Crypto collapse: Reggie Fowler sentencing delayed, SEC charges Bittrex, Coinbase looks to leave the US, Scaramucci and FTX, Bitfinex, Ripple

By Amy Castor and David Gerard

“first they came for ‘Mr. Crimes’, the guy who did a bunch of crimes, and i said nothing” — Michael May



Good news for Reggie Fowler: another month of freedom

Bitfinex/Tether money mule Reggie Fowler’s sentencing has been postponed — again.

Less than 12 hours before the hearing was set to take place, Fowler’s attorney Ed Sapone asked for an adjournment. Prosecutors had filed a 16-page sentencing letter with 300 supporting exhibits two days before the hearing. Sapone wanted more time to digest everything.

There was still a hearing on April 20, sort of. One victim spoke — but the sentencing didn’t happen. Sentencing is now scheduled for May 17. Reggie has another month to get his affairs in order. [Request for adjournment, PDF; Inner City Press]

Seven years is a good amount of time for Reggie to spend behind bars, prosecutors say. They also want Reggie to forfeit $740 million and pay the Alliance of American Football (AAF), the football league he defrauded, $53 million in restitution.

We seriously doubt Reggie has that kind of money left. Prosecutors also aren’t happy that he blew $200,000 at the casinos as opposed to using those funds to pay back victims. [Sentencing submission, PDF Proposed forfeiture, PDF; Proposed restitution, PDF; Account balance sheet, PDF]

The world’s tiniest violin for Bitfinex

iFinex, wearing their Bitfinex hat, submitted a 13-page victim impact statement in the Fowler case. Bitfinex claims it’s the biggest victim of Reggie Fowler’s crimes — rather than the AAF. [Victim letter, PDF]

Bitfinex is asking for $385 million in restitution. It says that Reggie used the money in the accounts he set up for Bitfinex via shadow bank Crypto Capital for his own purposes — to pay off mortgages on his properties and to fund a volleyball club in Arizona.

Apparently, Bitfinex has been in touch with the Southern District of New York for a while as a claimed victim in the Fowler case:

Bitfinex’s outside counsel met with DOJ to make the initial criminal referral on January 23, 2019 and provided additional information about Crypto Capital’s suspected crimes against Bitfinex during a presentation on February 25, 2019. Bitfinex also provided DOJ with voluminous documents regarding, and communications with, Crypto Capital.

We appreciate the efforts of the prosecution team to keep Bitfinex, as a victim, apprised of the status of this matter.

Bitfinex lost $850 million it had entrusted to Crypto Capital when dozens of bank accounts that Reggie had set up in the US and overseas were frozen or seized by various authorities. Bitfinex is still trying to recover its frozen funds in Poland and Portugal.

Bitfinex hooked up with Crypto Capital in 2014. After Bitfinex was cut off from its banking partners, it relied heavily on Crypto Capital through 2018. Most of the money flowing through Reggie’s bank accounts was Bitfinex customer money.

Bitfinex details all the ways that Oz Yosef of Crypto Capital lied to them. This is the company that Bitfinex handed hundreds of millions of actual dollars to without a written contract:

On July 30, 2018, Yosef told Bitfinex, in substance, that the delays in returning Bitfinex funds were caused by Crypto Capital needing to file its 2017 taxes in Poland.

In October 2018, Bitfinex was frantically trying to get its money back from Crypto Capital, fearing that bitcoin might drop below $1,000 if they didn’t have these funds on hand — for some reason.

By November 2018, Bitfinex realized that Yosef was never calling them back. Bitfinex claims they had never heard of Fowler before December 2018.

Pages 7–8 of the victim statement detail some of the accounts that Fowler was putting Bitfinex money into at this time. Bitfinex says that Fowler opened these accounts without their knowledge, including one at HSBC. They knew nothing:

Unbeknownst to Bitfinex, Crypto Capital had provided various Fowler Accounts to Bitfinex for use by its customers, with Crypto Capital representing that it controlled the accounts. As Bitfinex customer funds flowed to these accounts, millions of dollars were wired or otherwise transferred to other Fowler Accounts without Bitfinex’s knowledge.

These are the accounts that Larry Cermak at The Block was finding over and over at the time as the accounts that Bitfinex was telling its customers to use — including the HSBC account! [Twitter, 2018, archive; The Block, 2018]

So we would apply a skeptic’s lens to Bitfinex’s claims. We suspect iFinex is begging now because it may be running short of actual dollars.

