian Bankruptcy

Vessenes and CoinLab’s bankruptcy filing for Alydian was dismissed by a Seattle judge, “exposing them to a potentially lengthy legal battle surrounding millions of dollars’ worth of unpaid bitcoins to customers.” As Two-Bit Idiot writes,

The woes of Alydian, an outsourced bitcoin mining company incubated by CoinLab, have been well-documented. After proudly announcing the deal in early August, CoinLab’s first investment filed for bankruptcy less than three months later. According to the filings, the company had less than $50,000 in assets and over $3 million in liabilities on its books in November.

Since then, CoinLab’s attempts to auction off Alydian’s mining rigs as part of that bankruptcy process have proven unsuccessful. In fact, a scheduled auction was blocked on January 10th by Judge Karen Overstreet, who threatened to dismiss the bankruptcy outright, and voiced concern with the company’s leadership, where Peter Vessenes had seemingly taken the reigns of the company from former CEO, Hans Olson. In particular, Judge Overstreet expressed skepticism that Alydian (rather than its majority owner CoinLab) actually owned the assets that had been slated for auction, given that Alydian had no employees or office space at the time. The company’s skeletal operating structure suggested Alydian had “absolutely zero existence” and Judge Overstreet said she “wanted to make sure that when we do this world-wide advertising [of a bankruptcy auction] we are not misrepresenting to the world what we have to sell, because the integrity of the bankruptcy process is at stake.”

Katy Stech reported in the Wall Street Journal,

“Judge Overstreet also questioned whether Alydian lawyers were filing accurate financial statements, and she warned Alydian officials that she would be watching to see whether they would try to buy the bitcoin mining rigs if they were put up for sale. ‘I’m not satisfied that there isn’t some hiding of information,’ she said.” It now appears that Judge Overstreet stayed true to her word to dismiss the bankruptcy. Following the dismissal, Vessenes sent private emails to a number of investors gauging their interest in acquiring the Alydian mining clusters, which he claimed were currently mining over 30 bitcoins per day as part of the BTC Guild mining pool. He expressed interest in selling up to 218 TH of mining capacity (including replacement parts for the rigs), as well as an additional ~150 TH of additional ASIC chips, including system designs and rights to the wafers.

Vessenes did not respond to repeated requests for comment.

As Two-Bit Idiot sums up:

Ok, now for the unadulterated opinion: it’s not very often you see a company go bankrupt in less than three months. Yet Peter Vessenes and CoinLab either invested in a company which proved colossally inept, inappropriately attempted to exploit the existing bankruptcy process in the US or both. Don’t take my word for it. Take Judge Overstreet’s.

That, my friends, is who remains at the helm of our industry’s leading advocacy group.

CoinLab and Bitvestment

CoinLab was ultimately ordered by a judge to produce and deliver bitcoins to a New York Investment firm that accused it of reneging on a contractual agreement. Judge Robert W. Sweet of US district court for the southern district of New York barred CoinLab Inc. from delivering the virtual currency to any other parties before paying back Bitvestment LLC.

Bitvestment sued CoinLab, contending that CoinLab never provided 8,000 bitcoin under an August 2013 agreement between the two firms. At the time of the suit, the 8,000 bitcoin were worth $2.36 million. This lawsuit came to lighjt just a week after the abovementioned bankruptcy suit of Alydian.

“We continue to treat this as a simple contract dispute case, and feel confident on the merits of the case,” Mr. Vessenes said.

Bitcoin Foundation

As Chairperson and founder of Bitcoin Foundation, Vessenes took heat for numerous accusations thrown at the Bitcoin Foundation, including self-dealing and embezzlement. For instance, shortly after the fall of Mt. Gox, Two-Bit Idiot wrote that Vessenes would be stepping down prior to the conclusion of their current terms, “[seemingly recognizing] the need for the Foundation to clean house in order to revitalize its image in the coming months.” Two-Bit Idiot, in a bit of a mud-slinging affair, also wrote, “Peter Vessenes..[is] not [a] scapegoat…[He is] not ethically entitled to remain in [his board seat] through later this year.”

Two-Bit Idiot claimed to hold “damning facts” like the Foundation “ignoring warning signs of Mt. Gox’s failure as early as April 2013; Foundation directors exploiting their positions to withdraw funds from a failing Gox while the general public was losing their shirts; and conflicts of interest between director’s roles within the foundation and their personal bitcoin businesses.”

Two Bit Idiot is not the only individual who has leveled harsh criticisms against The Bitcoin Foundation, appearing on the Lets Talk Bitcoin podcast and calling the Foundation “rotten from the top”, Andreas Antonopoulos also said that “he wouldn’t be surprised to see [The Bitcoin Foundation] implode due to embezzlement”:

They certainly have received many funds. Where are those funds, who controls those funds, when were they last audited, are they actually solvent, or have all of those funds disappeared into a big black hole? Just remember who was in the leadership until recently, who is in leadership today, and what their track record with ethics has been.

And, I would suggest that I would be not surprised at all if the foundation implodes in a giant embezzlement problem sometime down the line or funds get stolen – within quotes or not within quotes – something like that. It’s bound to happen because these things happen not because of technical failures, they don’t happen because of bad actors, they happen because of failures of leadership. And the foundation is the very definition of a failure of leadership.

Peter Vessenes In The Eyes Of Bitcoiners

Peter Vessenes hasn’t exactly had an easy-go-of-it when it comes to his Bitcoin investments and involvement. Alongside the above-mentioned controversies surrounding Peter, allegations about CoinLab’s involvement in the Bitcoinica debacle have surfaced. When Coinlab made public its lawsuit of Mt. Gox, these two Reddit posts trended.

1. Open Letter to the Bitcoin Foundation: In Light Of Recent Events, Peter Vessenes’ Position As Executive Director Is Surely Now Untenable

2. Peter Vessenes just destroyed the credibility of the Bitcoin Foundation

Other than his involvement in some big disasters, Vessenes doesn’t share the same political views as many bitcoiners, oftentimes applauding government involvement in regulating bitcoin businesses with regulations that benefit “wealthy” players such as himself to the detriment of bitcoiners in lesser financial situations.

“The U.S. put out guidance recently through the Financial Crimes Enforcement Network, and we’ve been following up on that guidance and crushing bad actors,” Vessenes once said in an interview with CNBC Asia. “We’re seeing a bit of a sweep right now,” he said. “There’s nothing to indicate that good players who are working hard to stay regulated have anything to worry about.”

Despite the controversy, Vessenes has managed to appear on many mainstream news programs to represent the Bitcoin community and advertise his endeavors. You can see some of his appearances here (in this video, Vessenes does not object to the host’s claim that The Bitcoin Foundation is “the closest thing to an authority” Bitcoin has) and here.

In 2013, as Vessenes’ image as a controversial character was only growing, members at BitcoinTalk held an impromptu survey. “Should Peter Vessenes resign as Executive Director for Bitcoin Foundation?” 72.3% said yes.