In another last-minute twist, Reggie Fowler, the man at the center of hundreds of millions of dollars in missing Bitfinex-Tether money, is going to forgo a trial and enter an open plea to charges next week. His trial was scheduled to begin in May.
Fowler is charged with bank fraud, money laundering, and running an unlicensed money transmitting business. An open plea leaves the defendant’s sentence in the hands of the court, with no agreement from the prosecutor.
Fowler’s lawyer, Edward Sapone, filed a letter with a Manhattan court on April 21, asking Judge Andrew Carter to schedule a Rule 11 change of plea hearing. Fowler, who lives in Arizona, is hoping for a virtual hearing due to COVID, so he won’t have to get on a plane.
The former football player allegedly ran a shadow banking service for Crypto Capital, a payment processor that crypto exchange Bitfinex was using to skirt the traditional banking system. Before his indictment on April 30, 2019, Fowler’s accounts were frozen by the Department of Justice.
This isn’t the first time Fowler has attempted to plead guilty. He came very close to a plea deal on January 17, 2020, but backed out in front of the judge at the very last moment.
Had he accepted that deal, he would have likely spent five years in prison with three years of supervised release and paid a fine of up to $250,000.
But the deal, which required Fowler to forfeit $371 million held in some 50-odd bank accounts, fell apart at the last minute. Nobody was sure of the exact amount in the bank accounts and Fowler would have been on the hook for the difference.
On Feb. 20, 2020, the government followed up with a superseding indictment against Fowler, adding wire fraud to existing charges of bank fraud and illegal money transfer.
According to federal prosecutors, from June 2018 to February 2019, Fowler obtained money through “false and fraudulent pretenses” to fund a professional sports league in connection with his ownership stake in the league.
Sapone has been Fowler’s lawyer since April 2021, when Fowler’s prior defense team withdrew from the case due to nonpayment. Fowler owed them $600,000.
Going to trial is a huge cost, which is why Fowler’s previous legal team stepped down when they did. They did not want to do all that work and risk not getting paid — for any of it.
Sapone is stuck with the case. He cannot step down, as Judge Carter gave him fair warning when he took Fowler on as a client: “You are going into this with your eyes wide open.”
However, I do wonder if part of the reason Fowler is seeking an open plea has something to do with money. You would have to be a fool of a lawyer not to get paid upfront.
I have also heard that Fowler is strongly averse to media coverage, and journalists would have been all over the trial. He wouldn’t have liked that.
If you are just getting up to speed on all of this, the New York Attorney General charged Bitfinex and Tether with fraud in April 2019, claiming that Bitfinex covered up the fact that it had lost access to $850 million put in the trust of Crypto Capital, without so much as even a written contract.
The companies had to pay an $18.5 million fine as a result. They also can no longer operate in the state of New York, and Tether has to release public attestations on a regular basis.
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It looks like Reginald Fowler, the man tied to hundreds of millions of dollars of missing Tether and Bitfinex money, has ditched plans for renegotiating a plea deal. Instead, he is planning to head to trial.
In aletter filed with the New York Southern District Court on July 7 on behalf of both parties, the government stated: “The parties are not currently engaged in plea negotiations and do not anticipate resuming negotiations.”
Prosecutors are requesting a trial date in early February with pretrial motions beginning in October. The trial is expected to last two weeks.
[Update Aug. 4: Fowler’s trial is set for Feb. 14, 2022. Here is the order.]
Fowler was indicted in April 2019, along with Israeli woman Ravid Yosef, who is still at large. The pair allegedly lied to banks, telling them they were in the real estate business so they could illegally open up accounts to store funds for cryptocurrency exchanges on behalf of Crypto Capital, a shadow banking operation.
At the time, Judge Andrew Carter gave Sapone three months to get up to speed on the case and warned: “You are going into this with your eyes wide open.”
Preparing for trial means a lot more work for Sapone, so it is a surprise he wasn’t able to work out something with prosecutors.
Fowler came very close to a plea deal on January 17, 2020.
On that day, the former football player stood before the judge in a Manhattan courtroom ready to plead guilty to count four of his indictment — charges of operating an unlicensed money transmitter business — pursuant to negotiating with the government.
Had he accepted the deal, Fowler would have likely spent five years in prison with three years of supervised release, and paid a fine of up to $250,000.
But the deal, which required Fowler to forfeit $371 million held insome 50-odd bank accounts, fell apart at the last minute. Why? Because nobody was sure of the exact amount in the bank accounts and Fowler would have been on the hook for the difference.
James McGovern, Fowler’s defense attorney at the time, told the judge:
“The issue with respect to the forfeiture that became an issue for us today stems from the fact that none of the parties seem to have an idea of how much money is at play here in the forfeiture order because these accounts that have all been frozen by one entity or another have an amount of money that nobody seems to know how much is in there. So our issue is how much actual exposure under the forfeiture order after the accounts are liquidated is Mr. Fowler looking at. That’s kind of the heart of the issue.”
On Feb. 20, 2020, the government filed a superseding indictment against Fowler, adding wire fraud to existing charges of bank fraud, illegal money transfer, and conspiracy. Wire fraud alone is punishable with up to 20 years in prison, so Fowler, 61, could be looking at spending the rest of his life behind bars.
There was speculation that Fowler’s defense team would try again to work out something with the government. He could still negotiate a deal, but by the tone of the prosecutor’s letter today, it sounds unlikely.
A New York district judge agreed to allow Reginald Fowler’s defense team to withdraw from their client’s case due to nonpayment. He then gave Fowler 45 days to seek a new attorney.
(Update on Feb. 9: The judge has given Fowler three more weeks. Fowler now has until Feb. 25 to retain new counsel, according to the latest court filing.)
Fowler is the former NFL minority owner linked to hundreds of millions of dollars in missing Tether and Bitfinex funds. Tether is the company that has so far issued $20 billion worth of stablecoins, and Bitfinex is a crypto exchange. Both companies are operated by the same individuals.
In a telephone status conference today, Judge Andrew L. Carter agreed to allow Fowler’s defense counsel—Hogan Lovells and Rosenblum Schwartz & Fry—to step down. They claim their client owes them more than $600,000.
However, while the government agreed to letting the lawyers withdraw, it was opposed to an adjournment of the April 28 trial, arguing that the situation was of Fowler’s own making. After all, his lawyers had been warning him since February they were planning to quit. The trial has already been postponed twice.
“We believe the almost four months until trial is sufficient time for a new counsel to prepare for trial,” U.S. Assistant Attorney Jessica Greenwood told the judge.
Judge Carter disagreed. That assumes Fowler’s new attorneys have already been retained and are on the case today, he said, stressing that it may take time for Fowler to find a new lawyer—especially given that his current lawyers are seeking to withdraw because he hasn’t paid them.
“That usually doesn’t make the defendant a very attractive client to a subsequent law firm,” Carter said.
The judge then explained to Fowler—who was on the call, joined by his defense team—that if he was unable to afford a new attorney, the court would provide him one free of charge. However, he would need to fill out a financial affidavit for the court to make that determination.
Although Fowler would not admit to whether he could afford an attorney, he did say he wished to try and hire one who would be more willing to work with him given his “current condition.”
“The government has seized all my assets,” he said, starting to sound a bit angry. “The government has asked me to put the properties that I have that are free and clear up for bail. The government has handcuffed me. They have shut me down. They have locked down my family,” he said—though it’s not clear what he meant in saying his family was “locked down.”
“I can’t even get a bank account. My business has been shut down since COVID, so we don’t have any income. We do have assets. We can’t get to the assets because the government has tied them all up, so what I want to do, respectfully, is to try to find a firm that will work with me, understanding that we have assets that are tied up by the government, i.e., the properties that have me set for bail, or whatever you call it.”
Fowler, now living in Chandler, Arizona, is free on $5 million bail. Five properties were put up for lien in order to secure his bond.
He called it “ludicrous” that the government forced him to put up “nearly $2 million worth of nearly free-and-clear properties” for bond. (A quick look on Zillow puts the properties’ value at around $1.4 million.)
Fowler said if he could not find an attorney to work with him, he would ask the court for assistance.
