Bitfinex Drama Deepens As Two Charged With ‘Shadow Banking’

Bitfinex Drama Deepens As Two Charged

Two Charged With Running ‘Shadow Banking’ Service for Crypto Exchanges

U.S. Department Of Justice SealThe U.S. Department of Justice announced Tuesday that it has actually hit 2 people with bank fraud charges in relation to a system for transferring funds to cryptocurrency exchanges.

In a statement, U.S. Attorney’s Office for the Southern District of New York declared that Reginald Fowler of Arizona and Ravid Yosef, stated to reside in Tel Aviv, Israel, were part of a plan that included utilizing bank accounts to move money into a series of unnamed cryptocurrency exchanges.

Court documents released by the Justice Department imply that the supposed money services business operated between February and October 2018. Throughout that period, district attorneys state, the two “opened and used many bank accounts at financial institutions that were guaranteed by the [FDIC],” including one based in Manhattan.

Two of the bank accounts described in the court document are allegedly held under the name Global Trading Solutions LLC, one each from HSBC Bank USA and HSBC Securities USA/Pershing LLC.

That company was formerly identified in October as having actually done business with crypto exchange Bitfinex, which is being examined together with stablecoin provider Tether by the New York Attorney General’s Office in a development that recently spilled into public view. Previous reporting suggests that the corporate entity said to be included is tied to Crypto Capital, a payment processing firm that has actually supplied services to crypto exchange Bitfinex and others.

“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, ” U.S. Attorney Geoffrey Berman said in a statement.

“Their organization allegedly skirted the anti-money laundering safeguards needed of licensed institutions that make sure the U.S. financial system is not utilized for criminal purposes and did so through lies and deceit.”

Fowler was charged with bank fraud, conspiracy to perform bank fraud and a count of running an unlicensed money transmission business (along with a charge of conspiracy to run an unlicensed money transmission business), whereas Yosef, who has actually not been detained at the time of statement, was charged with bank fraud and conspiracy to do so.

According to the press statement, agents from the FBI’s New York Money Laundering Investigations Squad and the U.S. Internal Revenue Service (IRS) took part in the examination.

Crypto Capital

Crypto Capital Connection

While the court files themselves do not directly state it, additional reporting supports that Global Trading Solutions LLC is connected to certified financial organisation Global Trade Solutions AG. Global Trade Solutions is the parent business of Crypto Capital, a payment processor declared in the NY AG’s investigation of Bitfinex and Tether, the business behind the USDT stablecoin. The company is cited as a parent company on Crypto Capital’s website.

In addition to working with Bitfinex, Crypto Capital’s site names among its customers the now-defunct QuadrigaCX and Coinapult, among others. According to the Wayback Machine, past customers include exchanges Kraken, BTCC and Bitt.

In a letter published by reporter Amy Castor, dated December of last year, Global Trade Solutions’s Ivan Molina composed that “Global Trade Solutions AG and associated entities are being denied banking services in the United States, Europe and other international locations, as an outcome of particular AML and monetary criminal offence examinations by the United States Federal Bureau of Investigation and cooperative international police and/or regulative agencies.”

“Authorities examining GTS and associated entities have successfully frozen bank accounts and disabled conventional banking services as it connects to cryptocurrency and exchange services; in numerous instances ex parte without a warrant or court order,” Molina mentioned, a possible reference to the timing in Tuesday’s indictment which suggested that the funds in the HSBC accounts were taken in October.

He (Molina) then outlines account seizures at HSBC in London, as well as comparable actions occurring in the United States, moves that “have actually led to bank accounts being frozen and blocked without warning or explanation, banking services ended, and access to bank accounts denied.”

Molina mentioned two links in his letter, one of which was to a story by the crypto publication ‘The Block’ that reported the use of Global Trading Solutions LLC’s services for depositing funds to Bitfinex.

As reported recently, Bitfinex and Tether are implicated of papering over a supposed $850 million loss using funds initially meant to offer support for Tether’s USDT stablecoin, a move that the AG’s workplace declared wasn’t disclosed to the exchange’s consumers. Yet per the court filings, legal representatives for Bitfinex and Tether told the AG’s office that the funds aren’t really lost, however had actually been taken from Crypto Capital and are being held by authorities in the United States, Poland and Portugal.

To date, neither Bitfinex or Tether have been charged with any crimes, and the 2 sides are set to meet in court in New York on Friday.

This story is actively developing and will be periodically updated with more information.

Featured Image courtesy of Shutterstock

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