Reginald Fowler, the man who was allegedly at the heart of a shadow banking operation for cryptocurrency exchanges, forfeited what appeared to be an extremely reasonable plea bargain on Jan. 17. Now, according to a letter filed with the Southern District Court of New York on Friday, the U.S. government has officially withdrawn its plea offer as Fowler heads to trial.
The Arizona businessman and former minority owner of an NFL team was charged with four counts related to bank fraud and running an unlicensed money-transmitting operation.
He was indicted in April 2019 along with Israeli woman Ravid Yosef, who remains at large. According to prosecutors, the pair were part of a scheme that involved setting up hundreds of bank accounts to funnel money into a series of cryptocurrency exchanges. They allegedly lied to banks to open accounts in order to bypass anti-money laundering laws.
Last month, a plea deal that would have significantly reduced sentencing for the 60-year-old fell apart in front of a judge. Fowler was supposed to plead guilty to one felony charge with prosecutors agreeing to drop the other three. Nobody quite knows what happened, but a Bloomberg report offers clues. According to the report, Fowler was supposed to surrender some $371 million in more than 50 bank accounts. However, he would only agree to forfeit whatever was in the accounts, and prosecutors gave that a no-go.
That still leaves a lot of open questions, such as, if money is missing from all those bank accounts, what happened to it? Why weren’t the assets frozen? And didn’t the prosecutors know in advance how much money was in each of the accounts?
“Not necessarily, that is a lot of accounts and a LOT of opportunities for shenanigans…” Nic Weaver, a researcher at the International Computer Science Institute who studies cryptocurrencies, said in a tweet.
Not necessarily, that is a lot of accounts and a LOT of opportunities for shenanigans…
— Nicholas Weaver (@ncweaver) February 3, 2020
Ties to Bitfinex
The bigger story here is that the money that Fowler allegedly had access to has been linked to some $850 million that has gone missing from cryptocurrency exchange Bitfinex as part of its dealings with Crypto Capital Corp., a Panamanian payment processor.
While Fowler allegedly controlled some of that money, in early 2018, another large chunk (about $350 million) of Bitfinex’s missing money was apparently seized by authorities in the U.S., Poland, Portugal, and the U.K. Crypto Capital may have mingled those funds with drug money from a Colombian drug cartel, according to authorities.
After discovering the loss in late 2018, Bitfinex had to borrow as much as $700 million from its sister company, stablecoin issuer Tether. That in turn led New York Attorney General Letitia James suing Tether/Bitfinex for concealing that its USDT stablecoin—the world’s most popular—was no longer backed one-to-one by U.S. dollars.
While nobody knows the full details of why Fowler’s plea agreement disintegrated, a mysterious sealed document, which appeared in his court filings on Jan. 30, might contain some clues. Fowler’s trial begins April 28.