The judge stressed that Fowler has a right to be represented by an attorney, and gave him until Feb. 2, 2021, to find one on his own. A new trial date will be set after that time, the judge said.
The price of bitcoin is headed back over $19,000 again. What will it take to push it past $20,000—more tethers? More institutional buying? Or maybe, more crypto journalists proclaiming (without evidence) that tethers are fully backed? Here’s the news:
MicroStrategy wants more, more, more
Michael Saylor, the new crazy god of bitcoin institutional buying, continues his bitcoin buying spree. He seems really, really confident the price of BTC will go up.
Saylor’s publicly traded company MicroStrategy currently owns 40,824 bitcoins—because no sense using all that excess cash for buying back a ton of stock or paying a big dividend. Better off to gamble it on crypto.
Now the firm is actually going into debt to buy bitcoin. After completing a $650 million bond offering, MicroStrategy plans to plow all the proceeds into buying more bitcoin. (Microstrategy PR, Cointelegraph)
Citibank isn’t impressed. Analyst Tyler Radke downgraded MicroStrategy (MSTR) from neutral to sell, calling the recent rally—MSTR went up after its first few BTC buying announcements—”overextended” and a possibly “deal-breaker” for software investors. (The Block)
Tether: Ain’t no stopping us now
Tether is now at $20 billion worth of tether—that’s assets, but circulating supply is soon to follow—and there is no evidence whatsoever to conclude that there is $20 billion in real cash behind all those tethers. Why? Because the company has never had a formal audit.
Still, last month, The Block’s Larry Cermak defended tethers as being “either fully backed or very, very close,” telling folks “everything is in order now.” He based that on conversations he claimed to have had with “third-parties” who told him they had successfully redeemed several hundred million in tethers.
Cermak is not the only one to buy the Tether line of B.S.
Unbeknownst to him at the time, in the previous two months, the DOJ froze five NY bank accounts belonging to Reginald Fowler, who ran a shadow banking service for Tether/Bitfinex’s Panamanian payment processor. And in November, the NYAG, having serious concerns about Tether’s finances, issued subpoenas to Bitfinex and Tether asking for details on their banking. Finally, in April 2019, Tether admitted it was only 74% backed. And that’s before it went off and printed another 17.5 billion tethers. So what’s backing all those?
In a recent blog post, David Gerard explains why Tether is “too big to fail.” Essentially, it’s keeping the entire BTC market afloat. If Tether were to get the Liberty Reserve treatment, the price of bitcoin is unlikely to ever recover.
Thus, “the purpose of the crypto industry, and all its little service sub-industries, is to generate a narrative—so as to maintain and enhance the flow of actual dollars from suckers, and keep the party going,” he said.
NYAG: Tether documents forthcoming
Meanwhile, there’s been a new document filing in the NYAG Tether probe.
In a letter to the NY supreme court, NYAG says Bitfinex/Tether are cooperating on document production and the parties expect to finalize things “in the coming weeks.” These documents, of course, consist of everything NYAG asked for in its original November 2018 subpoena—information that will shed light on the Tether and Bitfinex’s shadowy dealings since 2015.
A part of me wants to get excited about this news, but another part says, wait a minute. In the past when Tether’s operators said they were going to hand documents over, they simply handed over material that was already public information. They also have a long history of shenanigans, so let’s just wait and see.
How to turn USDT into cash
Jorge Stolfi, a computer scientist from Brazil, shared on Reddit a “mainstream theory” on what could be happening behind-the-scenes at Tether—specifically, how Tether’s operators could convert USDT into cash for their own personal use. Remember, this is totally unproven. It is just a theory. (The “triad,” by the way, refers to Tether CSO Phil Potter, CEO and man of mystery J.L. van der Velde, and CFO Giancarlo Devasini. They are the same operators behind sister company Bitfinex.)
The owners of Tether Inc (which I will call “the Triad”) print billions of USDT without any backing.
The Triad deposits those USDT into Bitfinex (which they own too).
The Triad uses those USDT to buy BTC and other cryptos from other Bitfinex clients, attracted by the better price.
The Triad withdraws the BTC to their private wallets.
The Triad moves all or some of those BTC to other exchanges that handle real currencies, such as USD, EUR, JPY, etc.
The Triad sells those BTC for real money.
The Triad withdraws the real money into their personal bank accounts.
This is a theory. This is not proven. But the point is, when you have no checks and balances in place along with massive loopholes in oversight, anything can happen. We saw this already with QuadrigaCX—the Canadian crypto exchange that went bankrupt after the founder disappeared (aka “died in India”), taking along with him hundreds of millions of dollars in customer funds.
Coinbase loses half critical security team
After NYT reporter Nathaniel Popper reported about discriminatory complaints at Coinbase, new information came out. Among those who recently resigned to protest the exchange’s new internal policies, were four of the seven people on Coinbase’s critical security team—aka the “key management team.”
The key management team is responsible for securing the cryptographic keys to Coinbase’s cold wallets, where the majority of the company’s crypto is held—somewhere in the neighborhood of $30 billion.
“No job is more fundamental to the company’s success,” Popper said.
Coinbase’s security chief shot back, saying Coinbase’s security team is managed by several teams with redundancy built in. Of course, he wants us to believe everything is fine, but not everyone is convinced.
MassMutual invests in BTC
Bitcoin has a new institutional investor: MassMutual. The Springfield-Mass insurance firm purchased $100 million worth of BTC for its general investment account, which totals $235 billion. (WSJ)
MassMutual purchased the bitcoin through NYDIG, a New York-based fund management company, which has $2.3 billion worth of crypto under management. MassMutual also acquired a $5 million minority equity stake in NYDIG.
The $100 million cash injection into bitcoin sounds like a lot, but it’s small potatoes. That money will cover the network’s operators—the bitcoin miners—for only six days. Remember, bitcoin miners are selling their 900 newly minted bitcoin per day for $17 million, at current BTC prices. Investors will never see that money again. Bitcoin doesn’t make any real profits on its own—just investor money going in one end, out the other.
Last we left off, U.S. District Judge Andrew Carter ordered attorneys at law firm Hogan Lovells—also representing defense lawyer Scott Rosenblum at Rosenblum Schwartz & Fry—to file three versions of a sealed letter dated Nov. 18.
The public version—redacting what should not be revealed to the government or the public—discloses more details on the lawyers’ frustrations with a client who perpetually strings them along.
Hogan Lovells attorneys James McGovern and Michael Hefter initially asked for a $25,000 retainer in late 2018 when they first met with their client. Fowler only ever paid the retainer, and two years later, he now owes them $600,000.
His defense team believed all the stories he told them that he was swimming in money, so they weren’t too concerned—at first.
“From the very inception of this matter, we have been led to believe that Mr. Fowler is a high net worth individual with substantial assets, which would allow him to pay his legal bills with little hardship,” the lawyers said in their letter to the judge.
Hogan Lovells started working with Fowler on October 18, 2018. They had their first meeting with him on Nov. 8, 2018, around the time Fowler was initially contacted by the FBI.
“When we agreed to represent Mr. Fowler, it was our understanding that he had been targeted by cryptocurrency businessmen seeking to take advantage of Mr. Fowler’s personal balance sheet as a means of transacting cryptocurrency transactions without drawing the attention of bank compliance officers or regulators,” they said.
After his release in May on $5 million bail, Fowler hired Scott Rosenblum to join the defense team. Rosenblum asked for a $275,000 retainer and an additional $85,000 per week retainer, if the case went to trial. Rosenblum received a partial retainer of $100,000, which Hogan Lovells notes that Fowler paid “while he had several unpaid, overdue invoices for legal services issued by Hogan Lovells.”
Additionally, Fowler paid another lawyer (unnamed) in Portugal in full for her services. He also paid international law firm Reed Smith LLP for services rendered in 2018.
“The fact that other attorneys had received payments from Mr. Fowler for their services led us reasonably to believe that Mr. Fowler’s representations to us that he would pay our bills was truthful,” the lawyers said.
In the second half of 2019, the lawyers were diligent about contacting Fowler for money. Each time they reached out, he told them payment was imminent and that “transactions or business deals that would fund the payment of our fees were in process”—but he never paid him.
