The parent of cryptocurrency exchange Bitfinex and stablecoin-issuer Tether has asked a federal court to help it get back $880 million lost to an alleged con man.
In a petition filed in a California federal court [Case 8:19-mc-00021] on October 18, British Virgin Islands-based iFinex asked the court to allow it to subpoena information and documents from a former business partner it needs to regain the money from authorities in Poland, Portugal, and the United Kingdom.
That money was lost, iFinex claimed, when the payment processor it was using to allow American customers to deposit and withdraw U.S. dollars gave it to Arizona businessman Reginald Dennis Fowler. Fowler was helping payment processor Crypto Capital access U.S. banks which had largely cut off cryptocurrency exchanges. The U.S. Attorney for the District of Arizona called Fowler a flight risk and initially asked that he be held without bail. However, he was later released on bail after posting a $5 million bond.
Fowler was also caught with sheets of counterfeit $100 bills.
Bitfinex’s loss came to light after New York Attorney General Letitia James sued iFinex, Bitfinex and Tether for fraud and state securities law violations in April. Those charges arose from a secret loan of $700 million Tether gave Bitfinex after Bitfinex lost the money. James claims failing to disclose the loan—which came from the dollar reserves Tether said back its USDT stablecoin one-to-one—broke the law. That case is ongoing.
On October 7, the three companies were slapped with a class action suit seeking a staggering $1.4 trillion based on James’ allegations.
The banking bust
In its current filing, iFinex said that it turned to Crypto Capital in 2017, after losing access to the Tiawanese banks it had previously used.
This happened, iFinex CFO Giancarlo Devastini said in a related filing, after “certain U.S. banks successfully pressured iFinex’s Taiwanese banks into discontinuing this arrangement.”
Indeed, in April of that year, iFinex and its subsidiaries (Bitfinex and Tether) sued Wells Fargo after the San Francisco-based bank suspended U.S. dollar wire transfers with the Taiwanese banks on their accounts. A month later, however, the suit was withdrawn.
Many cryptocurrency exchanges have had a great deal of trouble maintaining banking relationships, due to bankers’ concerns about falling afoul of “anti-money laundering” (AML) and “countering the financing of terrorism” (CFT) rules.
By December 2018, iFinex claimed, Crypto Capital held more than $1 billion of its money. But, the Panamanian payment processor “failed and refused to remit funds, claiming that its bank accounts located in Poland, Portugal, the United Kingdom, and the United States had been seized or frozen by various governmental authorities in each jurisdiction.”
Specifically, Polish authorities froze $355 million in one bank, iFinex claimed. Portugese authorities stopped $218 million in three banks. iFinex said it has filed suit seeking to retrieve its funds in those countries.
It is also planning another lawsuit, in Britain, to obtain another $306 million is allegedly held by a U.K. firm, G.T.S. Resources Limited.
Together, that adds up to $880 million.
Additionally, earlier reports said the U.S. government has an additional $50 million seized from Fowler to which iFinex might lay claim.
Following the money
According to the current petition, Crypto Capital told iFinex that it gave $306 million of iFinex’s money to “TCA Investment Bancorp & Trust Company”—which iFinex said was not actually a bank.
Under increasing pressure from iFinex, Crypto Capital on December 18 got a reference letter from TCA saying that it had a $304 million balance. But, that balance was owned by G.T.S. Resources Limited, not Crypto Capital. iFinex said it had never heard of either TCA or G.T.S.
G.T.S. Resources was a U.K. firm owned by Fowler. On December 17, 2018, its name was changed to Spiral Global Development Limited, iFinex’s filing states.
“At no time did Crypto Capital [or its principals] disclose any relationship between it and Spiral Global Development Limited or its sole director and shareholder, Reginald Dennis Fowler,” Devastini declared.
In order to prove its ownership of the money, iFinex asked the California federal court to let it depose and seek documents from Rondell “Rhon” Clyde Monroe, a resident of that state. He is identified as the former vice president of TCA Bancorp. The TCA reference letter was signed by Monroe, iFinex claimed.
Beyond these two companies, iFinex said it discovered that Crypto Capital held accounts at HSBC, Citibank, Bank of America, Bank of Colorado, Enterprise Bank & Trust, Stearns Bank, SunTrust, TD Bank, USBank, and as it turns out, Wells Fargo.
“[I]n order to demonstrate Applicant’s ownership of and entitlement to the various funds held in Poland, Portugal, and the United Kingdom, Applicant must be able to trace the funds deposited by its customers [in] various banking accounts operated or used by Crypto Capital,” the iFinex filing said.
There are a great many more people and companies involved in the case, many with similar names or overlapping ownership. For example, iFinex wants to question Monroe about Ivan Manuel Molina Lee, who it identifies as “one of Crypto Capital’s principals.”
But, iFinex also stated that Lee is a director of Global Trade Solutions AG, the Swiss company that owns the cryptocapital.co website. If there is any connection between Global Trade Solutions AG and Fowler’s British firm—G.T.S. Resources Limited—it is not mentioned in the filing.
[Note: This article was updated to note Fowler’s bail.]