Good news for Bittrex

At the end of March, the Bittrex crypto exchange announced it was leaving the US because “regulatory requirements are often unclear and enforced without appropriate discussion or input, resulting in an uneven competitive landscape.”

What they meant was that they’d gotten notice from the SEC telling them that they were about to be sued — and so they were. Charges were filed on April 17. [press release; complaint, PDF]

The SEC contends that Bittrex offered trading in securities. The complaint calls out several tokens listed on the exchange — OMG, DASH, ALGO, TKN, NGC, and IHT — with detailed rundowns on why these constitute securities.

Bittrex had a pretty good idea that a lot of these were securities:

Bittrex routinely directed that crypto asset issuers “scrub” their offering and marketing materials of “investment-related terms,” including language that would “get unwanted attention from the SEC.” Bittrex regularly asked issuers to remove “problematic statements” from their marketing materials — statements indicating that the asset was marketed as a security—as a prerequisite for making the issuers’ crypto assets available for trading on the Bittrex Platform. Bittrex unofficially dubbed this practice the “problematic statement cleanup.”

You have to register with the SEC to run an exchange for securities. Also, you’re absolutely not allowed to combine the functions of exchanges (bringing together buyers and sellers), clearing houses (moving the securities from the sellers to the buyers), and brokers (the intermediary between the exchange and the customers). There’s too much conflict of interest in combining these.

We also recommend Matt Levine’s summary. [Bloomberg]

The SEC’s rules, as cited in this complaint, make it extremely hard to operate a crypto exchange in the US that trades in anything other than bitcoin and maybe ether.

And nobody seems to have noted the most startling change visible in the Bittrex complaint: the SEC changed its font from Times New Roman to Monotype Garamond.

Good news for Coinbase

We’re pretty sure that Coinbase is next in the SEC’s sights after Bittrex. In fact, Coinbase lists two of the tokens — DASH and ALGO — that the SEC named as securities on Bittrex.

Coinbase has got itself a license to operate in Bermuda and will apparently be setting up an offshore exchange within weeks. Coinbase Bermuda Limited has a “Class F” license (“Full”) from the Bermuda Monetary Authority, issued on April 19. [Blog post; Fortune; BMA]

Brian Armstrong and other Coinbase executives went to Washington, DC, to get “regulatory clarity.” By “regulatory clarity,” what they’re asking for is for lawmakers to turn a blind eye to crypto — something that isn’t going to happen after FTX. Coinbase couldn’t even get anyone in the government to pose for a photo op this time. [Twitter]

In a Twitter Space on crypto policy and national security following the trip, Coinbase was oddly laser-focused on anti-money-laundering and North Korea. Cryptadamus thinks that Coinbase were told that if crypto can’t solve the massive laundering for Russia, Iran, and North Korea, then Coinbase is going to get shut down real soon. “They sound … deflated. Like they heard Bad News.” [Twitter]

Good news for Scaramucci’s tailor

As FTX was teetering on the brink of collapse in October, SkyBridge Capital’s Anthony Scaramucci took Sam Bankman-Fried on a whirlwind fundraising trip in the middle east to help him raise $1 billion.

Scaramucci even got Bankman-Fried a meeting with Saudi Arabian crown prince Mohammed bin Salman, one of the richest men in the world — who apparently didn’t see fit to bring his bone saw.

During meetings with officials in Dubai, Sam badmouthed CZ from Binance. Word got back to CZ, who decided to dump FTX’s in-house FTT token — leading to FTX’s rapid implosion in November.

Scaramucci regrets buying Sam a proper business suit for the trip — “I’m still pissed about it … because he’s walking around in my suit during the perp walk.” [Puck News, archive]

Scaramucci has seen better days. His bet on crypto has gone sour. From the start of 2020 through March, his unhappy clients have watched the value of their investment fall by 30%. [Bloomberg]

Swift on Securities: singer Taylor Swift turned down a $100 million FTX endorsement deal with FTX, according to Adam Moskowitz, a lawyer for the class action that includes celebrities who promoted FTX. Swift asked the one important question: “In our discovery, Taylor Swift actually asked them, ‘Can you tell me that these are not unregistered securities?’” As it happens, Swift’s father was a stockbroker. [The Block]

Here’s young Caroline Ellison, a couple of decades before her Alameda adventures, talking about “scary stories” in an episode of Arthur in September 2003. [YouTube]

