Former Coinbase CTO Loses Malaysia License After Alleged Israel Link Sparks Investigation

Malaysian authorities have revoked the operating license of Network School, a technology community founded by former Coinbase CTO Balaji Srinivasan, citing building code and licensing violations, a decision that signals tightening regulatory scrutiny of crypto-linked ventures in Southeast Asia and raises questions about operational risk for decentralized finance projects operating from regional hubs.

• Iskandar Puteri City Council revoked Network School’s license effective July 22, 2026, citing unlicensed premises and activities exceeding approved scope.
• Malaysian authorities inspected 266 foreign residents from 40 countries and found all had valid travel documents, finding no evidence of illegal Israeli entry.
• Network School operates as an unlicensed residential and co-working community, not a registered educational institution, despite its name and Srinivasan’s network state promotion.

• 266 Foreign residents inspected by Malaysian immigration across 40 countries
• July 22 Effective date for Network School to cease all operations at Forest City
• 2024 Year Network School opened in Johor, Malaysia as residential co-working space

Malaysian authorities have formally revoked the operating license of Network School, ordering the facility at Forest City in Johor to cease operations effective July 22, 2026.

The Iskandar Puteri City Council cited building code violations and unauthorized business activities as the grounds for closure, determining that the facility operated from two premises without proper licensing for one site and conducted activities beyond the scope of its existing permit.

The decision follows weeks of scrutiny triggered by pro-Palestinian activists who raised allegations about Israeli participation at the community, though government investigators subsequently found no evidence supporting claims of illegal entry by Israeli nationals.

Unlicensed Premises and Scope Violations Prompt Regulatory Action

The closure order hinged on straightforward regulatory violations rather than the politically sensitive Israeli participation allegations that initially sparked public controversy. Inspectors found that Network School operated from two locations within the Forest City complex, with one site lacking the required business license entirely.

The other premises, created by joining two adjacent units, held a valid license for only one side of the combined space, leaving the expanded facility operating in violation of its original approval.

Beyond the licensing gaps, authorities determined that the facility’s actual operations exceeded what its existing permit authorized. The council also cited problems with the facility’s advertising signboard as a secondary violation.

These findings represent standard regulatory enforcement rather than a politically motivated closure, though the incident occurred amid heightened sensitivity around foreign investment and international participation in Malaysia’s technology sector.

Srinivasan disputed the severity of the violations in a public statement, characterizing the orders as administrative corrections rather than grounds for full closure.

Malaysian Immigration Clears 266 Residents but Fails to Quell Political Concerns

The investigation began after online posts alleged that Israeli entrepreneurs had entered Malaysia using passports from other countries to circumvent Malaysia’s non-recognition of Israel and its general prohibition on Israeli nationals entering with Israeli travel documents. The allegations prompted Malaysian immigration officials to conduct a sweeping audit of Network School’s foreign residents.

Officials inspected 266 foreign residents representing 40 different countries and found that all individuals checked possessed valid travel documents complying with Malaysian immigration law.

Authorities did not publicly identify any individual as having entered Malaysia illegally as an Israeli national, and the comprehensive inspection yielded no evidence supporting the initial allegations. Malaysian policy permits Israeli dual nationals to enter using valid passports from other countries, provided they meet standard immigration requirements.

Prime Minister Anwar Ibrahim stated that authorities would expel any Israeli national found to be breaking local laws, signaling a willingness to enforce regulations but also implying that no such violation had been documented during the initial investigation.

The gap between alleged violations and documented findings highlights how geopolitical tensions can amplify regulatory scrutiny even when factual evidence remains absent.

Network School’s Unregistered Status and Srinivasan’s Network State Vision

Network School opened in Forest City in 2024 as a residential and co-working community catering to technology founders, investors and startup workers. Malaysia’s Higher Education Ministry explicitly stated the facility was neither a registered university nor a licensed private education provider, despite its institutional-sounding name.

The facility offered accommodation, meals, shared workspaces, startup programming and fitness amenities to residents and participants.

The project became publicly associated with Srinivasan’s “network state” concept, an ideological framework that envisions online communities establishing physical settlements with autonomous economic and governance systems.

This positioning attracted both supporters of decentralized governance models and critics skeptical of initiatives seeking to operate semi-independently from national regulatory frameworks.

The combination of the network state branding, the international participant base, and the unregistered operational structure created regulatory ambiguity that Malaysian authorities ultimately resolved through enforcement of existing licensing requirements.

The closure demonstrates that ventures promoting alternative governance models face heightened compliance risk in jurisdictions with established regulatory infrastructure and limited tolerance for operational gray zones.

Institutional Investors Face Emerging Risk Pattern in Southeast Asian Crypto Hubs

For institutional crypto investors evaluating emerging market exposure and fund management operations across Southeast Asia, the Network School closure signals a tightening regulatory environment around ventures with decentralized governance claims or international participant networks.

While the stated grounds for closure were conventional, licensing and scope violations, the investigation’s intensity and the initial geopolitical framing reflect broader official sensitivity toward projects framing themselves as alternatives to conventional institutions.

Network School’s Singapore incorporation as the remaining entity underscores how ventures are adjusting by consolidating operations in jurisdictions with more established legal clarity for technology ventures.

The incident also illustrates regulatory authorities’ capacity to execute rapid, comprehensive audits of foreign resident populations when political pressure emerges, creating operational uncertainty for international communities operating in regulatory gray zones.

Institutional investors and fund managers operating regional hubs face an implicit signal that compliance with all licensing and zoning requirements must be demonstrable and complete, with limited tolerance for technical ambiguities about operational scope.

The critical forward-looking question is whether the Malaysian government will apply the same licensing enforcement to other international technology communities and crypto-adjacent ventures operating in the region, or whether Network School’s closure was a one-time response to geopolitical pressure. Srinivasan’s stated intent to continue operations through the Singapore-incorporated entity will test whether the broader region intends to accommodate network state experiments or whether other jurisdictions will follow Malaysia’s compliance-focused approach.