News: Bitmarket CEO turns up dead, Bitfinex to NYAG: ‘Yeah but no but,’ more weirdness from Tron

human-figure-outline-imprinted-on-grass-picture-id177395889It’s no fun when the money’s all gone. Two weeks after Polish crypto exchange Bitmarket shut down due to “lack of liquidity,” the lifeless body of its CEO, Tobiasz Niemir, turned up in the woods. It’s not clear if he fell in with shady characters or he put that bullet in his head all by himself.  

Here is an interview with Niemer done shortly before his death.

You remember BTC-e, the crypto exchange that was shut down in mid-2017? The U.S. is now suing the exchange and its operator Alexander Vinnik to recover penalties of $100 million imposed by FinCEN for allegedly violating the Bank Secrecy Act. Vinnik, a Russian national, is facing extradition requests from both the U.S. and Russia. (Here are the court docs.) 

Binance has been shilling its centralized BNB token. The crypto exchange regularly burns (destroys) large numbers of the token to increase the value of whatever is left. The BNB burn is “meaningless nonsense to fool suckers,” writes David Gerard. “Anyone taking Binance posts about BNB seriously as any sort of trading signal is dumb enough to trade literally any shitcoin they see, and probably deserves to.”

The hearing for Reggie Fowler, the AAF investor tied to Bitfinex’s missing $850 million, has been moved to December. (Here are the court docs.) Also, recall that he was released on $5 million bail secured by several pieces of cheap real estate and two financially responsible people. Who were his wealthy friends? A source tells me it was his ex-wife Lori Fowler and Molly Stark, the director of Spiral Volleyball, a company he owned. It pays to stay on good terms with your exes.

Bitfinex and Tether filed court docs arguing once again that they are not doing any business in New York and tether is not a security. (Here is Bitfinex counsel Stuart Hoegner’s affidavit and an accompanying memorandum of law submitted by the company’s outside counsel). It all boils down to “yeah, but, no, but yeah.” We’ll hear from the judge on Monday, July 29 as to what he thinks. 

Big whoops: Swedish crypto exchange Quickbit says it has leaked the data of 300,000 customers. According to the exchange, a third-party contractor left the data unprotected while upgrading on the exchange’s servers. 

Elsewere in cryptoland 

After bidding an astounding $4.5 million in a charity auction for the privilege to have lunch with billionaire Warren Buffet, Tron CEO Justin Sun cancelled last minute, claiming a bad case of kidney stones. But come to find out Sun’s been on the lam from China since November 2018. He is living in San Francisco now, which was where the lunch was supposed to have taken place. 

Sun was, however, feeling well enough to attend the Tron after-party on July 25, even though nothing actually happened before the party, since lunch was cancelled.

According to Chia founder Bram Cohen, Sun also forgot to make a scheduled payment as part of Tron’s mid-2018 acquisition of file sharing service BitTorrent. Someone needs to explain to Bram that kidney stones can take a lot out of a person.

In other news, the IRS is sending out scary letters to bitcoin holders, reminding them that they need to report any gains in crypto trading and pay their taxes. “Taxpayers should take these letters very seriously, IRS Commissioner Chuck Rettig said. 

How did the IRS get all this info? Previously, a court ordered Coinbase to hand over the personal identifying information of customers who had transactions of $20,000 or more on the exchange between 2013 to 2015.

An MIT fellow thinks the structure of Facebook’s Libra was lifted verbatim from a paper that he and two other scholars published last year. What say you, Facebook? Are you stealing people’s ideas? It’s not like you’ve done anything like that in the past.

On the subject of Libra, one of the big selling points of the project was that it had 27 partners backing the project. But the CEO of Visa reminds us, no companies have officially joined yet. They’ve only signed non-binding letters of intent. 

Telegram is under the gun. The popular messaging service has sold $1.7 billion worth of its Gram tokens to investors. Now it needs to build a Gram wallet into Messenger by October or give all the money back — and we’re sure it doesn’t want to do that.  

Finally, Sergey Ivancheglo (aka “Come from Beyond”), the founder of IOTA and one of the project’s core developers, quit the IOTA Foundation. The two remaining directors are non-developers, but we’re sure they’ll handle everything just fine on their own. Nice bunch of people, really. 

 

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News: EY goes after Quadriga’s payment processors, more exchange hacks, and the SEC tells us what we already know

I had to take my website offline for a few hours Tuesday, so if you were searching for one of my stories and got a weird message, my apologies. I asked WordPress to downgrade my site from a business plan to a premium plan, and when they did, a bunch of my content disappeared, so I had to put Humpty-Dumpty back together again.

