A Cryptocurrency Implosion in Taiwan

A Cryptocurrency Implosion in Taiwan
Photo Credit: AP/達志影像
What you need to know

David Green dissects the anatomy of a new cryptocurrency unraveling in Taiwan, leaving investors stranded without their cash.

Listen
powered by Cyberon

There is the murky world cryptocurrency and “alt coin” initial coin offerings (ICOs), and then there is the rabbit-hole into which The Superior Coin (SC) has collapsed.

It’s a sorry tale that has left one founder, American Nathan Senn, apparently fearing for his family’s safety and suing a counterpart for defamation in Taiwan, not to mention 1,500 or so people angry and upset at the disappearance of their money.

Over the past two months, SC had attracted Bitcoin payments said to be worth about US$600,000 under the premise of funding an ICO. A now offline website eliciting the payments mooted the coin as the currency of exchange for goods and services offered on CrowdifyClub, a social media platform operated by SC co-founders New Zealander Michael “Q” Todd and his Japanese wife, Yoriko Todd.

News of SC’s implosion broke on July 21 when a notice appeared on Michael Todd’s Facebook announcing the “death” of the coin, and accusing Senn of mental fragility and dishonest acts, including the unwarranted changing of passwords. It is this claim that Senn has filed to contest in a defamation case. Senn declined to put me in touch with his lawyer, citing threats allegedly made to those who are assisting him with his case.

For his part, Todd has said he intends to pursue a criminal case against Senn for allegedly stealing a hard-drive and a graphics card from the SC offices, though this is as yet unverified.

A former SC contractor confirmed that the passwords govern access to accounts on a U.S.-based digital assets exchange known as Poloniex, through which the majority of the BTC payments made to fund the ICO had been converted to US dollars. Senn has said in a Facebook post that he is in control of these accounts and is exploring means to re-establish SC, which went live on the public blockchain on July 1. The statement also said the SC team is exploring options to refund investors ranging “from selling their ICO offering to another member, receiving back in BTC a pro-rata share of funds captured and secured by SC, all the way to holding in web wallet or transferring to cold storage wallets you own.”

Todd also claims control of the business and has vowed in a Facebook post to pay people back out of his own pocket, though this is contingent on him regaining access to the Poloniex accounts. When asked in a Facebook Messenger interview how he intended to do this, he replied: “By winning the internet.” He confirmed that he had already repaid a few people with whom he had a close relationship.

In a similar call conducted with Senn, he told me that he had changed the passwords because Todd had denied his request to show the CrowdifyClub books. “He asked me to pull money out of the ICO fund to provide the capital necessary to register a business in Taiwan, and that he needed US$225,000,” Senn said. “I was suspicious and said that was investors’ money, and that the accounts were frozen until we come to some kind of agreement.”

An attempt to mediate the dispute witnessed by the former contractor ended with Senn walking away from an offer from Todd to accept US$80,000 severance in return for restoring access to the accounts. Todd claims that the request for money from the ICO funds was solely on an overnight basis so as to satisfy authorities that the founders had sufficient capital to register their business in Taiwan – NT$500,000 to establish a Limited Liability Company as a foreigner.

And therein lies a crucial element of this sorry saga. Both parties admit that there was never any contract in place governing their working arrangements or remuneration. As it stands, the entire operation has been conducted without the formation of a legal entity in Taiwan. The team did rent an office in the FutureWard Central co-working space in Taipei, but under YouSearch, a Philippines-registered company in Senn’s name only. “The US dollar money in the Poloinex account was transferred in my name – I would be responsible [if anything went wrong]. I was the lead programmer and co-founder,” he told me.

Todd said that the team had left FutureWard after being accused of not paying their electricity bill. FutureWard denies this claim, suggesting the Todds left the premises voluntarily after being asked to divulge further information about their business.

“Michael complained to me about the Taiwan bureaucracy but he was not even able to setup a representative office, which is super easy,” one Taiwan-based would-be investor in SC who did not want to be named told me. “All you need is a company somewhere and NT$50,000 and a Certified Public Accountant (CPA). Michael struggled even with this, saying his CPA was a scammer. To my understanding he never had his papers and was doing all of this illegally on a tourist visa.”

“The thing that really bothers me is the way it has been handled – the tasteless arrogance of the messages from Mr. and Mrs. Todd,” said Anita Viherpuro, a United Arab Emirates-based entrepreneur who also paid money for SC. “Threatening me, talking about sending people to jail, about barring international bank transfers, placing bans on air travel. It is a lie,” she said.

That so many people, from as far afield as Indonesia and the U.K. according to SC employees, could find themselves tied up in the failure of SC is testament to enthusiasm for anything “crypto” or blockchain related, as retail investors and venture capital funds clamor for a share of the ultra-high returns enjoyed by early holders of Bitcoin, Ethereum and other high-profile alternative coins.

But why did so many people fall victim to an enterprise with such shaky foundations?

“Initially I decided not to invest - the website looked outdated and I didn’t like the marketing,” the Taiwan-based SC subscriber said. “Then I had a few more conversations with Michael online. I looked at his profile more closely and realized we had a lot of common friends, including some big names in the startup industry. I thought ‘if these guys are connected to him then sure, why not?’”

This assertion – that a substantial social media following should count for something – was also partly responsible for tripping me up. A friend who introduced me to Michael had emphasized Todd’s track record in online marketing and cryptocurrency. “If you have been working in digital marketing for with internet business or cryptocurrency then you will have heard of Michael,” the Taiwan SC buyer confirmed.

Yet according to the former SC employee and others interviewed for this story, Todd operates multiple social media accounts, including those purporting to be other people entirely. In my own experience, the practice of adopting multiple online personas appears integral to the SC group’s MO.

For example, Senn sent me a link to an article on Steemit, a social news service that operates on blockchain technology, written by a poster known as Charles X. The piece adopts the position of a concerned observer and encourages investors to believe that the SC team, and Senn himself, are working hard get them their money back. But in a Facebook message Senn said, “Thanks for the update, I wrote this,” before sending me a link to the article. I’ll leave it up to the internet to ascertain whether Charles X is really Nathan Senn in disguise.

And that is where we must also, for the time being, leave SC. “This is a whole new space. We are having difficulty getting our heads round it,” Todd told me. “[SC] is live on the blockchain and we are trying to get people’s money back. We don’t know what we should be doing. It’s the internet’s coin.”

“If you don’t understand it, don’t do it,” said Jeremy Firster, co-founder of Taiwan Entrepreneur Club (TEC), which has been hosting events aimed at fostering Taipei’s startup community for the last two years, offering advice Todd himself might have done well to heed. “There is no formal mechanism in place to get your money back if an ICO fails. Always try to cross reference your information.

“It’s sad to see this happening in Taiwan,” Firster added. “It should be treated as an isolated event. This was not a real company and it does not reflect the [blockchain] technology. There are so many people working hard to do positive things here. Having a stronger and closer community is important to make sure that things like this don’t happen.”

Two Taiwan legislators who closely follow the development of new tech, startup and digital-focused companies are the Democratic Progressive Party's Karen Yu and her Kuomintang colleague Jason Hsu. Both declined to comment on this story.

Those interested in being involved in the blockchain community in Taiwan can attend the Blockchain Taiwan Meetup group.

Editor: Edward White