Good news for other bankrupts

The Voyager Unsolicited Creditors’ Committee, Voyager Digital, and the US government have agreed to let the Voyager sale to Binance US proceed without the hilariously broad exculpation provision, which purported to protect the parties in the bankruptcy from criminal charges for their actions in the case, not just from being sued by other parties. The government appeal against this provision proceeds. [Twitter]

In the Celsius Network bankruptcy, the auction for which bid to accept is on April 25. The Novawulf bid is the stalking horse bid. The other two bidders are Fahrenheit — yes, “Fahrenheit,” really — and the Blockchain Recovery Investment Committee. [Doc 2519, PDF]

Good news for Wyoming

Wyoming has asked to join Custodia’s lawsuit against the Fed over access to the central bank’s payments system. Wyoming attorney general Bridget Hill says that in denying Custodia’s application for a master account, the Fed has “questioned the legitimacy” of Wyoming’s SPDI charter for crypto banks. The judge knocked Wyoming back because they didn’t check with either current party first — but Wyoming is sure to return. [Motion, PDF; Doc 133.4, PDF]

Here’s Custodia’s 40-page opposition to the Fed’s motion to dismiss the suit. Mostly it asserts once more that their original claims were correct. [Doc 135, PDF]

Former Senator Pat Toomey submitted an amicus brief wherein he argues that the law he put into place saying that the Fed has discretion, that the Kansas Fed and the Board are relying on, doesn’t mean what it says. [Doc 133, PDF]

Good news for Ripple

Ripple told the world for years that its XRP token was the finest possible currency for remittances. But every one of their partnerships turned out to be Ripple-funded trials, rather than economically viable enterprises — when the “partners” even existed. The company’s only profitable line of business was dumping XRP on retail investors, which the SEC sued it over in late 2020.

Recent SEC filings by Tranglo, a Malaysian payments company that is 40% owned by Ripple, detail how Ripple dumps XRP in 2023. Tranglo offers on-demand liquidity (ODL) — Ripple lends XRP to Tranglo, then Tranglo sells the XRP to crypto exchanges and pays the loan in actual money.

ODL is the new way for Ripple to dump XRP without it looking like they’re dumping XRP. Ripple made a $2.7 billion profit from “ODL-related” XRP sales in 2021 and 2022.

Eight of Tranglo’s 91 active customers send remittances via XRP. 73% of the volume is just one of these, GEA — which is controlled by Kong, Tranglo’s other major shareholder.

Martin Walker, who’s long been on the XRP trail, says that “Ripple continues putting huge efforts into promoting the story they are improving remittances and cross border payments but whenever information about the reality comes out, is it’s all about selling XRP.”  [Forbes, archive]

The rest of the good news for bitcoin

The rising price of bitcoin — from $20,000 to $30,000 over the past month or so — is manipulation. There’s no BTC trading volume. What trading is happening is mostly BTC-tether and BTC-BUSD on Binance. And Binance can’t get a reliable supply of BUSD any more, so it’s turning to tethers to pump the market. Tether is printing furiously — there are 81 billion tethers sloshing around in the crypto markets, but fewer and fewer actual dollars. [Bloomberg]

That big “bipartisan” stablecoin bill is unlikely to happen any time soon. Maxine Waters, the top Democrat on the House Financial Services Committee, was apparently sandbagged by the Republicans. The posted bill in no way represents negotiations between her and Patrick McHenry (R-NC), she said. “We must get a stablecoin bill,” she said, “but disregard the bill that has been posted altogether.” So expect everything to be back in discussion for a while. [Press release]

Canada has just let loose a searing blast of regulatory clarity, and crypto companies are leaving. Coinbase, Kraken, and Gemini say they’ll be registering, but then so does Binance. [Bloomberg]

Ray Youssef, the founder and former CEO of closed peer-to-peer bitcoin marketplace Paxful, says withdrawals are unfrozen and customers can now retrieve their money. “Ray’s not running off with anyone’s money.” But users say they still can’t get their funds out of Paxful. [Twitter; Decrypt]

During the bubble, Intel furiously promoted its hot (ahahaha) new Blockscale 1000 bitcoin mining chips! A year later, Intel’s just quietly discontinued the line. Customers can order new chips until October 2023, and shipments will end in April 2024. There are no plans for upgraded replacement models. Ah well. [Tom’s Hardware]

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