Big thanks to my now 18 patrons, who are making it easier for me to focus on writing about crypto. If you like my work, please consider supporting me on Patreon, so I can keep doing what I am doing.  

Now onto the news, starting with Quadriga, the defunct Canadian crypto exchange that I won’t shut up about. (Read my timeline to get up to speed.)

Ernst & Young (EY), the court-appointed monitor charged with tracking down Quadriga’s lost funds, released its fourth monitor report, which reveals more money going out then coming in. The closing cash balance for March was CA$23,268,411. Incoming cash for the month was CA$4,232, and total disbursements was CA$1,463,860—most of which was paid to professionals. A full half of that (CA$721,579) went to EY and its legal team.

EY is trying to chase down money held by Quadriga’s payment processors. It has drafted a “Third Party Payment Processor Order” for the court to approve on Monday. If that goes through as is, several payment processors, including WB21, will have five business days to handover funds and/or Quadriga documents and transaction data. If they don’t comply, they will be in contempt of court. A shift from CCAA to bankruptcy proceedings will also give EY more power to go after funds as a trustee

Christine Duhaime, a financial crimes lawyer who worked for Quadriga for six months in 2015 to early 2016, wrote “From Law to Lawlessness: Bits of the Untold QuadrigaCX” for CoinDesk, where she talks about how Quadriga went off the rails following its failed efforts to become a public company.

In the article, Duhaime—who in February called for a government bailout of Quadriga’s creditors (archive)—openly admits to having lost CA$100,000 in funds on the exchange. She claims her involvement with the exchange stopped in early 2016. “I’m glad we were let go by QuadrigaCX for being one of the ‘law and order’ folks,” she said.  

I have been corrected on detail here:

She does not mention this in her article, but in 2015, she also owned 20,000 shares of Quadriga stock. It is possible she has since sold the holdings.

Preston Byrne, an attorney at Byrne & Storm, PC, tweeted, “No offense to @ahcastor but this claim that @cduhaime may have owned shares in Quadriga looks to be incorrect. She’s listed as the principal contact for an SPV, and the SPV is the named purchaser. A retraction is in order.”

SPV stands for special purpose vehicle, typically used by firms to isolate them from financial risk. I’ve reworded the paragraph as follows:

This 2015 British Columbia Report of Exempt Distribution, a document of Quadriga Financial Solutions’ ownership, lists Duhaime as the contact for 1207649 B.C. Ltd, which owns—or owned—20,000 shares of Quadriga. I was unable to find the corporate files for 1207649 B.C. The address in the report matches that of Duhaime’s office.  

Update (April 9): I found the corporate files. The actual company name appears to be 1027649 B.C. Ltd.—with the numbers “2” and “0” transposed. The company was founded on February 16, 2015 and dissolved on August 1, 2017. The sole director is “Anne Ellis,” and the registered office is Duhaime Law.

According to court documents, Cotten and Quadriga co-founder Michael Patryn had been seeking to buy back shareholdings after Quadriga’s public listing failed, so it is possible one of them may have bought back those shares as well. I reached out to Duhaime for comment a few times, but she has not responded. 

Duhaime may have left Quadriga behind, but she continued to have business dealings with Patryn, who we now know is convicted felon Omar Dhanani

She and Patryn co-founded Fintech Ventures Group, which calls itself “an investment bank focused on digital currency, blockchain, and AI-focused technology.” According to a January 2016 archive of the company’s site, Duhaime was Fintech Venture’s “Digital Finance Maven & Co-Founder.” (Interestingly, former Quadriga director Anthony Milewski worked there, too, as the company’s “Investment Relations Extraordinaire.”) 

Duhaime and Patryn were also both advisors at Canadian crypto exchange Taurus Crypto Services, according to this June 2016 archive. (Milewski shows up here again, this time as an advisor.) The exchange was founded in 2014 and shut down in January 2017, when the business shifted to over-the-counter trades.  

Like Duhaime, Patryn also claims his involvement with Quadriga ended in early 2016. Although the Globe and Mail said that in October 2018, “it received an e-mail pitch from an ‘executive concierge’ company called the Windsor Group offering up Mr. Patryn for interviews to discuss virtual currencies and describing him as a Quadriga director.” Patryn told the Globe he did not know what the Windsor Group was, nor had he authorized anyone to pitch him as a Quadriga director, as he never served on the board.

