Part of Bitfinex’s “missing” $850 million is now in the hands of the U.S. Department of Justice. Meanwhile, a controversial businessman was arrested for falsely setting up accounts that let exchanges—including Bitfinex, based on claims in the indictment—skirt bank rules and the law.
Funds seized by the feds from an HSBC Bank account were allegedly used to commit bank fraud by secretly transferring U.S. dollars to and from customers of cryptocurrency exchanges, according to an indictment announced by U.S. Attorney for the Southern District of New York Geoffrey Berman Tuesday.
The indictments specifically center on an alleged scheme by Reginald Fowler—and one or more unnamed cryptocurrency exchanges—to sneak their fund transfers through U.S. banks that had stopped doing business with crypto exchanges. Fowler and company, it’s charged, lied to the banks by saying the accounts were to be used for other purposes. An arrest warrant was also issued for Ravid Yosef, identified as an Israeli citizen.
Listed among others in the indictment, HSBC Bank USA account 141000147 is notable. Back on Oct. 6 , 2018, The Block Managing Editor Larry Cermak tweeted a screenshot of instructions from Bitfinex. Customers were directed to wire U.S. dollars to their wallets via HSBC Bank N.A. account 141000147, identified as belonging to Global Trading Solution, LLC.
Bitfinex had a history of difficulty transferring money to its customers. It had repeated troubles finding a mainstream bank willing to work with it after Wells Fargo ceased doing business with the exchange in early 2017. Instead, Bitfinex used a series of smaller banks with shaky finances, namely Noble Bank in Puerto Rico and Deltec Bank in the Bahamas.
In August 2018, the payment processor Bitfinex was using as a bank, Crypto Capital, told them that $850 million the exchange had on account with them had been seized by authorities. Those governments were identified by Bitfinex General Counsel Stuart Hoegner as the U.S., Portugal, and Poland. Crypto Capital is owned by Global Trading Solution, LLC.
Hoegner’s statement came in a filing in New York State Supreme Court this week. He asked the court to lift a freeze imposed at the behest of New York State Attorney General Latitia James on a $900 million credit line Bitfinex received in December from its sister company, stablecoin-issuer Tether. That line of credit allowed Bitfinex to continue processing customer withdrawals. As a result, Tether is now only 74% backed by fiat currency, Hoegner admitted. Hoegner did not provide any information about why the funds were seized by governments.
In a statement, James accused Bitfinex of fraud, saying it was treating “Tether’s cash reserves as Bitfinex’s corporate slush fund.” In the filing that was used to obtain the court-ordered freeze, the New York Attorney General’s office cited numerous communications in October between increasingly panicked Bitfinex executives and Crypto Capital in which the exchange claimed to be having serious trouble meeting withdrawal requests since it couldn’t access the $850 million.
It was at this point, Crypto Capital appears to have started to work with Chandler, Ariz., businessman Fowler, 60, in order to gain access to bank accounts it could use to transfer U.S. dollars to and from clients.
If the name Reginald Fowler sounds somewhat familiar to football fans, that’s because there’s a 60 year-old Reggie Fowler in Chandler, Ariz., who also happens to have once been a limited partner in the NFL’s Minnesota Vikings.
In 2005, Reggie Fowler announced his intention to lead a group buying the team. The $625 million deal would have him as a general partner and had he done so, he would have been the first African-American general partner in a major league football franchise. However, questions about his finances—and his resume—caused him to withdraw that offer three months later, though he stayed in the deal as a limited partner when Zygmunt Wilf took over (Fowler is no longer a limited partner in the Vikings). As it turns out, Reggie Fowler has a long history of lawsuits and has, substantial real estate holdings through a Chandler-based real estate company.
The U.S. Attorney’s filing noted that HSBC bank was told the fraudulent accounts were to be used for real estate transactions.
In his statement, Geoffrey Berman said “Reginald Fowler and Ravid Yosef allegedly ran a shadow bank that processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges.”
In doing so, he alleged, the pair and the crypto exchanges they were working with bypassed U.S. know your customer (KYC) and anti-money laundering (AML) laws, “and did so through lies and deceit.”
Fowler and Ravid’s charges of conspiracy to commit bank fraud each carries a sentence of up to 30 years in prison. They were also charged with operating an unlicensed money transmitting business and conspiracy to do so, each of which carries a five-year sentence.
When questioned about any ongoing investigation of Bitfinex, its sister company Tether, and their parent company iFinex, a spokesperson for the Department of Justice said, “DOJ does not confirm, deny, or otherwise comment on investigations.”
Other seizures of Crypto Capital funds
Crypto Capital’s president is Ivan Manuel Molina Lee, who appears to link Global Trading Solution, LLC to the similarly named Global Trade Solutions AG, a Swiss firm. That would connect Crypto Capital to the seizure of crypto-related funds by the U.K.
While Heogner’s filing did not mention the U.K., a statement emailed to Bitfinex customers before Heogner’s filing by iFinex CEO Jean-Louis van der Velde, included the U.K. as a destination where its funds had been seized, along with the U.S., Poland and Portugal.
Cryptocurrency journalist Amy Castor posted a December 19, 2018 letter signed by Ivan Molina stating that “Global Trade Solutions AG and related entities are being denied banking services in the United States, Europe and other select international locations, as a result of certain AML and financial crimes investigations by the United States Federal Bureau of Investigation and cooperative international law enforcements [sic] and/or regulatory agencies.”
While denying the charges, Molina added, “just recently, three separate Account Freezing Orders were placed on bank accounts at HSBC-London by the criminal courts in London, UK based simply on alleged AML issues involving unrelated cryptocurrency account activities by GTS in other locations.”
The Polish seizure might refer to an incident from April 2018, when €400 million was seized by Polish authorities “from an account reportedly affiliated with crypto exchange Bitfinex” in a case that suggested a link between a company owned by Crypto Capital Corp. and a Colombian drug cartel, according to an article by Cointelegraph. However, Cointelegraph noted at the time that Bitfinex had released a statement denying any connection to the seized funds.
So far, there has been no indication of Portugal’s involvement in the seizures.