Evaluating the United States’ Request for ‘No Bail’ in Crypto Capital Co.

Since news of the unsealed indictment of Reginald Fowler and Ravid Yosef was published on the DOJ’s website, the crypto space has been in…

Evaluating the United States’ Request for ‘No Bail’ in Crypto Capital Co. Arrest (U.S. vs. Fowler; №19–9181MJ)

Since news of the unsealed indictment of Reginald Fowler and Ravid Yosef was published on the DOJ’s website, the crypto space has been in a frenzy trying to unpack all of the relevant information.

Fortunately, we have already taken the time to uncover information about the first indictment, which can be found here:

Now, we’re going to take a look at the latest court filing by U.S. prosecutors, which is a memorandum for the revocation of bail for Reginald Fowler (in laymen’s terms: They don’t want him to have any bail).

The reason why we’re looking through this proceeding is because the prosecution released significantly more information about Reginald Fowler and this case that had not been previously mention in the original superseding indictment.

Reviewing the Memorandum in Support of Detention (Request for ‘No Bail’)

The official ‘memorandum in support of detention’ has been re-posted below for convenience:

According to the memorandum, the U.S. believes that Fowler, “Poses a serious flight risk and presents a risk of continued economic danger.”

The memorandum then goes on to reiterate the crimes that Fowler has been charged with before dropping what should be considered to be bombshells.

The first bombshell is in the opening paragraph (line 20) where it states:

“These crimes [in reference to Fowler’s charges] all relate to Defendant’s alleged involvement in a scheme to operate a shadow bank on behalf of cryptocurrency exchanges in which hundreds of millions of dollars passed through accounts controlled by Defendant in jurisdictions around the world.”

Before we dissect the wording here, let’s make sure that we’re all on the same page by defining ‘shadow banks’:

Now, let’s evaluate the quote posted above.

The first thing to note is that the wording here is critical. Specifically, it is stated that the defendant used this scheme on behalf of cryptocurrency exchanges in which hundreds of millions of dollars were distributed all over the planet.

As we noted in our prior analysis (cited above), this is clearly referring to Crypto Capital Co./GTS’ services that they provided for exchanges such as Bitfinex.

The memorandum also states that Fowler is an imminent threat (and flight risk) because he:

A) Has significant ties to other countries

B) Has already attempted to impede the investigation

C) Strength of evidence

D) Evidence of the Defendant’s Involvement in Other Criminal Schemes

Highly Interesting Excerpt That Demands Attention

The excerpt from the Memorandum that we want to direct the attention of readers to begins on page two, under the subsection titled:

‘A. Defendant Faces Significant Punishment’

This subsection is underneath the broader argument that U.S. prosecutors are making in favor of Fowler not receiving a bail offering at all.

Notably, the Memorandum states:

“Indeed, recent public reporting, which is corroborated in part through interviews conducted in the course of this investigation, indicates that companies associated with Defendant have failed to return $851 million to a client of Defendant’s shadow bank.”

This is a pretty remarkable statement because this provides definitive proof that Bitfinex publicly lied about the OAG report.

First, let’s visit the OAG court filing, which was submitted to the courts on April 25th, 2019, to provide some context behind the claim that Bitfinex has lied.

In that filing, the OAG alleged that:

The excerpts from the OAG court filing above allege that Bitfinex’s lawyers told the OAG directly that they had lost $851 million due to Crypto Capital Co.’s malfeasance.

In specific, the report also notes that statements made to the OAG by Bitfinex and Tether’s legal counsel clearly indicate that Bitfinex/Tether did not believe that the money in Crypto Capital Co.’s accounts had been seized by any governmental authorities, but rather that Crypto Capital Co. may have absconded with the funds.

Bitfinex’s Denial of the Report’s Details

Within a few hours of the release of this report, Bitfinex and Tether responded (with an identical press release), saying:

Specifically, Bitfinex stated:

“The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million ‘loss’ at Crypto Capital.”

and

“On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded.”

Bitfinex then followed this up with an e-mail to its customers the following day (April 27th), which is posted below for convenience:

Bitfinex once again reiterates their claim that the OAG’s court filing (which is written under penalty of perjury for purposefully false statements) is “filled with inaccuracies and false assertions.”

