Crypto Casino Founder Apologizes for Gambling Away Investor Funds

• Richard Kim is a former executive of Galaxy, the crypto firm headed by Michael Novogratz, as well as an alumnus of trading divisions at JPMorgan and Goldman Sachs and a former attorney with the prestigious law firm Cleary Gottlieb.
• Kim founded "Zero Edge," a crypto casino designed with the idea that customers should get equal odds with the house.
• Kim said in an interview that following a $7 million fundraising for Zero Edge, Kim entered into leveraged crypto trades that lost big as the bitcoin price fell in June.
• Kim resigned on July 2, according to an email sent by the company to investors.
• Galaxy was one of the investors, and says it has reported the conduct to authorities, but says the amount was "immaterial."

It's a tale as old as crypto, and maybe finance itself: One little money mistake leads to another, and suddenly a company founder is down a deep hole, with investors clamoring for their funds back.

In this case one of the investors is Galaxy, the prominent crypto firm headed by former Goldman Sachs and Fortress Investment Group executive Mike Novogratz.

The company founder, Richard Kim, was previously a general partner at Galaxy Interactive, a gaming-focused venture fund under Galaxy. He also worked at the Wall Street banks JPMorgan and Goldman Sachs, following a stint at the prestigious law firm Cleary Gottlieb in the late 2000s, according to a bio. In an interview with CoinDesk, he said his cascading losses were fueled by a decades-long struggle with gambling.

Galaxy is one of several investors who are now the victims after Kim acknowledged misappropriating at least $3.67 million of company funds belonging to Zero Edge, a new blockchain startup led by Kim – until recently.

Kim pitched Zero Edge as a first-of-its-kind crypto casino, meant to level the playing field and give gamblers transparency. The name suggests that the house in the casino has no advantage over its customers.

In an interview with CoinDesk, Kim said Zero Edge raised more than $7 million in funding from investors, officially closing on a seed round less than a month ago. He stepped down from his role at the company after admitting to investors that he lost most of their funds in a series of bad crypto trades.

Kim told CoinDesk that the losses mounted as the bitcoin (BTC) price tumbled last month. The largest cryptocurrency's price has fallen to about $62,000 now from close to $70,000 at the start of June.

"Mr. Kim left Galaxy in March 2024 to start Zero Edge, a company in which Galaxy had an immaterial balance-sheet investment," a spokesperson for Galaxy told CoinDesk. "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." Galaxy's spokesperson declined to specify the size of the firm's investment in Zero Edge.

'Guys, I really f----d up.'

Kim said he also reported himself to the U.S. Securities and Exchange Commission's public tip line.

"Part of my rationale in reaching out proactively to the SEC was to say, OK guys, I really f—d up. I lost this money. It was grossly negligent. But I didn't intend to go run away with this money," Kim told CoinDesk.

In an email obtained by CoinDesk that was circulated to Zero Edge shareholders this month, the company said it closed a seed financing round on June 20. By the very next day, according to the email, Kim "had begun placing leveraged positions on some cryptocurrencies, resulting, over the course of the next several days, in the significant loss of company funds."

On June 29, according to the email, he informed the company's board of directors that he had "lost approximately $3.67 million in company funds," and that he was solely responsible for the loss.

"Since learning of these events, the company and the board have asked Mr. Kim to resign," the email reads, and he "submitted such resignation on July 2."

Downward spiral

"The downfall began with a careless mistake - a phishing site that cost $80k," Kim said in his own recollection of what went wrong, which he shared with CoinDesk in a written statement. "This triggered my old demons, the need to 'make it back' to preserve my reputation."

According to Kim, he "started down a negative spiral of leverage trading, raising more capital, and hiding the truth."

"By the seed round's close," said Kim, "I was ready to rebuild, to start fresh, putting past demons aside. But the moment I received the proceeds, something snapped. I felt compelled to make up for my missteps. Within days, millions were in leveraged longs. When bitcoin crashed, I experienced a complete wipeout."

The Zero Edge incident is the latest shenanigan to hit the blockchain industry's growing venture capital scene, which has been marred by controversy since its inception. Just a week ago, CoinDesk reported that Niraj Pant, a former general partner at top-tier crypto venture firm Polychain, had broken the fund's policies by making a secret financial arrangement with a company that he helped the fund invest in.

The Zero Edge incident amounts to a dramatic fall from grace for Kim, who graduated from the University of Washington at age 18 and the prestigious Columbia Law School at only 21, in 2007.

Before joining Galaxy in 2018, Kim built an impressive resume in the traditional financial sector: From 2015-2018, he was a chief operating officer for Goldman Sachs' global foreign exchange and emerging markets trading division, where he helped to lead a buildout of the Wall Street firm's digital-assets franchise in 2018. Before that, he was the co-COO of global foreign exchange and emerging markets trading at JP Morgan.

Kim says he remains intent on building out his vision of a blockchain-based casino and "has every intention" of paying back his investors. He disagrees with decisions made by his partners and the company's board to, in his view, wind the company down.

Zero Edge did not immediately respond to a request for comment.

Quoting Jung

"We basically have a year of runway to build this thing," Kim said in his interview with CoinDesk. "Instead, the company was forced down the path – for reputational risk mitigation – to basically shut everything down, which, in my opinion, was not the optimal decision for the broader set of investors in the company."

"I messed up catastrophically. But I refuse to give up," Kim added in his written statement. "To my investors: you didn't just back a project; you invested in my vision, my potential. I will continue building because the world desperately needs what we started. It is precisely the fact that I have proven untrustworthy that compels me to create trustless systems."

In his statement, Kim cited the Jungian Swiss psychologist Marie-Louise von Franz, in turn quoting the Swiss psychiatrist Carl Jung himself as once saying, "To be in a situation where there is no way out, or to be in a conflict where there is no solution, is the classical beginning of the process of individuation. It is meant to be a situation with solution... Normally the anima does not take a man by the hand and lead him right up to Paradise; she puts him first into a hot cauldron where he is nicely roasted for a while."