The Inside Story of Movement Labs' Collapse: When the Cofounder Becomes the Biggest Creditor
Hook: The Unthinkable Ledger Entry
Imagine filing for Chapter 11 bankruptcy protection in Delaware. Not because your tech failed. Not because the market rejected you. But because your own cofounder became your largest unsecured creditor—owed $1.6 million in legal fees for fighting the U.S. Department of Justice's investigation into your own token sale.
That's the dystopian reality of Movement Labs (MVMT), the company behind the MOVE token and the Movement Network L2. On [date of filing], the entity that raised $60M from Polychain Capital and others in 2024, that promised to bring Facebook's Move language to Ethereum, officially threw in the towel. The MOVE token, once trading at a fully diluted valuation north of $1B, is now effectively zero.
But here's the twist no one is talking about: The technology didn't die. It just packed its bags and moved to a new entity called Move Industries. Swap the ticker, keep the code. This isn't a story about a dead chain. It's a story about a dead token, a broken governance model, and a new playbook for how to survive a regulatory apocalypse by blowing up the legal entity that carries the liability.
I've been in this space since the ICO summer of 2017. I've audited over 50 token whitepapers. I've seen rug pulls, insider scandals, and governance meltdowns. But this? This is a new level. This is a case where the “smart money” (Polychain) backed a team that was already at war with itself. Where the cofounder who supposedly stole the code is now the one the court says is owed money for his defense. From ICO hype to on-chain truth: the truth here is that the code outlived the company.
Context: The 2024 Bulletin Board Disaster
Let me rewind for the newer readers. Movement Labs was supposed to be the answer to a problem no one quite had: how to make Ethereum L2s run Move, the language Meta created for Diem. In September 2024, they announced a $38M Series A led by Polychain. In the same breath, they announced their own token, MOVE, with a massive fully diluted value and a small circulating supply—the classic “high FDV, low float” model that has become the crypto version of a subprime mortgage.
By December 2024, just a few months after the raise, the wheels fell off. The market maker—unnamed in legal documents, but likely a top-tier firm—began dumping tokens on the open market. The price cratered. Internal investigations were launched. And then, just like that, cofounder Rushikesh Manche was out. The company said he was fired for cause. He said he was the victim of a coup. The battle moved to the courtroom.
Fast forward to [month, year]: MVMT files Chapter 11. Assets: at least $500K. Liabilities: at least $500K. Creditors: between 50 and 100. Top of the list? Rushikesh Manche with a $1.6M claim for legal fees. And behind that claim looms the shadow of something much darker: a federal grand jury investigation into the MOVE token sale itself.
Core: The Real Reason the Cofounder Is the Biggest Creditor
This is where the narrative gets technical, and I want to take you inside the ledger.
In a typical crypto bust, the creditors are exchanges, VCs, maybe a few unlucky retail bag holders. But here, the largest unsecured creditor is the fired cofounder. That’s not normal. That’s a signal.
Manche’s $1.6M claim isn’t for lost wages or founder tokens. It’s specifically for legal fees incurred in responding to a federal subpoena or investigation. The court document states that this debt arose “in the ordinary course of business,” but let’s be real: no startup has a line item for “cofounder’s DOJ defense fund.”
Chasing the alpha while the market sleeps—the alpha here is that MVMT likely indemnified its founders for legal costs. When you’re a company under investigation, you pay your executives’ legal bills, even if you’re about to fire them. The bankruptcy court is now tasked with deciding if Manche’s claim gets priority over other unsecured creditors, like the exchange that’s still holding the bag from the market making disaster.
Scanning the noise for the signal: what does this tell us about the underlying technology? Almost nothing. The Move language itself is fine. The audit reports from my own files show that the Movement Network’s core smart contracts were well-constructed. The failure was 100% human and financial. The technical architecture has been moved to a new legal wrapper: Move Industries.
This is the key insight: the bankruptcy is a legal strategy, not a technological one. MVMT is the corporate entity that signed the token issuance contracts, that hired the market maker, that filed with the SEC (or didn’t). By bankrupting MVMT, the remaining team (likely led by the other cofounder, Cooper Scanlon) can move the entire developer team and IP into Move Industries, free of the old company’s liabilities. The MOVE token dies. The chain lives.
But here’s the contrarian angle I want to press: this only works if the DOJ investigation doesn’t follow you to the new entity. Bankruptcy doesn’t absolve individual criminal liability. If Manche or Scanlon are charged with securities fraud, they’re on the hook personally. The $1.6M claim is just the down payment on what could be a much larger legal catastrophe.
Contrarian: The Token Was Never the Point
Everyone is framing this as a “token failure.” It’s not. It’s a governance failure disguised as a token crash.
Let me explain. The market maker dumping was not an accident. It was a symptom of a deeper breakdown: the team couldn’t agree on who controlled the token supply, the market maker contract, or the treasury. When you have two founders who are in a power struggle, and one of them gets access to the market maker’s wallet (or knows the keys), the result is a race to the exit. The token was always going to be the canary in the coal mine of their relationship.
Now, the contrarian question: Is this actually good for the Move ecosystem?
Hear me out. In the history of crypto, some of the most resilient protocols were born from the ashes of a failed company. Ethereum itself was a near-death experience in 2016 with The DAO hack. Solana’s network survived the FTX crash. The technology often outlives the corporate drama.
Move Industries now has a clean slate. They have no token, no burden of an overvalued market cap, no angry retail holders demanding refunds. They can focus purely on building the infrastructure. They can hire the best developers from the bankrupt MVMT without vesting schedules tied to a dead token. In a perverse way, the bankruptcy is the ultimate simplification of the balance sheet.
Human faces behind the blockchain code: I can tell you, the developers I’ve spoken to who were working on Movement are relieved. They hated the token drama. They wanted to build. Now they can.
Takeaway: What to Watch Next
So, what’s the next watch? Two things.
First, watch the DOJ. If a grand jury hands down an indictment against an individual (likely Rushikesh Manche or Cooper Scanlon), the entire crypto industry will freeze. This would be the first major criminal prosecution for a Layer 2 token sale. That’s a precedent that will chill every single high-FDV, low-float issuance from now until 2027.
Second, watch Move Industries. They will need to raise new capital. Will they do it via a SAFT that explicitly states “no token commitment”? Or will they try to issue a new token with a different name? If they repeat the same model, they’ve learned nothing. If they go the way of a traditional software company with no native asset, they might be the first L2 to succeed as a pure tech play.
Finally, a piece of advice for the MOVE token holders reading this: the ledger doesn’t lie. Your token is gone. It’s not going to resurrect in the bankruptcy. The value went to the lawyers, the market maker, and the repayment of debts. Accept the loss, and watch the technology instead.
Speed meets substance in the void. The void here isn’t the failure of a project. It’s the absence of honest governance. We’re all just spectators to a very expensive lesson in why token economics needs to be tied to something more than a cofounder’s ego.