In February, following a plea bargain that went awry and a superseding indictment, the defense team realized the case would likely go to trial, requiring a substantial amount of work, and still no check from their client.
Fowler has ample funds, they said, including “$10 million in real estate that is unencumbered and could have been liquidated or monetized at any point during the past two years.” His refusal to pay, the lawyers added, has “led to a breakdown in the attorney-client relationship.”
The government has till Dec. 8 to respond and replies are due Dec. 11.
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Reginald Fowler’s lawyers confirmed that money is indeed at the center of a conflict between them and their client — and the main reason why they want to withdraw from the case.
The news was revealed Friday in a telephone status call attended by Assistant US Attorneys Jessica Greenwood, Sheb Swett and Sam Rothschild; Fowler’s defense team, James McGovern, Michael Hefter, and Sam Rackear of Hogan Lovells, and Scott Rosenblum of Rosenblum Schwartz & Fry; and Fowler himself.
Fowler, a former NFL investor — who resides in Chandler, Arizona, and is free on bail — is accused of setting up a shadow banking service that has been linked to Crypto Capital, a Panamanian firm at the center of the New York Attorney General’s investigation into crypto firms Bitfinex and Tether.
As I wrote earlier, Fowler’s defense counsel have been careful about disclosing details on why they want to ditch their client, who they have been working with since Fowler was indicted in April 2019.
District Judge Andrew Carter began the call: “Defense, can you give me a little further elucidation regarding the grounds for your seeking to be relieved without getting into any privileged or confidential materials?”
Fowler’s attorney McGovern said the matter involved privileged and confidential information but added: “I think it is fair to say that it is of the nature that the government assumes in their filing, of a fee-based nature.”
Judge Carter cut straight to the heart of the matter: “So it is fair to say, without getting into the details, this is about lawyers not getting paid?”
“Yes,” McGovern answered, but added it was “a little bit more than that.” He then suggested that his team file an ex-parte submission setting out the nature and specifics of the request to withdraw. “That way, we’ll provide the court with a substantial amount of information that will provide color for the entire discussion,” he said.
Fowler is represented by two legal firms. Carter asked if the nature of the conflict was the same for both firms. “Yes,” responded Rosenblum, Fowler’s attorney at the second law firm.
Federal prosecutors have argued that Fowler’s defense can’t simply withdraw from the case without giving some type of explanation.
US Assistant Attorney Greenwood reiterated that argument, telling the judge that “there are significant portions of a fee arrangement that are not potentially privileged.” She suggested Fowler’s attorneys provide details in an ex-parte and then allow the government to access the non-privileged portions “so we can appropriately respond to the motion to withdraw.”
Judge Carter agreed to allow Fowler’s defense team to file a submission under seal. “Once I receive those materials,” he said, “I will make a determination as to whether or not the document will remain under seal or whether or not there are portions that can, in fact, and should, in fact, be redacted and other portions that should be made public.”
The defense counsel said they would submit the document on Nov. 18.
So where is Fowler’s money?
Fowler has been having money problems for a while—problems that extend back to when the US Department of Justice froze his bank accounts in late 2018, leading to the collapse of the Alliance of American Football, a new football league that he cofounded and was a major investor in.
From there, things seem to have gotten worse.
Recall that in January 2020, Fowler rejected a plea deal that would have required him to forfeit $371 million. It was the forfeiture requirements that blew up the deal. Prosecutors hit back with a superseding indictment that added a new count: wire fraud.
On October 15, Law360, reported that Fowler’s legal team might be open to exploring for a second time potential options to resolve the charges, even though the new wire fraud charge complicated things.
And then, on October 23, Fowler’s defense team went to the court seeking to modify conditions of his bond so that he could pay for his defense. (Here is the original May 2019 bond conditions; here is their request for a change.)
Specifically, they wanted to change the bond conditions to enable Fowler to take credit out on properties he had acquired prior to February 2018 “when the alleged conspiracy began” without approval from pretrial services. And to remove the five properties posted as security for the $5 million bond.
Those properties, based on a rough estimate of looking at them on Zillow, are probably only worth around $1.5 million total.
Whatever happened after that — it clearly wasn’t enough to satisfy his attorneys.
Updated Nov. 14 to add the bit about Fowler’s accounts getting frozen in 2018 and the AAF.
Reginald Fowler, the Arizona, businessman allegedly linked to hundreds of million of dollars in missing Crypto Capital funds, is about to lose his defense team. Did he neglect to pay them?
And knowing who their client was, did his lawyers ask for a large enough retainer in the event that something unexpected like, say, a superseding indictment might extend their work?
Crypto Capital is the payment processor that Tether and Bitfinex—and several other cryptocurrency firms—used to shuttle money around the globe as a workaround to the traditional banking system. Fowler allegedly helped out by opening up a network of bank accounts for them.
We can only guess the real reason Fowler’s lawyers are keen to drop their client at the moment, but court docs may offer clues. Here is the backstory:
Earlier this week, Fowler’s attorneys—James McGovern and Michael Hefter of Hogan Lovells US LLP—asked a New York judge for permission to withdraw from the case. (Here is their motion to withdraw filed on Nov. 9.)
(Fowler is also represented by Scott Rosenblum of Rosenblum Schwartz & Fry PC, though Rosenblum’s name is not on the motion.)
The lawyers claim they initially told Fowler their reasons for wanting to quit on February 26—coincidentally, just five days after the government added a fifth charge against Fowler in its superseding indictment and a month after Fowler forfeited on a reasonable sounding plea bargain.
In the months follower, the legal team informed Fowler both “orally and in writing on multiple occasions” of their grounds for wanting to withdraw. Now, after much back and forth, they have had enough: they are asking the court for permission to drop him.
McGovern and Hefter don’t offer a specific reason for wanting to quit in their motion, citing attorney-client privileged. But they argue the case has had “limited pertinent discovery,” Fowler has had ample time to find new counsel, and essentially, the case should go on just fine without them.
Federal prosecutors are not convinced. In a letter addressed to Andrew Carter, the Southern District of New York judge overseeing the case, they argue the defense counsel has’t presented enough facts for the court to decide on the motion. (Here is their response filed on Nov. 12.)
Specifically, they dispute the “limited pertinent discovery” claim, saying the government has so far produced over 370,000 pages of discovery, much of which they have already discussed in detail with the defense counsel.
Further, they argue that if this is about a “fee dispute,” the court needs to weigh other factors, such as “nonprivileged facts” about the fee arrangement, including whether a “more careful or prudent approach to the retainer agreement might have avoided the current problem”—i.e., McGovern and Hefter should have insisted on more money up front.
Finally, they claim that if Fowler’s lawyers’ leaving further delays the trial, the court should not allow it. After two postponements, the trial is currently scheduled for April 12, 2021. (It was originally slated to begin on April 28, 2020, and then got moved to January 11, 2021, before the current trial date.)
“Now, approximately five months before the current trial date, defense counsel seeks to withdraw from this matter based on facts they claim were discussed with the defendant as early as February 26, 2020—nearly nine months ago and before both prior adjournments in this case,” federal prosecutors said. “The current motions should be denied if allowing counsel to withdraw at this late stage would further delay trial.”
A superseding indictment filed with the SDNY court Thursday includes a new charge of wire fraud for ex-Minnesota Viking co-owner Reginald Fowler.
Fowler, who is living in Chandler, Ariz., while free on $5 million in bail, currently faces four other charges related to bank fraud and operating an illegal money transmitting business, so this makes for count number five.
According to federal prosecutors, from June 2018 to February 2019, Fowler obtained money through “false and fraudulent pretenses” to fund a professional sports league in connection with his ownership stake in the league.
What sports league would that be? The indictment does not tell us. But Fowler invested $25 million in the Alliance of American Football — an attempt to form a new football league — right before its inaugural season and shortly before his arrest on April 30, 2019.
The league ran into problems after withdrawals from Fowler’s domestic and foreign accounts were “held up around Christmas,” freezing a principal source of the league’s funding.
Due to money problems, the AAF collapsed on April 2, 2019, and filed for Chapter 7 bankruptcy two weeks later. The league claimed assets of $11.3 million and liabilities of $48.3 million and held just $536,160.68 in cash.