Patryn had a personal website michaelpatryn.com, but it got taken down. Here is a 2011 archive and here is a 2014 archive. From 2016 on, the archives point to his LinkedIn profile, where he now goes by “Michael P.” having dropped all but the first initial of his last name. According to his LinkedIn, he has been an advisor for numerous cryptocurrency platforms going back to November 1999. I guess that means his work at Shadowcrew in 2004 and the 18 months he spent in jail for conspiracy to commit credit and bank card fraud and ID document fraud qualifies as advisory services.

Patryn appears to enjoy the limelight. Several reporters told me they had no trouble reaching him. At one point, Patryn even went into the “Quadriga Uncovered” Telegram group—basically, the lion’s den, where hundreds of pissed off Quadriga creditors sat waiting on their haunches —where I am told he calmly deflected accusations.

Meanwhile, I’ve been practicing my authoritative stare and baritone.

Other exchanges

Elsewhere in cryptoland, there have been a number of exchanges hacks. Singapore-based exchange DragonEx was hacked on March 24 for an undisclosed amount of crypto.

Blockchain data firm Elementus suspects that Coinbene, another Singapore exchange, was also hacked. On March 25, Elementus noted that $105 million worth of crypto was on the move out of the exchange. Coinbene totally denies it’s been hacked, claiming that delays in deposits and withdrawals are due to maintenance issues. 

A third exchange, Bithumb was hacked on March 30. The South Korean crypto exchange lost 3.07 million EOS and 20.2 million XRP, worth around $19 million. Bithumb thinks it was an insider job.

Helsinki-based LocalBitcoins, a once go-to for anonymous bitcoin transactions, has added know-your-customer (KYC) identity checks to comply with new laws in Finland. The change goes into effect in November. Per the company’s announcement, this is actually good news for bitcoin, because it will create a “legal status for crypto assets, which should improve significantly Bitcoin’s standing as a viable and legit financial network.”  

A study by reg-tech startup Coinfirm found that 69 percent of crypto exchanges don’t have “complete and transparent” KYC procedures. And only 26 percent of exchanges had a “high” level of anti-money-laundering procedures.

With crypto markets in the dumps, exchanges are looking for new ways to attract volume. To that end, San Francisco-based Coinbase is launching a staking service to lure in institutional investors. The service, which starts with Tezos (XTZ), will pay investors to park their money in XTZ. The coins are kept in offline cold wallets. The catch is that the interest will be paid XTZ, and of course, crypto is highly volatile. 

The price of XTZ went up 70 percent on the news.

Cryptocurrency exchange Binance is launching a new fiat-to-crypto exchange in Singapore later this month. (It’s been launching these crypto onramps all over the word.)

Binance also says it’s planning to launch its decentralized exchange (DEX) later this month. The DEX is built on a public blockchain, Binance Chain. Basically, Binance is looking to create an economy for binance coin (BNB), which is totally not a security.

Other interesting news bits 

Screen Shot 2019-04-05 at 11.03.29 AMThe the U.S. Securities and Exchange Commission issued a “Framework for ‘Investment Contract’ Analysis of Digital Assets.” There is not a lot new to see here. A footnote in the document makes clear this is “not a rule, regulation, or statement of the Commission,” just some thoughts from the SEC’s staff about how they interpret existing securities laws. 

Stephen Palley, partner at law firm Anderson Kill, appeared on Bloomberg sporting a beard to explain the framework—definitely worth five minutes of your time to listen to.

Justin Sun, the founder of blockchain project Tron, bungled a Tesla promotional giveaway. After a widespread cry of foul play, he decided to make it up to everyone by giving away—two Teslas. This wasn’t the first time a Tron promotion raised eyebrows.

Nocoiner David Gerard wrote a Foreign Policy piece on “How Neo-Nazis Bet Big on Bitcoin (and Lost)” that was translated for Newsweek Japan.

The ever outspoken Jackson Palmer did a good interview with Epicenter Blockchain Podcast on the history of Dogecoin and the state of cryptocurrency in 2019.

Nicholas Weaver, who gave the “Burn it with Fire” talk at Enigma, spoke to Breaker about why cryptocurrencies don’t really work as currencies.

Finally, Dream Market, the last standing marketplace from the once infamous “big four” sites that dominated dark web trading in the mid-2010s, announced plans to shut down.