In what can only be described as a bombshell report, the New York Observer has published a near 15,000-word story that takes a detailed look at the allegedly sordid history of decentralized payment network startups Ripple Labs and Stellar, and the impact of this relationship on events in the wider bitcoin ecosystem.
“The interpersonal story of Stellar and Ripple Labs is emblematic of the turmoil roiling the entire industry,” the article, penned by Michael Craig, reads. “It has everything: sex, huge money, fraud, genius, betrayal, international intrigue and government raids.”
Of particular note are the stories main participants Jed McCaleb, the founder of now-defunct bitcoin exchange Mt Gox, Ripple Labs and Stellar, and Stellar executive director Joyce Kim who bear the brunt of the article's barbs.
The Observer reports that McCaleb and Kim have long had a personal relationship that complicated McCaleb’s relationship with other senior executives and board members at Ripple Labs, and ultimately lead McCaleb to leave that company and found competitor Stellar.
Also included in the report are allegations that hit home far beyond the companies themselves, as it suggests the feud at the two companies has had implications for mobile payments startup Stripe and banking giant Wells Fargo, among others.
Wells Fargo bitcoin unit collapses
Of all the details included in the report, however, none perhaps has greater relevance than the revelation that US banking giant Wells Fargo had assembled a task force compromising 20 of its “top executives and advisors” that was aimed at finding ways it could become the first bank to embrace cryptocurrency.
The report argues that due to a combination of the Mt Gox collapse, the closure of Silk Road and McCaleb’s personal track record, the unit was disbanded in 2014.
“Predictably, Wells got cold feet,” Craig writes. “At the bank, the crypto blackout was so severe that it extended not only to shutting the accounts that cleared funds for crypto companies, but even those companies’ operating accounts … were shut down.”
This includes the account held by Ripple Labs, whose CEO Chris Larsen, the paper said, had a more than 20-year relationship with the bank prior to the decision.
“The problem is your connection to Mr McCaleb,” Larsen was told, according to the report. “The guy founded Mt Gox. You’ve got to get that guy out of there or we won’t bank you.”
At the time, McCaleb was no longer with the company, but the report suggests even his association as a board member was “enough to make Wells Fargo skittish” and move ahead with the dismantling of its nascent cryptocurrency initiative.
Turbulent times at Ripple
Speaking to the Observer, Kraken CEO and Ripple Labs investor Jesse Powell indicated that he first introduced McCaleb and Kim, and that before long, Ripple had purchased Kim’s company SimpleHoney and brought her into the team.
The Observer described her tenure as one that was not only rocky, but saw her attempting to play up her importance and that of McCaleb. Eventually, the report argues that Larsen needed to intervene.
“Chris sat her down and was like, ‘Joyce you’re a CEO. It’s going to be hard fitting in. You’re obviously reporting to me. Two cultures coming together is always a hard thing. Let’s talk about everything before we do it just to make sure everything is good.’ And Joyce just of course wouldn’t hear of it,” an insider said.
Kim is alleged as having a “Yoko Ono” role at the company, according to those who spoke to the report.
“This is Jed’s thing, when you’re in a private conversation with him all of a sudden Joyce is CC’d on this private conversation, even when the conversation includes the person saying, ‘I don’t want you to share this with Joyce.’ So not only does he disregard that request but he’s letting you know she knows you don’t like her,” another source said.
Kim’s tenure lasted only six weeks. McCaleb, the report contends, soon “lost interest” in the project.
Stripe deal squashed
The end result of the ensuing turmoil is that a deal that would have seen Ripple Labs be purchased by Stripe for $13m in cash never came to pass. the Observer indicated it was unable to uncover an exact reason for the deal’s demise.
Yet, another sticking point however, was that most of the leadership team at Ripple Labs held significant holdings of XRP. McCaleb and Larsen, for example, both owned 9bn XRP, a factor that discouraged many in the wider bitcoin market from trusting the company.
At the time, Powell also sought to intervene to fix what he described as the company’s ongoing PR problem.
All of the problems came together, the report said, in a meeting in which McCaleb attempted to have Larsen removed from the company for reasons not disclosed.
Larsen kept his role, however, by a 5-1 vote, with McCaleb providing the dissenting voice.
“Every single person begged Jed not to make us choose between him and Chris,” said Roger Ver, a VC investor in Ripple Labs. “In the end, the vote was unanimous that Chris should stay. The only person who disagreed was Jed.”
Attacks on Stellar
McCaleb would go on to found Stellar, taking a $3m investment from Stripe, though the article questions the nature of the relationship between the companies.
For example, Stellar’s former head of community told the publication that the two companies are quite close, with everything Stellar does having to go through Stripe.
Still, Stripe’s relationship with Wells Fargo, the report suggested, has put limits on how close the two companies can publicly appear.
The report quoted those close to co-founder Patrick Collison as describing him as privately dismissive of banks, while highlighting the reliance the San Francisco-based payments company has on institutions like Wells Fargo.
The article went on to question Stripe’s designation as a non-profit, arguing that tax experts believe this claim won’t hold up under regulatory scrutiny.
“Once the IRS pieces together how Stellar benefits McCaleb, Patrick Collison and any other insiders receiving STRs or fattening up in the initial distribution, it will likely find the venture inconsistent with the charitable purpose of the 501(c)(3) exemption,” the report reads.
Article’s accuracy questioned
Following the publication of the article, CoinDesk reached out to the parties involved for their take on the report and its implications.
Perhaps unsurprisingly, McCaleb moved to denounce the article as one that failed to capture the facts of the story.
"Given the vast amount of inaccuracies and innuendo in the article, it is not worth commenting on. The bias in the article is so obvious no one can take it seriously,” he said.
CoinDesk reached out to Kim and Ripple Labs for comment, but has not received an immediate response.
“The interpersonal story of Stellar and Ripple Labs is emblematic of the turmoil roiling the entire industry,” the article , penned by Michael […]