Reginald Fowler, the ex-NFL owner arrested in connection with operating a “shadow bank” that processed hundreds of millions of dollars of unregulated transactions on behalf of crypto exchanges, is out on $5 million bail.
The U.S. Government previously argued that Fowler should be detained without bail. The government thought he was too much of a flight risk due to his overseas connections and access to bank accounts around the world. But for the time being, at least, Fowler is a free man, albeit, with restrictions.
Order and letter
The order setting conditions of release was filed with the District Court for the District of Arizona on May 9. A letter of motion, submitted by U.S. Attorney Geoffrey Berman and addressed to Judge Andrew Carter of the District Court of Southern New York, was entered on May 8.
Copies of the letter went to defense attorneys James McGovern and Michael Hefter, partners at Hogan Lovells in New York. Fowler’s arraignment is set for 4:30 p.m. on May 15 at the Southern District Court of New York.
Fowler was arrested in Arizona on April 30. The bond is being posted in New York, because the District of Arizona does not include secured bonds in bail packages.
According to conditions set forth in the bond, Fowler cannot travel outside of the Southern District of New York, the Eastern District of New York, and Arizona. He also had to surrender his travel documents and his passport.
The properties and the wealthy friends
Fowler’s $5 million personal recognizance bond is secured by two unnamed “financially responsible” co-signers and the following properties:
3965 Bayamon Street, Las Vegas, Nevada
8337 Brittany Harbor Drive, Las Vegas, Nevada
4670 Slippery Rock Drive, Fort Worth, Texas
4417 Chaparral Creek Drive, Fort Worth, Texas
8821 Friendswood Drive, Fort Worth, Texas
A quick look on Zillow indicates the properties are cheap investment houses, worth perhaps $1.5 million in total, if that. This would mean that the additional $3.5 million is secured by Fowler’s wealthy friends, whoever they are.
The LLC on the five properties is Eligibility LLC, 4939 Ray Road, #4-349 Chandler, Arizona 85226. The mailing address points to a UPS store, so it is basically a P.O. Box.
Global Trading Solutions LLC, a company linked to Fowler’s shadow banking operation, had the same mailing address for a time, but the address was later changed.
On April 11, Fowler and Ravid Yosef, an Israeli woman who lived in Los Angeles and is still at large, were indicted on charges of bank fraud. Fowler was also charged with operating an unlicensed money services business.
Fowler’s company—or one of his companies—was Global Trading Solutions LLC, which provided services for Global Trade Solutions AG, the Switzerland-based parent company of Crypto Capital Corp.
Cryptocurrency exchanges used Crypto Capital as an intermediary to wire cash to their customers. The firm is allegedly withholding $851 million on behalf of Bitfinex, a crypto exchange that is currently being sued by the New York Attorney General.
# # #
Thanks to Nic Weaver for locating the court documents. He spends his beer money on PACER, so you don’t have to.
There is so much going on now with Bitfinex. My eyes are burning and my head hurts from reading piles of court docs. Here is a rundown of all the latest—and then some.
The New York Attorney General (NYAG) is suing Bitfinex and Tether, saying tethers (USDT) are not fully backed—after $850 million funneled through third-party payment processor Crypto Capital has gone missing.
It’s still not clear where all that money went. Bitfinex says the funds were “seized and safeguarded” by government authorities in Portugal, Poland and the U.S. The NYAG says the money was lost. It wants Bitfinex to stop dipping into Tether’s reserves and to handover a mountain of documents.
In response to the NYAG’s ex parte order, Tether general counsel Stuart Hoegner filed an affidavitaccompanied by a motion to vacate from outside counsel Zoe Phillips of Morgan Lewis. Hoegner admits $2.8 billion worth of tethers are only 74% backed, but claims “Tether is not at risk.” Morgan says New York has no jurisdiction over Tether or Bitfinex. Meanwhile, the NYAG has filed an opposition. It wants Bitfinex to stop messing around.
Bitfinex: No one is willing to audit us because they don't want to damage their reputation by auditing us! Asymmetric risk!
New York Attorney General: We'll audit you! For free! Bitfinex: NOT LIKE THIS! New York Attorney General: Send documents. Bitfinex: NO GOD PLEASE NO!
Football businessman Reggie Fowler and “co-conspirator” Ravid Yosef were charged with running a “shadow banking” service for crypto exchanges. This all loops back to Crypto Capital, which Bitfinex and Tether were using to solve their banking woes.
In an odd twist, the cryptocurrency saga is crossing over into the sports world. Fowler was the original main investor in the Alliance of American Football (AAF), an attempt to create a new football league. The league filed for bankruptcy last month—after Fowler was unable to deliver, because the DoJ had frozen his bank accounts last fall.
The US government thinks Fowler is a flight risk and wants him held without bail. The FBI has also found a “Master US Workbook,” detailing the operations of a massive “cryptocurrency scheme.” They found it with email subpoenas, which sounds like it was being kept on a Google Drive?
Yosef is still at large. She appears to have split her time between Tel Aviv and Los Angeles. This is her LinkedIn profile. She works as a relationship coach and looks to be the sister of Crypto Capital’s Oz Yosef (aka “Ozzie Joseph”), who was likely the “Oz” chatting with “Merlin” documented in NYAG’s suit against Bitfinex.
All eyes are on Tether right now. Bloomberg reveals the Commodity and Futures Trading Commission (CFTC) has been investigating whether Tether actually had a stockpile of cash to support the currency. The DoJ is also looking into issues raised by the NYAG.
Meanwhile, bitcoin is selling for a $300 to $400 premium on Bitfinex — a sign that traders are willing to pay more for bitcoin, so they can dump their tethers and get their funds off the exchange. This isn’t the first time we’ve seen this sort of thing. Bitcoin sold at a premium on Mt. Gox and QuadrigaCX before those exchanges collapsed.
Bitfinex is still in the ring, but it needs cash. The exchange is now trying to cover its Tether shortfalls by raising money via—of all things—a token sale. It plans to raise $1 billion in an initial exchange offering (IEO) by selling its LEO token. CoinDesk wrote a story on it, and even linked to my Tether timeline.
It's funny because LEO also means law enforcement organization
Tether wants to move tethers from Omni to the Tron blockchain. Tron planned to offer a 20% incentive to Omni USDT holders to convert to Tron USDT on Huobi and OkEx exchanges. But given the “recent news” about Bitfinex and Tether, it is delaying the rewards program.
Coinbase is bidding adieu to yet another executive. Earn.com founder Balaji Srinivasan, who served as the exchange’s CTO for a year, is leaving. It looks like his departure comes after he served the minimum agreed period with Coinbase.
Elsewhere, BreakerMag is shutting down. The crypto publication had a lot of good stories in its short life, including this unforgettable one by Laurie Penny, who survived a bitcoin cruise to tell about it. David Gerard wrote an obituary for the magazine.
The Los Angeles Ballet is suing MovieCoin, accusing the film finance startup of trying to pay a $200,000 pledge in worthless tokens—you can’t run a ballet on shit coins.
Police in Germany and Finland have shut down two dark markets, Wall Street Market and Valhalla. And a mystery Git ransomware is wiping Git repository commits and replacing them with a ransom note demanding Bitcoin, as this Redditor details.
The U.S. government wants a football businessman linked to an investigation into $850 million of missing Tether and Bitfinex funds to be held without bail.
According to a memorandum in support of detention filed with the District Court of Arizona on May 1, Reginald Fowler poses a serious flight risk due to his overseas connections and access to hundreds of millions of dollars.
The court doc also presents startling new twists in an already tangled plot—a “Master US Workbook,” which details the financial operations of the “cryptocurrency scheme,” fake bond certificates worth billions of dollars, and a counterfeit money operation.
Fowler, 60, is a former minority owner of the Minnesota Vikings and the original main investor in the Alliance of American Football —an attempt to form a new football league. The AAF collapsed when Fowler withdrew funding—after the Department of Justice froze his bank accounts in late 2018.
I did a search on Pacer and got a number of hits showing Fowler has been in and out of courts for years. In fact, in 2005, ESPN reported that he had been sued 36 times.
