EVOLAB v Skycoin— Imprisonment, Abuse, Theft and Vindication

2018 was a surreal period in the world of cryptocurrency. News headlines told cautionary tales of crippling losses. A project’s developer performed a carnal act to gain notoriety. Bizarre, fake project implosions served as an ominous parade of reminders to do your own research.

A headline appeared in June of 2018; Skycoin’s co-founder was kidnapped, beaten, and robbed by… his own staff. Or depending on the interpretations of some at the time, an exit scam was staged.

There’s much more to the story than what surfaced in that week’s headlines. Now that the dust has settled, insights as to how and why have been made clear through witness accounts, court proceedings, and admissions of guilt.

Market Downturn

The endorphin-fueled high of 2018's early year bull market was starting to wear off. Despair started to seep in throughout the second quarter as gains evaporated. Many people had just learned what Bitcoins are and how to buy them. Doing something risky like going to sleep meant that suddenly their money was gone.

Skycoin at this time was doing moderately well, despite the state of the general market. Miner sales had been processed and a strong test net launch had the price in a more positive stance, comparatively. The high-volume cryptocurrency exchange Binance announced a listing for Skycoin and then a trading competition was announced to welcome the new coin to the exchange. In anticipation of all this, the price surged high and fell as the competition went underway.

Then, chaos

Skycoin’s price continued to fall past what was an expected cooldown from the increase in the time leading up to the listing. Tensions ran high as more holders were becoming increasingly anxious. Spurious accusations arose that Skycoin founder Synth had disappeared. The Skycoin community across Telegram and WeChat started to notice a silence forming in place of previous confidences. Suddenly, rumors of a kidnapping began to waft from the sewers of 4chan’s /biz/ message board. An audio clip surfaced on Reddit talking about insider trading.

Full panic. The trading competition was over but Skycoin’s price was dropping even lower. Skycoin published a status update about the incident. It didn’t take long for counter-theories to surface. Rumors started to surface that the kidnapping was an elaborate hoax designed by the Synth himself to save face while exiting the crypto market and leaving China.


The Trading Competition

Trading competitions hosted on Binance usually build hype for the crypto currencies involved. The coin’s price quickly rises and typically falls to pre-announcement levels, or a bit lower. Part short term price correction, part larger-market price discovery. If you’re unfamiliar with the process of the competition itself, users attempt to reach certain trading volume goals in order to be given a chance at a set of rewards. The exchange makes revenue from fees and volume; the coin gets exposure.

There may also be some logic in large exchanges holding a trading competition when listing coins to help cut down on price manipulation leading up to a listing.

Skycoin’s performance in its own Binance trading competition doesn’t appear out of the ordinary for the usual rise and fall, compared to other examples. To a first-time investor entering a new, untested cryptocurrency market, it was quite the emotional ride.

Synth

Skycoin developer Brandon (more widely known by his username Synth) described a disagreement between the marketing team he had hired and himself on the value of the work that had been produced.

Key points of interest:

  • Skycoin and the marketing team were in the process of settling a disagreement over 150,000 Skycoin and other expenses that the marketing team felt were services rendered.
  • As Skycoin’s staff took a closer look to verify the marketing team’s accounting, it was discovered that a larger amount than initially thought was missing by margin of error in normal accounting standards.
  • An investor cited by the marketing team was reached out to and it was discovered that a claimed deal made by the marketing team had not happened.
  • The marketing team was not responding to accounting inquiries.
  • Once the marketing team had issues using some of the wallets they were in control of, large amounts of Skycoin started to be sold on exchanges before being stopped by Chinese authorities.
  • Brandon answered the door on the evening of the kidnapping. Nine people barged into his apartment. Both Brandon and his girlfriend, Sarah, were beaten and threatened with a knife.
  • Brandon’s girlfriend, Sarah was beaten specifically because she discovered the accounting discrepancies.
  • Brandon was forced to transfer all of the Skycoin and Bitcoin he had on hand. This process took hours.
  • The marketing team returned the next day to break into the apartment to take more funds, while Brandon and Sarah were out.

The Marketing Team

Sam Sing Fong and three other acquaintances were hired by Skycoin as full time employees in 2017. Sam was presented as COO of Skycoin’s Asian operations and he, along with his team were tasked with general marketing operations and coin distribution sales. In early June of 2018, community groups and logos were established publicly with the name EVOLAB.

There’s three accounts of the situation by EVOLAB. The first can be found here, published shortly after the incident. Key points of interest:

  • 100,000 Skycoin sold to investors were being debated over.
  • EVOLAB had been providing custodial services for unknown investors.
  • The marketing team and purported investors went to Brandon’s home and that a large sum of Skycoin and Bitcoin were transferred from Brandon, this process went into the early hours of the next day.
  • EVOLAB and their cohorts did not have physical contact with Brandon or Sarah.

