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Bolt Billionaire Ryan Breslow Hired A Convicted Fraudster To Build His Social Impact DAO Innovation

Bolt Billionaire Ryan Breslow Hired A Convicted Fraudster To Build His Social Impact DAO

Bolt cofounder Ryan Breslow sues developer over millions lost in Move crypto project

Billionaire tech founder Ryan Breslow is locked in a legal battle over the alleged theft of millions of dollars belonging to a nascent crypto project, Movement DAO. Breslow, who launched the successful payments company Bolt in 2014, is suing a developer previously convicted of federal wire fraud and money laundering, who he hired in 2021 to engineer the new venture.

Breslow, along with crypto entrepreneurs and fellow plaintiffs Alex Fine and Jon Gordon, came up with the idea for Movement DAO (“decentralized autonomous organization”) in 2021, envisioning it as a community-run platform for funding social impact causes. Like other DAOs, which use blockchain-based governance to rally around a shared purpose or goal, Movement members would contribute funds and vote on how to spend them. Breslow proposed that the DAO could help social movements like Black Lives Matter fundraise via a #BLM token, or help residents of Miami’s South Beach crowdfund a dogecoin-themed dog park.

He hoped it would replace GoFundMe and traditional NGOs with a “trustless funding” platform that would allow communities to hold leaders accountable. “The people, who’s [sic] hard-earned dollars have been siphoned into these black holes, are only left with broken promises,” promotional materials said of existing charitable systems.

Movement DAO, which was slated to launch this January, has seemingly disappeared into its own black hole. Its Discord server is now inaccessible and it hasn’t tweeted since last August. According to a complaint filed by Breslow in the Florida Southern District Court last month, two thirds of the project’s seed funding was allegedly stolen by the rogue developer. Of the more than $16 million contributed by the DAO’s cofounders — more than 97% of its total assets — only $5.5 million remains today. Much of the money had been contributed by Breslow, Fine and Gordon; around $300,000 was invested by all other DAO community members, according to their attorneys.

“In short, you stole the keys to the kingdom and locked the owners out.”

Lawyers for Breslow, Fine and Gordon wrote the accused developer Mark Phillips in February. “In short, you stole the keys to the kingdom and locked the owners out,” said a cease and desist letter that alleges theft and embezzlement. “We understand you are familiar with criminal fraud statutes,” they added, “as we recently learned of your criminal record.”

The plaintiffs claimed they interviewed and hired Phillips around July 2021, having been impressed by his alleged experience as a coding engineer for the Securities and Exchange Commission, with security clearance. A website appearing to belong to Phillips currently details his expertise in blockchain governance and “SEC reporting.”

Philips’ attorney Nitoj Singh of Nitoj Law dismissed Breslow’s “frivolous” allegations in a statement. “It’s unfortunate that Mr. Breslow thereafter sought to pull the rug on Movement, after he induced Mr. Phillips and others to join the effort with promises of a six-year commitment,” Singh told Forbes via email. “But Movement is a separate entity, not Mr. Breslow’s personal piggybank, and no matter his own financial issues, he simply cannot impose his personal will on the DAO.”

Breslow and his attorney did not respond to a request for comment, and it’s unclear what, if any, due diligence was performed before hiring Phillips. The SEC did not respond to questions about his prior employment.

But a simple Google search for Phillips would have revealed that in 2010, the technologist was convicted of four counts of wire fraud, two counts of money laundering and a subsequently-reversed count of mail fraud by the U.S. Attorney for the Western District of Washington.

“Once a rising tech star in Seattle, now a federal prisoner,” wrote one of several articles covering the trial, which was also profiled by the FBI as its “closed case of the week.” Phillips was accused of embezzling millions of dollars while CEO of media downloading company MOD Systems. Records reportedly showed Phillips routing company funds through a bank account belonging to his then-girlfriend, which he actually controlled. Investigators claimed he then spent more than $500,000 on luxury items, such as two Breguet watches totaling $60,000 and an Aston Martin sports car listed at more than $162,000. He was ultimately sentenced to four years in prison.

It’s unclear what Phillips did in the time between his early release in 2013 and introduction to Movement DAO. As of 2020, he was advertising his consulting services and called himself “a pusher of buttons physically and metaphorically.” The first few months of his work on the project, however, were unproblematic, the DAO cofounders said. Phillips established a multi-user wallet that was authorized for seven people, five of whom would need to approve the transfer of any endowment funds. He also issued the authorization tokens that would allow signatories to do this.