Most recently, Fowler was charged with bank fraud and operating an unlicensed money services business. These crimes relate to his alleged involvement in a “shadow bank” on behalf of cryptocurrency exchanges, in which hundreds of millions of dollars passed through accounts that he controlled in jurisdictions around the world.
Fowler operated Global Trading Solutions LLC in the US, which provided services for Global Trade Solutions AG, the Zug, Switzerland-based parent company of Crypto Capital Corp, a third-party payment processor. At one time or another, Crypto Capital serviced QuadrigaCX, Bitfinex, Kraken, Binance, and BitMEX—some of the top crypto exchanges.
In October and November 2018, five U.S. bank accounts were frozen—three of them were Fowler’s personal accounts and two were held under Global Trading Solutions. On April 11, Fowler was indicted in the Southern District of New York. And on April 30, he was arrested in Chandler, Arizona, where he lives.
Fowler is looking at spending the rest of his life in prison—the bank fraud counts alone carry a maximum sentence of 30 years.
The cryptocurrency scheme was not limited to the U.S. Fowler set up bank accounts around the world and coordinated the scheme with co-conspirators in Israel, Switzerland, and Canada, according to court documents. The scheme involves a “staggering amount of money,” and the government believes that Fowler still has access to overseas bank accounts.
Master US Workbook
Even more revealing, via email search warrants, federal prosecutors have obtained a document entitled “Master US Workbook,” which details the operations of the scheme. The workbook lists 60 bank accounts. It shows the scheme received over $740 million in 2018 alone. As of January 2019, the combined bank balance was $345 million. Approximately $50 million is held in U.S. accounts. The rest is located overseas.
Apparently, Fowler had “shown a willingness to help himself to these funds in the past.” In mid-2018, he sent $60 million from scheme accounts to his personal bank accounts, feds said. Scheme members set up a “10% fund” from client deposits, available for his personal use. The government does not know the location of those accounts.
After Fowler’s bank accounts were seized in October 2018, he agreed to cooperate with FBI agents and keep the investigation confidential, which he did not do. When agents sent him emails, he would share those with other scheme members.
Other illegal activity
Fowler appears to have been involved with other illegal activities, such as wire fraud related to the 10% fund. He also tried to take out loans by presenting banks with fraudulent bond certificates worth billions of dollars.
FBI agents also found evidence that Fowler was involved in a counterfeit money operation. They found $14,000 in fake bills consisting of sheets of $100 bills in a filing cabinet in his Chandler, Arizona office.
After examining the sheets, a special agent for the U.S. Secret Service “determined that they were undergoing a process common in counterfeiting schemes to turn paper bills into passable currency. In fact, the FBI also recovered black carbon paper from the office, which is often used as part of this process for making believable counterfeit bills.”
I originally wrote this article in January 2019. It is based off an earlier story that I wrote for Bitcoin Magazine in February 2018.
This timeline only goes up until May 2021; however, it documents all of the early shenanigans of Bitfinex and Tether.
Stablecoins—virtual currencies pegged to another asset, usually, the U.S. dollar—bring liquidity to crypto exchanges, especially those that lack ties to traditional banking. Putting it simply, if you are a crypto exchange and you don’t have access to real dollars, stablecoins are the next best thing.
Today, there are several stablecoins to choose from. But by far the most popular and widely traded is tether (USDT), issued by a company of the same name. Of the three or four main stablecoin models, Tether follows the I.O.U. model, where virtual coins are supposed to represent actual money and be redeemable at any time. It all sounds well and good, but for one thing: There is no evidence to suggest Tether is fully backed.
Currently, there are 1.9 billion tethers in circulation. (At its peak in May 2022, there were more than 83 billion tethers in circulation, according to Tether’s Transparency page.) That means, there should be a corresponding $1.9 billion tucked away in one or more bank accounts somewhere. Bitfinex, the crypto exchange closely linked to Tether, claims the money exists, but has yet to provide an official audit to support those claims. (We have seen snapshots of bank account balances at certain points in time, but these are not full audits.)
More troubling, the issuance of tethers correlates with the rapid run up in price of bitcoin from April to December 2017 when bitcoin peaked at nearly $20,000. If authorities were to step in and freeze the bank accounts underlying tether, it is hard to guess what impact that could have on crypto markets at large.
A timeline of events reveals a full picture of the controversy surrounding Tether and Bitfinex.
(An earlier version of this timeline originally appeared in Bitcoin Magazine in February 2018. What follows is a more detailed and up-to-date version.)
2012 — iFinex Inc., the company that is to become the parent company of Bitfinex and Tether, is founded in Hong Kong. (Like its parent company DigFinex, iFinex is registered in the British Virgin Islands. An org chart from NY AG court filings is here.)
2013 — Bitfinex incorporates in Hong Kong. The cryptocurrency exchange is run by the triad: Chief Strategy Officer Phil Potter, CEO Jan Ludovicus van der Velde and CFO Giancarlo Devasini.
July 9, 2014— Brock Pierce, Bitcoin Foundation director and former Disney child actor, launches Realcoin, a dollar-backed stablecoin. Realcoin is built on a Bitcoin second-layer protocol called Mastercoin, now Omni. Pierce was one of the founding members of the Mastercoin Foundation before resigning in July 2014. He founded Realcoin along with Mastercoin CTO Craig Sellars and ad-industry entrepreneur Reeve Collins. (Wall Street Journal)
November 20, 2014 — Realcoin rebrands as “Tether” and officially launches in private beta. The company hides its full relationship with Bitfinex. A press release lists Bitfinex as a “partner.” In explaining the name change, project co-founder Reeve Collins tells CoinDesk the firm wanted to avoid association with altcoins.
May 18, 2015 — Tether issues 200,000 tethers, bringing the total supply to 450,000.
May 22, 2015— Bitfinex is hit with its first hack. The exchange claims it lost 1,500 bitcoin (worth $400,000 at the time) when its hot wallets were breached. The amount represents 0.05 percent of the company’s total holdings. Bitfinex says it will absorb the losses.
December 1, 2015 — Tether issues 500,000 USDT, bringing the total supply to 950,000. (The price of bitcoin has remained stable throughout most of 2015, but climbs from $250 in October to about $460 in December.)
August 2, 2016 —Bitfinex claims it has been hacked again when 119,756 BTC, worth $72 million at the time, vanish. This is one of the largest hacks in bitcoin’s history, second only to Mt. Gox, a Tokyo exchange that lost 650,000 BTC in 2014. Bitfinex never reveals the full details of the breach. (Chapter 8 of David Gerard’s book “Attack of the 50-Foot Blockchain” offers an in-depth explanation of the hack.)
August 6, 2016— Bitfinex is unable to absorb the losses of the hack. The exchange announces a 36% haircut across the board for its customers. It even takes funds from those who were not holding any bitcoin at the time of the hack. In return, customers receive an I.O.U. in the form of BFX tokens, valued at $1 each.
One large U.S. customer reportedly didn’t get the full haircut. “Coinbase, got a better deal after threatening to sue, multiple sources told me,” said NYT’s Nathaniel Popper.
August 10, 2016 — After having been shut down for a week after the heist, Bitfinex resumes trading and withdrawals on its platform. Meanwhile, Zane Tacket, the exchange’s community director, announces on Reddit (archive) that Bitfinex is offering a bounty of 5% (worth up to $3.6 million) for any information leading to the recovery of the stolen funds.
August 17, 2016— Bitfinex announces it is engaging Ledger Labs, a blockchain forensic firm founded by Ethereum creator Vitalik Buterin, to investigate its recent breach. Bitfinex hires Ledger to do a computer security audit, but leads customers into believing that Ledger is also going to perform a financial audit. A financial audit is key to knowing whether Bitfinex was even solvent at the time of the hack.
“We are also in the process of engaging Ledger Labs to perform an audit of our complete balance sheet for both cryptocurrency and fiat assets and liabilities,” Bitfinex says in a blog post (archive).
A footnote added to the blog post on April 5, 2017, makes a correction: “Ledger Labs has not been engaged to perform a financial audit of Bitfinex. When in initial discussions with Ledger Labs in August 2016, we had initially understood that they could offer this service to us.” The exchange goes on to say that it is in the process of engaging a third-party accounting firm to audit its balance sheet.
