US Crypto Scammers’ Run Reveals Tether Links in Massive Multi-Million Shadow Banking Fraud

May 1, 2019 04:35 UTC

By CCN.com: The U.S. Justice Department has nabbed one of two crypto fraudsters accused of a shadow banks scheme that entailed the processing of hundreds of millions of dollars of unregulated transactions on behalf of several cryptocurrency exchanges.

On the surface, these seem like the run-of-the-mill bad actor arrests. However, chatter is picking up that this may relate to the Bitfinex and Tether debacle. The court filings show overlapping of the players.

Reginald Fowler of Arizona was arrested Tuesday, while his co-conspirator Ravid Yosef is still on the loose. The law may take a while to catch up with Yosef. She’s from Tel Aviv, Israel, according to the Justice Department statement about the charges.

The pair was charged with bank fraud. Fowler was also charged with operating an unlicensed money transmitting business.

The accusations

Their scheme entailed lying to banks in order to open accounts. They then used those accounts to receive deposits from individuals who were buying cryptocurrency. It allegedly happened in 2018.

Specifically, Fowler and Yosef would tell one bank that one particular account would be used to process real estate investments. The indictment states:

One of the Crypto Companies marketed itself as a company that allows clients to deposit and withdraw government-backed, or “fiat,”  currency to numerous crypto exchanges. Users of one particular crypto exchange deposited government-backed currency into a bank account of the Crypto Companies that was opened and maintained by Fowler at a specific international bank.

The Justice Department said records show that “dozens of individuals from various countries wired millions of dollars” into that particular account. At the same time, millions of dollars were wired from the account to other individuals and companies.

Fowler and Yosef then falsified electronic wire payment instructions to conceal the true nature of a voluminous cryptocurrency exchange business, the Justice Department charges.

Bitfinex and Tether link

These charges were brought by the U.S. Attorney for the Southern District of New York, which is the same office that Bitfinex and Tether are battling. Last week, it obtained a court order to shut down the pair from operating in the state over the loss of $850 million funds through some questionable happenings.

In the court filing for this shadow banking case, two banks identified are HSBC Securities USA/Pershing and HSBC  Bank USA. Their funds are “held” by Global Trading Solutions, according to the filing.

Global Trading Solutions operates Crypto Capital, which is Bitfinex’s money processor. The New York Attorney General’s court filings assert that the Crypto Capital played a role in the $850 million loss involving Bitfinex and Tether.

Law enforcement warns scammers, again

U.S. Attorney Geoffrey Berman said:

“Reginald Fowler and Ravid Yosef allegedly ran a shadow bank that processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges.  Their organization allegedly skirted the anti-money laundering safeguards required of licensed institutions that ensure the U.S. financial system is not used for criminal purposes, and did so through lies and deceit.”

The Justice Department did not name the exchanges.

FBI Assistant Director William F. Sweeney Jr. said:

“Lying to banks and skirting the regulations put in place by the banking industry is a violation of federal law, a crime both Fowler and Yosef are charged with today.  Taking it one step further, as alleged, Fowler himself directed the ebb and flow of significant amounts of money to and from these various bank accounts, despite the fact that he was not licensed to do so.

May this be a reminder to all that there are consequences to engaging in fraudulent behavior and risky business practices.”

Last modified: May 1, 2019 05:14 UTC

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@tedradesue

If you can buy it, trade it, invest in it, or sell it, I write about it. For more than 20 years, I've covered all things finance. Based in Atlanta, Ga., I threw myself into covering the crypto space with a keen understanding that it would be an industry disruptor. I'm in constant search for the real Satoshi Nakamoto!