By Angus Berwick and Elizabeth Howcroft
ORIGIN CITY, Nov 17 (Reuters) – On Jan. 23, several hundred partygoers packed into an unusual art gallery. Champagne flowed into glasses that floated above a black disco floor. Guests’ avatars danced to electronic music, unhindered by gravity. The host, an Indian cryptocurrency investor who goes by the name of MetaKovan, wore a purple crown.
MetaKovan – real name Vignesh Sundaresan – was holding the event in the virtual metropolis of Origin City to celebrate his recent $2.2 million purchase of a series of images by the digital artist Beeple. Sundaresan had hired architects to build the gallery in an online “metaverse” to display the works. Now, he was launching a crypto token giving buyers a stake in the art pieces.
It was a spotlight-grabbing move by MetaKovan. Two months later he would go further still. At a sale by Christie’s, he bid $69 million to win another Beeple piece – “Everydays: The First 5000 Days.” It was the first time a major auction house sold a digital artwork in the form of a new crypto asset called a non-fungible token (NFT), a digital certificate of ownership. It was also the third most expensive artwork ever sold at auction by a living artist.
The purchase shook the art and crypto worlds. Sundaresan had become the top spender in the hottest area among crypto investors.
For several years, interest in NFTs simmered on crypto culture’s fringes as fans paid small sums to designers, artists or third parties for cartoon cats and pixelated characters. In the months before the auction, NFTs exploded in popularity. The Christie’s sale set off a gold rush that continues today, with celebrities from Lionel Messi to Paris Hilton launching NFTs for people to buy.
While some observers deride NFTs as a speculative asset, devotees see them as the building blocks of a new digital economy and the next evolution in art collecting. The notion that the internet will develop into a metaverse – a parallel universe of virtual spaces – has gathered such momentum that last month Facebook changed its name to “Meta.”
Sundaresan says he buys NFTs chiefly as investments. He has likened owning them to “having an autograph from your favourite artist.”
When Sundaresan shot to fame this year, little was known about him. In a blog after the auction, he sketched a rags-to-riches story of emigrating from South India to Canada and finding success in the guise of MetaKovan, which can translate as “King of Meta” in his native Tamil. His Beeple purchase was proof, he wrote, of how the “equalizing power” of crypto was enabling the rise of the “global south.” In June, he told the Financial Times the $69 million acquisition was “much less” than 10% of his net worth, which he said was almost entirely in crypto.
To chart Sundaresan’s rise, Reuters spoke with some 40 people who have worked or invested with him and reviewed documentation including corporate records and a previously unreported whistleblower complaint. The reporting reveals Sundaresan trod a sometimes rocky path in accumulating his assets, leaving behind frustrated customers and investors who say they lost, in total, millions of dollars.
Over the course of three interviews with Reuters for this article, Sundaresan said he faced some “setbacks” during his career but denied any wrongdoing. “It is very hard to be an entrepreneur,” he said. “I would never do something to hurt someone financially.”
Sundaresan represents a new generation of investors: the cryptocurrency kings who have created fortunes out of sight of financial regulators. Their true net worth is obscure because their assets exist mostly on the semi-anonymous blockchain, a kind of digital ledger that underpins cryptocurrencies, not in bank accounts, shares or property.
With little government supervision or legal recourse, crypto investors accept a significant risk of losses in any project. Some regulators have warned of the dangers of the new markets. The space is “rife with fraud, scams, and abuse,” U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler said this year, in a speech about crypto’s intersection with national security. In one recent case, a director of a crypto exchange called BitConnect pleaded guilty in U.S. federal court for his role in a scheme that defrauded investors out of more than $2 billion, the Department of Justice said. The director, Glenn Arcaro, is due to be sentenced this month. The exchange has closed.
Regulators have not named Sundaresan in any such context. The SEC had no comment for this story.
In a podcast interview in April, Sundaresan described the crypto market as the “Wild Wild West,” with many ways for a “stupid person” to lose money. “Crypto is like walking in a street in Somalia with cash in your pockets,” he said.
Now, he and other figures who profited in this world are piling into NFTs in the same way that past billionaires spent their riches on masterpieces by the likes of Picasso and Monet.
Sundaresan told Reuters he financed the Beeple purchase from his personal investments in cryptocurrencies. “I’ve been lucky to be part of various projects that, you know, blossomed,” he said.