This audit, as we are to learn, never happens.
October 12, 2016 — Bitfinex tries to reach out to the hacker. In a blog post (archive), titled “Message to the individual responsible for the Bitfinex security incident of August 2, 2016,” the firm writes: “We would like to have the opportunity to securely communicate with you. It might be possible to reach a mutually agreeable arrangement in exchange for an enormous bug bounty.”
October 13, 2016 — Bitfinex announces (archive) that its largest BFX token holders have agreed to exchange over 20 million BFX tokens for equity shares of iFinex, the exchange’s parent company. Many Bitfinex customers accept the offer, having already watched BFX tokens drop far below $1. One Redditor even reported the price dropping to $0.30.
As a way to incentivize BFX holders to convert, Bitfinex creates yet another new token: a tradable Recovery Rights Token (RRT). According to the exchange, if any of the stolen bitcoins are recovered, any excess of funds after all BFX tokens have been redeemed will be distributed to RRT token holders.
If you convert your BFX to iFinex shares before October 7, you get one RRT for each BFX token converted. If you convert between Oct. 8 and Nov. 1, you get half an RRT for each BFX token converted. After that, you get 1/4 of an RRT per BFX token converted. No further RTTs are given after November 30.
December 31, 2016 — In 2016, Tether issued 6 million USDT, six times what it issued the prior year.
March 31, 2017— Correspondent bank Wells Fargo cuts off services to Bitfinex and Tether, according to court documents in a lawsuit that Bitfinex later files. Bitfinex is not a direct customer of Wells Fargo, but rather a customer of four Taiwan-based banks that use Wells Fargo as an intermediate to facilitate wire transfers.
April 3, 2017 — In a blog post(archive), Bitfinex announces plans to redeem any outstanding BFX tokens. “After these redemptions, no BFX tokens will remain outstanding; they will all be destroyed.”
Meanwhile, Potter reveals in an audio that all of the remaining BFX tokens have been converted to tethers. In a nutshell, this means that none of the victims of the August 2016 Bitfinex hack got back any of their original funds—they were all compensated with BFX tokens, RRT tokens and USDT.
April 5, 2017 — Two days after announcing that it had “paid off” all its debt to customers, Bitfinex, via law firm Steptoe & Johnson, files a lawsuit against Wells Fargo for interrupting its wire transfers. Tether Limited is listed as a plaintiff. In addition to an injunction order, Bitfinex seeks more than $75,000 in damages. (See here for a complete list of documents associated with the lawsuit.)
April 10, 2017— A pseudonymous character known as “Bitfinex’ed” debuts online. In a relentless series of tweets, he accuses Bitfinex of minting tethers out of thin air to pay off debts. At this point, the number of USDT in circulation is 55 million, and BTC’s price has begun a steep ascent that will continue to the end of the year.
April 11, 2017 — Bitfinex withdraws its lawsuit against Wells Fargo. In an audio, Potter admits the lawsuit was frivolous, stating the company was only hoping to “buy time.”
April 17, 2017 — Following a notice about wire delays, Bitfinex announces (archive) it has been shut off by its four main Taiwanese banks: Hwatai Commercial Bank, KGI Bank, First Commercial Bank, and Taishin Bank. Bitfinex is now left to shuffle money between a series of banks in other countries without telling its customers where it is keeping its reserves.
In an audio, Bitfinex CSO Phil Potter tries to calm customers by telling them that Bitfinex effectively deals with this sort of thing by setting up shell accounts and tricking banks.
“We’ve had banking hiccups in the past, we’ve just always been able to route around it or deal with it, open up new accounts, or what have you…shift to a new corporate entity, lots of cat and mouse tricks.”
Around this time, Bitfinex begins to rely increasingly upon Crypto Capital Corp, a Panamanian shadow bank, to shuffle funds around the globe—but it does not make this clear to customers. Also, Bitfinex never engages in a formal contract with Crypto Capital, according to later court documents.
April 24, 2017 — Amidst reports that Bitfinex has lost its banking, USDT temporarily dips to $0.91.
May 5, 2017— After finally clarifying (archive) to customers that it only engaged Ledger Labs for a security audit—not a financial audit—Bitfinex hires accounting firm Friedman LLP to complete a comprehensive balance sheet audit. “A third-party audit is important to all Bitfinex stakeholders, and we’re thrilled that Friedman will be helping us achieve this goal,” Bitfinex writes in a blog post (archive).
June 21, 2017 —The Omni foundation and Charlie Lee announce that tether will soon be issued on the Omni layer of Litecoin, but apparently it never panned out, according to Lee. (Omni Blog, archive)
August 5, 2017 — Bitfinex’ed publishes his first blog post titled: “Meet ‘Spoofy.’ How a Single Entity Dominates the Price of Bitcoin.” The post explains how an illegal form of market manipulation known as spoofing works. The post includes a video showing a Bitfinex trader putting up a large order of BTC just long enough to push up the price of bitcoin, before canceling the order.
(This is not the first time a crypto exchange has manipulated the price of bitcoin. Mt. Gox, a Tokyo exchange that handled 70% of all global bitcoin transactions before its 2014 collapse, also manipulated its markets. Former Mt. Gox CEO Mark Karpeles admitted in court to operating a “Willy Bot.” An academic paper titled “The Willy Report” shows how the bots were responsible for much of bitcoin’s 2013 price rise.)
September 11, 2017 — Tether announces they will begin making ERC-20 tokens for US dollars and euros on the Ethereum blockchain. (Ethfinex blog,archive)
September 15, 2017 —In the summer of 2017, rumors were afoot that tethers were not fully backed. To quash those rumors, Tether and Bitfinex arrange for accounting firm Friedman LLP to perform an attestation on September 15, 2017.
In the morning, Tether opens an account at Noble Bank. And Bitfinex transfers $382 million from Bitfinex’s account at Noble Bank into Tether’s account at Noble Bank. Friedman conducts its verification of Tether’s assets that evening.
“No one reviewing Tether’s representations would have reasonably understood that the $382,064,782 listed as cash reserves for tethers had only been placed in Tether’s account as of the very morning that Friedman verified the bank balance,” the NY attorney general wrote in its later findings.
The attestation included $61 million held at the Bank of Montreal in an a trust account controlled by Tether and Bitfinex’s general counsel Stuart Hoegner.
September 28, 2017 — Friedman LLP issues a report alleging that Tether’s U.S. dollar balances ($443 million) match the amount of tethers in circulation at the time. Falling far short of a full audit, the report does not disclose the names or locations of banks.
According to the report: “FLLP did not evaluate the terms of the above bank accounts and makes no representations about the Client’s ability to access funds from the accounts or whether the funds are committed for purposes other than Tether token redemptions.”
August 7, 2017 — In a blog post (archive), Bitfinex announces that over the next 90 days, it will gradually discontinue services to its U.S. customers. Effective almost immediately, U.S. citizens are no longer able to trade Ethereum-based ERC20 tokens, commonly associated with initial coin offerings.
The news follows regulatory crackdowns in the U.S. (The previous month, the U.S. Securities and Exchange Commission issued an investigative report that deemed that tokens issued by the DAO—an investor-directed fund built on top of Ethereum that crashed spectacularly in June 2016—were securities.)
November 7, 2017—Leaked documents dubbed “The Paradise Papers” reveal Bitfinex and Tether are run by the same individuals. Up until now, Tether and Bitfinex insisted the two operations were separate, though they were widely suspected to be the same.
November 19, 2017—Tether is hacked when 31 million USDT are moved from the Tether treasury wallet into an unauthorized Bitcoin address. Tether initiates a hard fork to prevent those funds from being spent.
After this hack, Tether notes on its website (archive) that redemption of USDT for real dollars is no longer possible via the Tether website. (It is worth noting that there is no public record of anyone having redeemed their USDT for dollars at any point before this either.)
“Until we are able to migrate to the new platform, the purchase or sale of Tether will not be possible directly through tether.to. For the time being, though, we invite you to use the services of any one of a dozen global exchanges to acquire or dispose of Tethers for either USD or other cryptocurrencies. Such exchanges and other qualified corporate customers can contact Tether directly to arrange for creation and redemption. Sadly, however, we cannot create or redeem tether for any U.S.-based customers at this time.”