“He assured us that he did not believe the proposals had any authority by stating that no one reads them anyway.”

But Phillips was also quietly consolidating power over the project, the plaintiffs alleged. They recalled having been “induced” to hand over their authorization tokens because Phillips was “repeatedly assuring them he was trustworthy.” Breslow claimed, for example, that when Phillips was confronted about changes he had posted to the DAO’s website that would have given him more control over its wallet, “he assured us that he did not believe the proposals had any authority by stating that no one reads them anyway.”

The plaintiffs also cited a self-described “crypto-savvy law firm,” Dao-lawfirm.eth, Phillips claimed to have retained on behalf of the DAO. The complaint alleges that Philips proposed to pay Dao-lawfirm.eth around $390,000 for “deferred legal fees.” Archived versions of Dao-lawfirm.eth’s website display the name of attorney Reed Yurchak, who defended Phillips in his fraud case against the U.S. government. The current version of the website has no reference to Yurchak, or providing legal services. Breslow’s attorney alleged that Dao-lawfirm.eth was merely an alias used by Phillips.

Philips also allegedly lobbied for $1.75 million to be transferred to a DAO-affiliated account to cover development expenses; Breslow and the other investors agreed to the transfer on the condition that Movement was launched by January 2023. “As a result of those inducements,” the complaint noted, “Defendant Phillips secured control over the DAO endowment.”

Breslow, a 30 Under 30 alum, and his investors, ultimately were spooked by a series of proposals that Phillips submitted to the DAO’s unlaunched voting platform leading them to push for its shutdown in December 2022. Phillips is alleged to have ignored their calls to return capital, stripped Breslow of voting rights, and transferred at least $8.8 million in various crypto currencies to a DAO account under his control, before moving roughly $2.9 million to accounts allegedly belonging to himself or his co-defendant Benjamin Reed, who he had hired to work on the project in February 2023. Transaction histories reviewed by Forbes show these funds were indeed moved and ultimately landed in accounts tied to the defendants through Ethereum blockchain domain names.

Breslow claims to have only discovered Phillips’ criminal record after confronting him over the unauthorized transfers, and his demand that the DAO’s authorization keys be returned were rejected. Because these keys were the only way cofounders could access the DAO’s secure wallet, without them, they were effectively locked out. (Self-custody of funds is a crypto tenet, so much that “not your keys, not your coins” has become a guiding mantra.) The lawsuit alleges that Phillips claimed early changes to the DAO meant he had the authority to move the money, and didn’t need to document expenses to the project’s backers.

“Phillips never intended to comply with the DAO’s governing rules or the other restrictions placed on him by plaintiffs. In fact, defendant Phillips concocted a multi-phase scheme, executed over the course of many months, to induce plaintiffs’ reliance and ultimately abscond with their assets,” states the complaint filed by Breslow’s attorney.

A hearing has been scheduled for March 16 for Breslow’s application of a temporary restraining order on Phillips and the DAO’s remaining assets. Breslow’s attorney Christopher Berg of Ellis George Cipollone O’Brien Annaguey claimed in an affidavit that transfers out of the DAO were becoming increasingly hard to trace because Phillips was allegedly using anonymous crypto wallets and small transfers to launder the stolen tokens.

Breslow, who lists himself as a resident of the United States Virgin Islands in the court filings, stepped back as CEO of Bolt to become executive chairman in January 2022 weeks after raising a $355 million round that valued the company at $11 billion. His exit came just two days after he published a controversial Twitter rant about payments rival Stripe and startup accelerator Ycombinator.

That marked only the start of a turbulent year for Breslow, and the Silicon Valley-based startup. In July 2022, Forever 21 parent company Authentic Brands Group was awarded an undisclosed stake in Bolt after alleging the startup’s online checkout technology failed to deliver on its promises. In August, Breslow announced he raised $7.5 million for a new venture Love, another DAO, that aimed to crowdsource the development of new pharmaceuticals.

The Movement DAO had equally lofty goals to bring blockchain-based accountability to the world of charitable giving. But with the project allegedly in the hands of Phillips, and the Movement’s fate hinging on a court battle, for now Breslow’s public philanthropy seems limited to the similar sounding but less ambitious non-profit The Movement, which provides free dance classes in Miami, Los Angeles and New York.