The second account can be found here, published after the court trial.

  • EVOLAB claimed they were owed 150,000 Skycoin for services rendered.
  • An audio recording with Brandon acknowledging their payment agreement and what is presumably Sam arguing about amounts and timing of payment.
  • That other Skycoin staff had questions over the accounting for the funds EVOLAB had been given custody of, intended for operating on behalf of various Skycoin operations.
  • 378,000 Skycoin sold to investors were being debated over.
  • There is a “decentralization principal of the industry” of which in their view, EVOLAB held that Skycoin having purportedly broken such a principal, felt justified in some of their actions.
  • That they did have physical contact with Brandon, injuring him.

A third account has been posted publicly, in English.

  • Brandon and Sarah allegedly staged the kidnapping by inviting the marketing team and related investors over.
  • Brandon scratched a team member’s chin, causing that team member to bruise Brandon’s wrist.
  • Brandon agreed to paying extra coins to compensate for losses.

Comparing Testimonies

There doesn’t appear to be much proof that investor sales were carried out, or at least were ever transferred outside of EVOLAB’s custodial control. Offering unauthorized custodial services is exceptionally odd given the mention of the “decentralization principal of the industry” as a motivator for their actions.

It’s odd that no formal contract was created for services rendered or paid. Sam was presented as COO and Brandon claims his efforts on behalf of Skycoin were not very substantial. This seems disorganized for both parties.

EVOLAB backtracked on their physical abuse of Brandon and made no mention of the abuse directed at Sarah even after admitting so in court.

EVOLAB then later claimed Brandon struck first. The assertion that a person would lash out in anger but then later capitulate and would offer more money than what was being debated seems unrealistic.

People’s Court, Jing’an District, Shanghai

Months after the incident EVOLAB has been released from serving jail time. The original court documents and an English translation have been made public. ChineseEnglish

Here’s an excerpt from the English version:

From this, we can establish some facts in reference to the testimonies were given outside of court:

  • EVOLAB and their associates were indeed at Brandon and Sarah’s apartment, debating the accounting issue and preventing them from leaving their apartment.
  • That both Brandon and Sarah were injured and that EVOLAB had previously lied about assault.
  • That the four members of EVOLAB were named under their true identities.

Screenshots of chat logs are a popular format to provide as “proof”, but can easily be faked and don’t do much except to help back up corroborating evidence. EVOLAB’s use appears to demonstrate that some money was exchanged at some points in time. EVOLAB also has made no attempt to provide a list of who their investors were and how much money was held for them.

The Possibility of an Exit Scam

Some of the initial accusations were of this conflict being coordinated. Taking people to court and risking discovery as the case was investigated seems to be the riskiest action to take in being discovered.

Skycoin has also continued to operate since the incident, with Brandon attending events, giving interviews, and interacting with the community. A line of reasoning to connect to an “exit scam” plot does not appear likely.

Insider Trading

As all this was going on behind the scenes, there were also accusations of insider trading directed at Skycoin, which has recently been confessed to be a modified audio file and edited screenshots by a Substratum community member being paid to spread disparaging information about competing projects such as Skycoin.

Conclusion

Sam and his cohorts’ behavior appears fearful and frenzied as they discovered what they initially thought was a bug, or claimed to be centralized manipulation. They further tried to press Skycoin for funds and organized their attempts to invoice for an amount of coins far outside the margin of simple accounting error.

At best, the lack of clear accounting and record keeping by Sam and his staff created an emergency; if the claimed investors do indeed exist it seems likely that there would be an emotional rush to cash out in the declining market, giving way to escalations of violence.

At worst, this is a story of embezzlement and a web of lies that ended as a panicked heist gone wrong, landing the perpetrators in prison with unusually light sentences due to the lack of evidence beyond confinement and abuse.

Much of the funds in question are still with Binance in frozen accounts. After Skycoin notified police, authorities issued a legal directive to related exchanges to suspend the accounts that the embezzled funds were sent to.

Skycoin seems to be doing well despite the damage done to its market capitalization. Wintry general market conditions persist and the project strides along with hardware and software advances, unfazed. Judging by the again-active social media accounts of EVOLAB members, they seem to be glad to be out of prison and are set on justifying their actions as they continue to pursue business.

Key Sources
Brandon’s post kidnapping interview
EVOLAB’s Initial Recounting
EVOLAB’s Second Recounting
EVOLAB’s Third Recounting
Court Documents:
English | Chinese
Explorer Addresses and Exchange Accounts
Pastebin of English Court Document