Christie’s declined to comment on the Beeple sale and its financing, citing client confidentiality. Beeple didn’t respond to requests for comment.
“SOMETHING NEW”
Sundaresan was born in 1988 in the Indian city of Chennai. He has said his family expected him to find a stable job and follow the example of his father, a mechanical engineer. “Society had a plan for me,” he said in a podcast in 2020.
He took up coding at high school and, after class, he and a friend built websites for local companies. They earned $20 per job – “big money” they spent on computer parts, his school friend, Neela Muhil Vannan, recalled to Reuters.
The youngsters poured over articles about Apple Inc co-founder Steve Jobs and questioned why India wasn’t producing tech entrepreneurs of similar “rock star” status, Muhil Vannan said. Sundaresan has said he drew inspiration from the book “Ignited Minds” by India’s then president, A.P.J. Abdul Kalam, born a poor Tamil Muslim.
In 2006, Sundaresan began a mechanical engineering degree at a university in Dubai. Back in Chennai, while researching how to design code to automate bank transfers, he stumbled across bitcoin in 2012.
“This was something new,” he told another interviewer. At the time, a single bitcoin cost around $10, compared with around $60,000 today.
In May 2013, Sundaresan quit his job as a developer at a newspaper and launched an online crypto exchange called Coins-E, which enabled customers to buy and sell cryptocurrencies. At meet-ups in a Chennai cafe, he taught other students how the blockchain functioned. He told them crypto would give them the freedom to do whatever they wanted, one participant, Akhilesh Arora, now a developer in the Netherlands, told Reuters.
Sundaresan left India to pursue his ambitions. That September, at age 25, he enrolled in a technology innovation master’s program at Ottawa’s Carleton University. His focus, however, remained on Coins-E, which was gaining thousands of customers. During evening classes for the master’s, instead of listening to lecturers, he worked on improving the site’s interface, said a classmate, Adeleye Afolabi.
Coins-E was drawing attention for other reasons.
In early 2014, around 50 traders posted on a bitcoin public forum complaining that Coins-E had not returned deposited funds worth tens of thousands of dollars, despite their repeated requests. Sundaresan, using an account called “coins-e support,” responded that he would resolve the issue. Four traders interviewed by Reuters and other traders who posted again in the public forum said their money never was returned. The traders who spoke to Reuters said they lost around $5,000 in total. Reuters was unable to reach other traders in the anonymous forum.
In interviews for this article, Sundaresan said Coins-E scaled up so quickly that he struggled to deal with customers’ demands. It was a stressful time, he said. He denied deliberately withholding funds. He said deposits were intact when he sold the business in May 2014 for 315 bitcoins, about $180,000 at the time.
The buyer of Coins-E was an Ontario-based businessman, Saif Altimimi. The contract, which was reviewed by Reuters, said Coins-E held 456 bitcoins for customers, worth $260,000, and Sundaresan had “honoured all transactions made by users.”
Altimimi didn’t comment for this article. Coins-E has since closed. Reuters couldn’t determine why.
Sundaresan moved on to a new project. He agreed with three other crypto enthusiasts that same year to establish a start-up, BitAccess, that would make “Bitcoin ATMs.” These would enable users to deposit physical cash and receive crypto. To keep costs low, the founders took a modest wage. Sundaresan drove a clapped-out Nissan Sentra that kept breaking down.
“You’d think he was a starving student,” said Ryan Wallace, a BitAccess co-founder.
Their first customer was a local entrepreneur in Toronto named Anthony Di Iorio. Speaking to Reuters, Di Iorio recalled telling the BitAccess partners about a blockchain network called Ethereum he was co-founding. The partners decided to contribute to a capital-raising tool called an “initial coin offering” for Ethereum. An ICO is similar to an initial public offering, but instead of shares, investors receive a crypto coin. Ethereum used ether, now the most popular cryptocurrency after bitcoin.
Sundaresan has said his Ethereum investment was the “fountainhead” for his later ventures. In his interviews with Reuters, he said he bought about 20,000 ether during the ICO, worth some $6,000 at the time. An investment of this size would have grown to about $37 million by the time of the Christie’s auction this year, according to Reuters calculations that were vetted by two analysts. Sundaresan told Reuters he sold some of his ether to invest in other ICOs over the years, however. He didn’t reveal how much.
