Alleged Crypto Capital agents indicted: What happens next?

Posted: 3 May 2019 2:55 pm

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That this may prove such an impactful case shows how immature the cryptocurrency industry still is.

The New York attorney's office has indicted two individuals, Reginald Fowler (former co-owner of the Minnesota Vikings NFL team) and Ravid Yosef, on charges of bank fraud.

Fowler and Yosef allegedly carried out illegal transactions through their company Global Trading Solutions LLC, which is reportedly an agent of Crypto Capital Corp (CCC), which is the payment processor for Bitfinex and other crypto exchanges, many of which are experiencing operating difficulties.

Allegedly, the two men were opening accounts by telling the banks that they would be used for real estate transactions, while instead using the accounts for crypto exchange deposits and withdrawals.

This is an interesting piece of the current Bitfinex/Tether puzzle, and holds some clues as to what might happen in the future.

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Seized funds

To briefly recap, Bitfinex has $850 million held in accounts at CCC. The company then told Bitfinex that its funds had been seized by different authorities. The New York attorney general's office alleges in its claim that Bitfinex said it didn't believe CCC and thought CCC was actually trying to pull a runner with the money.

Bitfinex later denied this – and countered many of the other claims made by the attorney general's office – and reiterated CCC's claims that the money had actually been seized and held for safekeeping.

This indictment suggests that yes, the money actually was seized. Or at least some of it was. It names five HSBC bank accounts used by Fowler and Global Trading Solutions LLC, whose contents have been confiscated by the US government.

Three of the accounts were seized on 23 October 2018 and two were seized on 16 November 2018. It's presumably not a coincidence that this is when Bitfinex deposits and withdrawals started grinding to a halt and generally getting weird.

This ties in with reports from the time which said that Bitfinex was using HSBC bank accounts through a company called Global Trading Solutions LLC.

Opinion: Two ways this could go

One way of looking at it is that Bitfinex's funds are safu safe. It's reportedly a commingled bunch of customer and company funds. But does this mean Bitfinex is more likely to be able to recover its funds, or does this dig Bitfinex into an even deeper hole?

A look at bits and pieces of the evidence that's come to light so far suggests that this newly revealed trail could end up leading to Bitfinex and that someone might make the argument that Bitfinex knew its payment processes weren't entirely on the level.

For example, the sheer weirdness of the vaguely threatening deposit procedures Bitfinex introduced in October 2018 might suggest that at the time Bitfinex could have realised that its payment processor may have been violating some laws.

Beyond that, it's worth noting that Crypto Capital has been deeply involved with many prominent companies in the cryptocurrency space since its creation, and even some of the most reputable exchanges have had flings with it in the past.

The overall picture of Crypto Capital is that of a longstanding cornerstone of the cryptocurrency industry, which is now deteriorating under the cumulative weight of years of investigations.

One way this could all go is that the Crypto Capital thread untangles a lot of big players in the cryptocurrency space as it unravels, that this entire incident is one of the most significant events in crypto history, and that it ushers in a new era of industry compliance.

Another way this could all go is that nothing really happens. The penalty for a financial institution found complicit in massive alleged money laundering is sometimes just a financial slap on the wrist.

Maybe that's the real test for how mature the cryptocurrency industry is? You'll know cryptocurrency is a mature industry when these kinds of allegations are quietly settled in backrooms without any lasting impacts.

Disclosure: The author holds BTC at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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