The e-mail then goes on to state:

“In particular, we want to assure you that the allegation that we have ‘lost’ $850 million is categorically false. We have been advised that these amounts — whether in whole or in substantial part — are, in fact, seized and safeguarded in several jurisdictions, including Poland, Portugal, the United Kingdom, and the United States.”

How We Know Bitfinex is Lying

If we go back to the Memorandum that was filed in federal court in Arizona on May 2nd, 2019, we can see that the United States itself has corroborated this evidence by stating that their “interviews conducted in the course of this investigation” confirm this detail.

Thus, we know that Bitfinex has openly lied about the following:

  1. The claim that the OAG has overstated, in part or wholly, Bitfinex’s financial situation as it pertains to Crypto Capital Co.

  2. The claim that they were ‘advised’ that their funds were safe in the United States, specifically, must be false because the original indictment against Fowler (April 30th) specifically states that funds that were held in a bank account by Fowler (on behalf of Bitfinex; verified independently) were relinquished to the U.S. government (which means that Bitfinex will never receive those funds).

Final Note For This Section of the Memorandum Analysis

The report states that companies associated with the Defendant have failed to return this money to “a client of Defendant’s shadow bank”.

The U.S. Claims ‘Evidence is Strong Against Defendant’

This section of the Memorandum starts at line 11 on page 3.

Below is an excerpt from this section (since all the information included in here is relevant and worth reviewing):

The following points are salient:

  1. Fowler operated a shadow bank specifically for individuals and institutions that wanted to buy and sell cryptocurrency.

  2. Fowler opened numerous bank accounts around the world where customers would send fiat in order to be credited cryptocurrency on exchanges.

  3. The feds have a witness that worked at one of these ‘shadow banks’ that has agreed to testify against Fowler if the case goes to trial.

  4. Specifically, that bank employee will state that Fowler lied to the banks saying that the money being sent derived from “cryptocurrency banking services”.

  5. The government has received all of Fowler’s e-mails and in those e-mails the illegal nature of these operations was discussed at large and there were typically coordinated efforts to swap wire information.

In addition, the Memorandum states that:

‘Master U.S. Workbook’

A notable reference in the Memorandum can be found under the subheading titled, ‘Defendant Has the Means to Flee’, located on page 4, line 7, the government states:

“The government, through email search warrants, has obtained a document entitled ‘Master US Workbook,’ which details the financial operations of the scheme as of January 2019. This workbook indicates that the scheme had received over $740 million in 2018 alone. It lists approximately sixty different bank accounts, held at both domestic and international banks, with a combined account balance of over $345 million as of January 2019. Notably, this workbook indicates that approximately $50 million is held in domestic accounts, with the rest located abroad.”

The most notable statement in court filing is that this ‘Master U.S. Workbook’ revealed a total balance of $345 million.

Most notably, a new Tether issuer address was created on April 24th. This address was also granted $300 million:

All funds were then sent to the treasury address (1NTMakcgVwQpMdGxRQnFKyb3G1FAJysSfz).

At the time of writing (May 2nd, 2019), there is now $345 million in the treasury address:

Perhaps this is one big coincidence, but it is worth noting.

Multiple Individuals in Israel at Large

Another thing that’s interesting to note is that the memorandum also states that there are several others whom Fowler colluded with that are essentially at large in Israel currently:

Additional Crimes That Fowler Was Involved In

Perhaps the most interesting out of all the revelations that were made of Fowler by the federal government was the other unlawful activity that he was attached to.

This is detailed on page 6, line 6, under the subtitle, ‘Defendant Appears to Be Involved in Other Unlawful Activity’.

Specifically, they allege that Fowler:

  • Committed potential wire fraud.

  • Attempting to “obtain bank loans by presenting fraudulent bond certificates worth billions of dollars.”

  • Had $14,000 in counterfeit currency (specifically $100 bills) as well as equipment that the Secret Service recognized as common for the production of counterfeit notes.

Conclusion

What was revealed in the Memorandum is ugly, to say the least. The implications are far reaching and the additional questions that it poses in the Tether/Bitfinex saga cannot be understated.

It goes without saying that this, by far, is the biggest bombshell that has been dropped in the iFinex saga up to this point.