By 2016, Sundaresan wanted to launch an ICO to fund an Ethereum-based trading platform he was building with BitAccess colleagues, according to four people who knew him. Around this time there were reports of hacks on other exchanges, and Sundaresan’s partners considered the project too risky, these people said. Frustrated, Sundaresan left BitAccess in November 2016, with little financial gain, he later said. In Twitter posts shortly after his exit, he complained that some people obstructed others’ ambitions like a “virus in your narrative.”
He set out on his own.
“BUILDING THE METAVERSE”
In early December 2017, Sundaresan gathered prospective investors for a dinner at a French-style wine bar in San Francisco. Over deviled eggs and croque monsieur, he told them about his idea for Lendroid, a platform he said would “reimagine trading.” It was an early version of the so-called DeFi, or decentralized finance, products now surging in popularity. Traditionally, borrowers have looked to banks or brokers. By contrast, Lendroid envisioned a “lending pool” of deposited crypto that would facilitate peer-to-peer loans, by allowing users to lend and borrow crypto funds directly, without an intermediary.
With Sundaresan was Paul Martens, a San Francisco-based digital strategist he hired partly to drum up investor support. Sundaresan told the two dozen attendees that Lendroid hoped to raise about $3 million in an ICO. The mood was “very optimistic,” Martens recalled in an interview with Reuters.
By the time the fundraiser launched in February 2018, with billions of dollars washing into the ICO market, the total target sum of the fundraising rocketed to 50,000 ether, the equivalent at the time of almost $48 million. Sundaresan incorporated a company in Singapore to operate the ICO.
Lendroid successfully raised the target sum, corporate filings show. The company said it did so within two days. But progress on the project stalled. Instead of hiring additional employees, Sundaresan shrank the nine-person team, according to Martens and two other people involved. Sundaresan told Reuters difficulties in getting Singapore work permits for staff were partly to blame.
A Reuters review of Lendroid’s corporate records in Singapore, its software on code-hosting platform GitHub, and its blockchain data shows that development largely halted after 2019. Most of the ether from the ICO was sold or transferred by Lendroid to unspecified entities, the review found. By the end of 2019, Lendroid had just $85,431 in crypto left on its books, equivalent to just over 650 ether at the time.
Sundaresan told Reuters that Lendroid sold the ether on various cryptocurrency exchanges at the end of 2018 to pay for expenses and kept cash proceeds of $5 million. He said Lendroid is a “serious company” whose “mission still stays. Every dollar that belongs to Lendroid … is audited and accounted for.”
Asked by Reuters to provide documentation confirming details of the sale, Sundaresan did not respond.
Lendroid’s Singapore auditors, Entrust Public Accounting Corporation, did not respond to requests for comment.
Investors, posting on a Lendroid chat group, grew angry over delays to the launch of the platform and a collapse in the price of the coin they received from the ICO, called a “Lendroid Support Token,” or LST. One investor accused Sundaresan of running a “school project.”
Martens said he quit Lendroid in August 2018, unhappy about the project’s lack of progress and an absence of communication from Sundaresan about the route forward. The following May, he submitted a whistle-blower report to the Ontario Securities Commission, accusing Sundaresan of fraud.
“Very little to no progress was made on the software,” he wrote in the report, which was seen by Reuters. Martens shared with Reuters a timeline he drew up in which he documented the slow pace of development.
In an emailed response to an enquiry by Martens this August, the OSC’s Office of the Whistleblower informed him “we carefully reviewed your information and closed the file.” The OSC response, seen by Reuters, did not say if the review led to any action. An OSC spokesman declined to comment about Martens’ complaint or whether there was an investigation.
Sundaresan said Martens was “disgruntled” and had “nothing to do with management.”
A spokesman for the Monetary Authority of Singapore said it does not regulate Lendroid and referred Reuters to the Singapore Police Force. The police said they had not received any reports regarding Sundaresan or Lendroid.
THE LURE OF DIGITAL ART
Now splitting his time between Chennai and Singapore, Sundaresan went on a virtual spending spree in the emerging NFT market. In 2019, he paid $112,000 for a digital representation of a diamond-encrusted Formula One car from an online racing game, the most expensive NFT that year. He snapped up hundreds of acres of digital land in online worlds to build a virtual property empire.
In early 2020, Sundaresan assumed a new online identity: MetaKovan. He would later describe this alter ego as an “exosuit” created for the task of “building the metaverse.” MetaKovan was only unmasked as Sundaresan after the Christie’s auction in March, by U.S. journalist Amy Castor.