From now until December 2018, tether purchases and redemptions can be made only from Bitfinex. (After December 2018, they switch back to tether.io.)
November 30, 2017 — Bitfinex hires 5W, a scrappy New-York public relations firm led by Ronn Torossian. 5W promptly issues a press release stating that an “audit” from Friedman LLP is forthcoming. The agency also tells journalists they can view Bitfinex’s bank accounts if they sign a non-disclosure agreement first. No journalist takes the bait. “We plan to release regular financial statements and are working with journalists who can review our finances as wel[l],” Torossian says in a tweet.
December 4, 2017— Bitfinex threatens legal action against its critics, according to Bitcoin Magazine. The exchange does not specify who those critics are but the obvious target is Bitfinex’ed, the cynical blogger who continues to accuse Bitfinex of manipulating markets and printing more tether than it can redeem. Bitfinex never actually sues Bitfinex’ed, though Bitfinex’ed collects donations and hires a lawyer just in case.
December 6, 2017— The CFTC subpoenas Bitfinex and Tether, Bloomberg reports. The actual documents are not made public.
December 16, 2017 — The price of bitcoin reaches an all-time high of nearly $20,000, marking the end of a spectacular run-up and bitcoin’s biggest bubble to date. A year before, BTC was only $780.
December 21, 2017 — Without any formal announcement, Bitfinex appears to suddenly close all new account registrations. Those trying to register for a new account are asked for a mysterious referral code but no referral code seems to exist.
December 31, 2017 — Tether has issued roughly $1.4 billion USDT to date.
January 3, 2018— A change to Tether’s legal terms of service (archive) states: “Beginning on January 1, 2018, Tether Tokens will no longer be issued to U.S. Persons.”
January 12, 2018 — After a month of being closed to new registrations, Bitfinex announces it is reopening its doors, but now requires new customers to deposit $10,000 in fiat or crypto before they can trade. Bitfinex does not officially say this, but customers also can no longer make fiat withdrawals of less than $10,000 either.
January 27, 2018 — Tether parts ways with accounting firm Friedman LLP. There is no official announcement; Friedman simply deletes all mention of Bitfinex from its website, including past press releases.
A Tether spokesperson tells CoinDesk: “Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame.”
January 31, 2018 — The 2017 bitcoin bubble has burst. As the price of BTC plummets, tether issuance takes on a rapid, frenzied pace. In January, Tether issues 850 million USDT, more than any single month prior. Of this, roughly 250 million were created during a mid-month bitcoin price crash.
February 2018 — an ex-NFL owner named Reginald Fowler registers a company called Global Trading Solutions LLC. He goes on to set up bank accounts under the company’s name at HSBC.
February 20, 2018 — Bitfinex posts a fiat transactions delays notice, specifically noting delays between Jan. 10 through Feb 5.
February 20, 2018 — Dutch bank ING confirms Bitfinex has an account there. Two members of parliament in the Netherlands lodge questions for the finance minister after Dutch news site Follow The Money first disclosed the relationship on Feb. 14.
March 28, 2018 — Bitfinex weighs a move to Switzerland. Bitfinex CEO J.L. van der Velde tells Swiss news outlet Handelszeitung: “We are looking for a new home for Bitfinex and the parent company iFinex, where we want to merge the operations previously spread over several locations.” They end up moving their servers to Switzerland.
May 23, 2018 — Phil Potter steps down from his role as Bitfinex chief strategy officer. “As Bitfinex pivots away from the U.S., I felt that, as a U.S. person, it was time for me to rethink my position as a member of the executive team,” he says in a statement.
May 24, 2018 — Bloomberg confirms previous speculations that Bitfinex has been banking at Puerto Rico’s Noble Bank since 2017. Real Coin/Tether creator Brock Pierce is a cofounder of Noble Bank, along with John Betts, a former Wall Street executive.
These individuals had past dealings. In 2014, Betts led a group called Sunlot Holdings to try and acquire the failed Mt. Gox exchange. Pierce, along with former FBI director Louis Freeh were also involved in that effort. (Freeh has his own Twitter whistleblower, by the way.)
May 24, 2018 — The U.S. Justice Department launches a criminal probe into bitcoin markets. The focus is on illegal practices like spoofing, the process of putting up a large sell or buy and then cancelling, and wash trading, where a trader simultaneously buys and sells assets to increase trading volume. The criminal probe will bring in other agencies, including the CFTC.
June 1, 2018 — Looking to reassure its customers, Bitfinex hires Freeh Sporkin & Sullivan, a law firm co-founded by Freeh (the same Freeh who held an advisory role at Sunlot Holdings) to confirm that Tether has $2.55 billion in its banks, enough to cover the USDT in circulation at the time.
FSS is not an accounting firm. Further, there appears to be a conflict of interest. FSS Senior Partner Eugene Sullivan is also an advisor to Noble Bank, where Bitfinex and Tether hold accounts.
“The bottom line is an audit cannot be obtained,” Stuart Hoegner, Bitfinex and Tether’s general counsel, tells Bloomberg. “The big four firms are anathema to that level of risk…. We’ve gone for what we think is the next best thing.”
June 25, 2018 — Bolstering suspicions that tether is being used to prop up the price of bitcoin, researchers John Griffin and Amin Shams at the University of Austin, Texas, release a paper titled “Is Bitcoin Really Un-Tethered?” The two write:
“Using algorithms to analyze the blockchain data, we find that purchases with tether are timed following market downturns and result in sizable increases in bitcoin prices.”
June 27, 2018 — Several Bitfinex customers report delayed and rejected wire deposits. A representative of Bitfinex named “Garbis” takes to Reddit (archive) to explain that the situation was caused by a change in banking relations.
October 6, 2018 — According to a report in The Block, Bitfinex appears to be banking at HSBC—a bank previously fined $1.9 billion in 2012 for money laundering—under the shell account “Global Trading Solutions.” (We find out later that the shell was registered by Arizona businessman Reginald Fowler.)
October 10, 2018 — Four days after reports comes out that Bitfinex is banking at HSBC, Bitfinex temporarily suspends all cash deposits, suggesting that the exchange is once again on the hunt for a new reserve bank. (As it turns out, the DoJ froze these accounts, so the money became inaccessible.)
October 14, 2018 — Amid concerns over Tether’s solvency and the company’s ability to establish banking relationships, tether’s peg slips again, this time to $0.92, according to CoinMarketCap, which aggregates prices from major exchanges. On a single crypto exchange Kraken, tether momentarily slips to $0.85.
October 16, 2018 — Tether appears to be holding reserves at Deltec Bank in the Bahamas. According to earlier rumors, the bank account was set up by Daniel Kelman, a crypto lawyer who was actively involved in trying to free the remaining Mt. Gox funds.
Further, Bitfinex appears to be banking through the Bank of Communications under “Prosperity Revenue Merchandising,” a shell company created in June 5, 2018. The Hong Kong bank is owned in part by HSBC and uses Citibank as an intermediate to send deposits to Deltec in the Bahamas.
October 24, 2018 — In a blog post (archive), Tether announces it has “redeemed a significant amount of USDT” and will now burn 500 million USDT, representing those redemptions. The remaining 446 million USDT in its treasury will be used as a “preparatory measures for future USDT issuances.”
November 1, 2018 — Tether officially announces (archive) that it is banking with Deltec and provides an attestation letter from the Bahamian bank that the account holds $1.8 billion, enough to cover the amount of tether in circulation at the time. The attestation has a mysterious squiggly signature at the bottom with no name attached to it.
November 30, 2018 — Recall that in May 2017, the U.S. Department of Justice together with the CFTC began looking into illegal manipulation of bitcoin prices. And then in December 2017, the CFTC subpoenaed both Tether and Bitfinex. Now federal prosecutors have supposedly “homed in on suspicions that a tangled web involving Bitcoin, Tether and crypto exchange Bitfinex might have been used to illegally move prices,” according to Bloomberg.
