Dive Brief:
- Richard Kim, former CEO of cryptocurrency gaming startup Zero Edge, has been indicted on charges of securities and wire fraud after allegedly misappropriating $4 million in startup funds, the Justice Department said Wednesday.
- Kim, 39, of New York, “allegedly misappropriated millions of investors’ dollars intended to develop his online casino company by redirecting these funds for personal gambling and trading ventures,” said FBI Assistant Director in Charge Christopher G. Raia. “Kim allegedly hedged his bets that false assurances would induce more investments and conceal the true nature of his spending.”
- Kim, a former executive at cryptocurrency firm Galaxy Digital, was charged in U.S. District Court for the Southern District of New York with one count of securities fraud and one count of wire fraud; each carries a maximum sentence of 20 years in prison.
Dive Insight:
In March 2024, Kim founded Zero Edge. He told investors the company would build a blockchain and cryptocurrency-enabled gaming app, tapping those technologies to develop on-chain games including craps, roulette, baccarat and blackjack, the DOJ said.
The biggest risk to the project, Kim told investors, was “that its deeper message is too hard for ordinary folks to grok,” or understand intuitively, according to an April complaint.
Not long after the company raised $4.3 million in a June 2024 seed funding round that valued the company at $26 million, Kim diverted $3.8 million into a personal cryptocurrency account at Coinbase and sent about $1 million to other crypto exchanges, including Binance, Kraken and Backpack, the DOJ said.
Within a six-day span in late June, Kim allegedly made transfers of about $7 million and net transfers of about $1 million from Coinbase and Kraken to a personal account at gambling website Shuffle, which labels itself a “VIP Crypto Casino and Sportsbook,” the DOJ said.
Additionally, Kim allegedly moved about $450,000 to other crypto wallets with unknown owners and $145,000 from Kraken to a personal checking account, according to the indictment.
Kim “continued to solicit investor funds even after he had already begun making cryptocurrency trades with other investors’ money,” the indictment said.
On June 29, in an email to some investors, Kim admitted to misappropriating funds, saying he was “solely responsible for the loss of $3.67m” from the company’s balance sheet following “leveraged trading losses from seed round financing proceeds,” the DOJ said.
In another email, on July 9, he told investors he “fully acknowledge[d] the breach of trust that [] occurred” and “[e]ach [investor] trusted me to build something great, and I violated it at the deepest levels, all from my closest friends,” the indictment said.
Yet Kim allegedly told investors the loss was a result of a “treasury management strategy,” not personal gambling.
Following his arrest, Kim told the FBI he knew investors would have wanted to know about his trading, and his actions were “clearly wrong from the beginning,” according to the indictment. In a June 29 email, Kim “blamed his embezzlement on a ‘deep-rooted gambler’s mentality,’” the April complaint said.
Kim, who left Goldman Sachs in 2018 to join Galaxy Digital, had been involved in setting up a Goldman desk for trading cryptocurrencies, Bloomberg reported at the time.
Kim was a former chief operating officer of global foreign exchange and emerging markets trading at Goldman and JPMorgan Chase, according to the April complaint.
Galaxy was among Zero Edge’s investors.
“Richard Kim left Galaxy in March 2024 to start Zero Edge, a company in which Galaxy had an immaterial balance-sheet investment,” a Galaxy spokesperson said. “Upon learning of certain actions taken by Mr. Kim in his role at Zero Edge, we, along with other investors, reported his conduct to the authorities.”