As MetaKovan, Sundaresan began accumulating a trove of digital art, including a piece called “Contemplation (of Creation),” a portrayal of an apparent divine being, which he used to represent his new identity. In mid-2020, still as MetaKovan, he unveiled a fund called Metapurse to invest in NFTs. “NFTs are the perfect medium for crypto,” MetaKovan wrote on Twitter. He didn’t disclose the size of Metapurse, which he said he alone was funding.
At a series of NFT auctions that December, MetaKovan’s fund snapped up 20 artworks by Mike Winkelmann, the American digital artist known as Beeple. It paid a total $2.2 million in ether and promised in a blog to flip the art world “on its head.”
So it was that on Jan. 23 this year, MetaKovan opened the Metapalooza party at his virtual art gallery in Origin City. He thanked the crowd for attending a “historic event,” according to a recording. Attendees could buy a digital token called B20 to get a stake in MetaKovan’s Beeple collection. “Art belongs to everyone,” read a billboard at the party. A website for the tokens described them as “keys” to “unlock the financial upside” of the artworks.
Metapurse issued 10 million B20 tokens, with 25% allocated for public sale, initially priced at 36 cents each. Metapurse received payment in DAI, a cryptocurrency pegged to the dollar. Overall, half of the tokens were held by MetaKovan and half were split between the public and some of MetaKovan’s friends and business partners.
Then, in mid-February, Christie’s announced the auction of Beeple’s “Everydays: The First 5000 Days.” Marketers predicted the sale’s publicity would boost B20’s price. One of the marketers, Andrew Steinwold, issued an “Investment Summary” saying B20’s total value could reach $200 million.
By the time of the auction, B20’s price was booming, hitting a high of $29 per token on exchanges including Uniswap, according to cryptocurrency tracker CoinGecko. “It was total mania,” said Chris Nunes, a Colorado-based NFT enthusiast who spent around $30,000 on some 6,000 B20 tokens.
Around the time the Christie’s auction closed, B20’s price collapsed. Data collected by blockchain analytics firm Nansen shows a handful of wallets helped to drive the crash by selling several millions of dollars’ worth of B20. The wallet publicly labelled as belonging to MetaKovan did not sell its holdings.
Steinwold, who runs his own NFT investment fund, told Reuters his clients were among the sellers, though he declined to identify them. Asked about his earlier investment summary, he said he was shocked by B20’s price collapse. “I still think that B20 is undervalued, but it’s also art, so it’s very subjective,” he said.
Investors were left with a token currently valued at $1.10, a fraction of what many of them paid. When one investor accused MetaKovan’s team on Twitter of moving on to “the next cash cow,” Anand Venkateswaran, a representative for Metapurse and an old friend of Sundaresan from Chennai, retorted, “I don’t owe you anything.”
Asked by Reuters about investors’ discontent with B20’s collapse, Venkateswaran said, “You have to do your own research.”
Sundaresan told Reuters he did not discuss B20 with Christie’s ahead of the auction, did not focus on B20’s price and didn’t tell anyone to boost the value. “It’s not about the money,” he said, wearing a jacket with “$CARTEL” emblazoned on its lapel.
The winning bid for Beeple’s “Everydays: The First 5000 Days” was paid with 42,329 ether through the crypto exchange Gemini. A few days later, U.S. journalist Castor revealed MetaKovan’s true identity. Crypto influencers celebrated Sundaresan as a “crypto billionaire.” And in a statement issued by Christie’s, Sundaresan called the artwork his portfolio’s “crown jewel.”
For six months, Sundaresan held the work quietly in his crypto wallet. Then in early September, Metapurse unveiled the work’s “first physical event.” Fans were invited to view the Beeple piece on a giant screen at a Nov. 4 exhibition in New York. “NFTs come alive,” the announcement said. Cost of admission: up to $2,500 a person.
((reporting by Angus Berwick and Elizabeth Howcroft, additional reporting by Daniel Fastenberg in New York, Aradhana Aravindan and Lin Chen in Singapore and Sudarshan Varadhan in Chennai; editing by Janet McBride))
EXPLAINER – What are NFTs?
For a web version of the special reporthttps://www.reuters.com/investigates/special-report/finance-crypto-sundaresan/
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