November 27, 2018 — In a blog post (archive), Tether says its customers can once again redeem tether for actual dollars via tether.io. “Today marks an important step in Tether’s journey, as we launch a redesigned platform allowing for the verification of new customers and direct redemption of Tether to fiat.” All accounts require a minimal issuance and redemption of $100,000 USD or 100,000 USDT.
December, 18, 2018 — A Bloomberg reporter says that he has seen Tether bank statements from accounts at Puerto Rico’s Noble Bank and the Bank of Montreal taken over four separate months. The article suggests Tether holds sufficient dollars to back the tether tokens on the market. But again, these are attestations, not the full audit Tether has been promising for months. Notably from the report: $61 million Canadian dollars in the Bank of Montreal is listed under Stuart Hoegner, Bitfinex’s general counsel.
December 19, 2018 — Crypto Capital shares a letter with its customers. The letter is from Global Trade Solutions AG, the parent company of Crypto Capital Corp—not to be confused with Global Trading Solutions LLC, which is a shell set up by Reginald Fowler. The letter states that GTS AG is being denied banking services in the U.S., Europe, and elsewhere “as a result of certain AML and financial crimes investigations” by the FBI and cooperative international law enforcements and/or regulatory agencies.”
December 31, 2018 — By the end of 2018, roughly 1.9 billion tethers are in circulation.
January 16, 2019 — Bitfinex opens a data center in Switzerland, according to Handelszeitung. Previously, Bitfinex was relying on Amazon cloud servers. An earlier Bitfinex blog post confirms the move.
February 25, 2019 — In a blog post (archive), Bitfinex claims the U.S. government has located 27.7 BTC (worth about $100,000 at this time) taken from Bitfinex in the August 2016 hack and returned the funds to Bitfinex. The exchange says it has converted those bitcoin into USD and distributed the money to its RRT token holders. What is odd here is that the U.S. Department of Justice hasn’t issued any statement about recovered bitcoin. And Bitfinex doesn’t share a transaction record to show it actually received the recovered funds.
February 26, 2019 — Tether admits, for the first time that it is operating a fractional reserve and that tethers are no longer backed by cash alone. An update on the company’s website reads:
“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”). Every tether is also 1-to-1 pegged to the dollar, so 1 USD₮ is always valued by Tether at 1 USD.”
April 9, 2019 — Bitfinex lifts its $10,000 minimum equity requirement to start trading. “We simply could not ignore the increasing level of requests for access to trade on Bitfinex from a wider cohort than our traditional customer base,” J.L. van der Velde says in a blog post (archive). Meanwhile, customers continue to complain that they are unable to get cash off of the exchange. And now some are saying they are having trouble getting their crypto off the exchange as well.
April 11, 2019 — Reginald Fowler, an ex NFL minority owner, and Ravid Yosef, who lives in Los Angeles and Tel Aviv, are indicted in the U.S. for charges related to bank fraud. The two were allegedly part of a scheme that involved setting up bank accounts under false pretenses to move money on behalf of series of cryptocurrency exchanges. (CoinDesk)
April 17, 2019 — Tether goes live on the Tron network as a TRC-20 token, a standard used by the Tron blockchain for implementing tokens, similar to and compatible with Ethereum’s ERC-20 standard. You can view the issuance on Tronscan.
April 24, 2019 — The New York Attorney General has been investigating Tether and Bitfinex for Martin Act violation. Allegedly, Bitfinex has been dipping into Tether’s reserves when it lost access to $850 million in the hands of its payment processor, Crypto Capital Corp. The investigation become public for the first time when the NY AG office sues iFinex, the parent company of Bitfinex and Tether, saying that the company has been commingling client and corporate funds to cover up $850 million in missing funds.
From 2014 to 2018, Bitfinex placed over $1 billion with Crypto Capital because it was unable to find a reputable bank to work with it. Crypto Capital then either lost, stole, or absconded with $850 million.
In order to fill the gap, Bitfinex dipped into Tether’s reserves for hundreds of millions of dollars. According to the NY AG, “Despite the sheer amount of money it handed over, Bitfinex never signed a contract or other agreement with Crypto Capital.”
April 26, 2019 — In a response to to the NY Attorney General’s allegations, Bitfinex says the $850 million has not been lost, but rather “seized and safeguarded.” Meanwhile, according to CoinDesk, Zhao Dong, a Bitfinex shareholder, claims that Bitfinex CFO Giancarlo Devasini told him that the exchange just needs a few weeks to unfreeze the funds.
In the affidavit, Hoegner admits that $2.8 billion worth of tethers are only 74% backed. And in its motion to vacate, Morgan Lewis argues that the NYAG has no jurisdiction over Tether or Bitfinex’s actions.
On this same day, Reginald Fowler is arrested. A grand jury has accused him of setting up a network of bank accounts to move money for cryptocurrency firms. He is linked to Crypto Capital’s $850 million in missing funds. (DoJ press release and indictment.)
May 2, 2019 — The U.S. Government wants Fowler held without bail due to flight risk.
May 3, 2019 — The NYAG files an opposition to Bitfinex’s motion to vacate. Bitfinex follows two days later with a response to the opposition. In the memo, Bitfinex argues that “nothing in the Attorney General’s opposition papers justifies the ex parte order having been issued in the first place.”
May 8, 2019 — iFinex has a new plan to raise $1 billion: a token sale. The company releases a white paper for a new LEO token. One LEO is worth 1 USDT, a flashback to when Bitfinex offered BFX tokens to cover the $70 million lost in a hack.
Meanwhile, Fowler is out on $5 million bail. He is required to give up his passport. Bail is posted in the Southern District of New York, where he is to appear for arraignment on May 15. His travel is restricted to parts of New York and Arizona.
May 6, 2019 — New York Supreme Court District Judge Joel M. Cohen rules that the NY AG’s ex parte order should remain in effect, at least in part. However, he thinks the injunction is “amorphous and endless.” He gives the two parties a week to work out a compromise and submit new proposals for what the scope of the injunction should be.
May 13, 2019 — Attorneys for the NYAG and iFinex failed to come to a consensus on what Tether should be allowed to do with its holdings. They submit separate proposals. iFinex is asking for a 45-day limit on the injunction and wants Tether employees to get paid using Tether’s reserves. The NYAG is not opposed to employees being paid, but it wants Tether to to pay them using transaction fees—not reserves.
May 16, 2019 — Judge Cohen grants Bitfinex’s motion to modify a preliminary injunction. The preliminary injunction is limited to 90 days, and Tether is allowed to use its reserves to pay its employees. The judge holds that the Martin Act “does not provide a roving mandate to regulate commercial activity.” Bitfinex and Tether still have to handover documents that the NYAG requested in its November 2018 investigative subpoena.
May 21, 2019 — Bitfinex files a motion to dismiss the proceeding brought by the NYAG on the grounds that Bitfinex/Tether do not do business in NY, the Martin Act does not apply to its business, and the Martin Act cannot be used to compel a foreign corporation to produce documents stored overseas. Bitfinex and Tether also seek an immediate stay of the NYAG’s document demands.
May 22, 2019 — Judge Joel M. Cohen of the New York Supreme Court grants Bitfinex’s motion for an immediate stay of the document demands. He issues an order requiring the companies produce only documents relevant to the limited issue of whether there is personal jurisdiction over the companies in New York but staying the document order in all other respects. The NYAG has until July 8 to file a response. And the judge schedules a hearing on the motion to dismiss for July 29.
July 22, 2019 — iFinex files court docs arguing once again that Bitfinex/Tether 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).
March 30, 2021 — Tether releases another attestation, essentially saying that Tether has $35 billion in assets backing 35 billion tethers at a blink in time on Feb. 26, 2021. The report was done by Moore Cayman, an accounting firm in the Cayman Islands. It means nothing, as it is not a full audit and doesn’t say what sort of assets tethers are backed by. (David Gerard’s blog,Tether press release)
April 23, 2021 — Coinbase announces that it is listing USDT. (My blog)
May 13, 2021 — Tether publishes a breakdown of the assets behind tethers. It’s a one-pager consisting of two silly pie charts. A critical look reveals there’s only a tiny bit of cash left. (My blog)
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*Update Feb. 20, 2021 — an earlier version of this article said Bitfinex listed tether in Feb. 25, 2015. It was Jan. 15, 2015.)
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