Before the sentencing of Reggie Fowler, one of the principals of cryptocurrency shadow bank Crypto Capital Corp (CCC), Bitfinex lawyers filed a letter with the court seeking restitution and describing the company as “very likely the largest single victim of Fowler’s criminal scheme.”
Bitfinex’s letter details how the firm began its relationship with CCC in 2014, in part thanks to representations from CCC about the quality of its compliance, dedication to fiduciary responsibilities, quality of its banking relationships, and its explanation about why it didn’t need to be licensed.
CCC apparently represented to Bitfinex that it performed “full know-your-customer (KYC) checks” and had “an independent department” ensuring everything was compliant.
The shadow bank also apparently represented to Bitfinex that it was fully open with banks about the nature of its business.
Bitfinex claims it was misled by these representations, though in October 2018 it warned on client pages that divulging the banking relationships it was using “could damage not just yourself and Bitfinex, but the entire digital token ecosystem. Accordingly, you are cautioned that there may be serious negative effects associated with this information becoming public.”
Shortly after Bitfinex was cut off by Wells Fargo in 2017, Phil Potter, its chief strategy officer, joined a WhalePool call and explained that the company relied on “cat and mouse games” to maintain access to banking because banks would cut it off if they found out it was a Bitcoin business.
CCC also represented to Bitfinex that it took its fiduciary responsibilities “as seriously as” Bitfinex does.
Bitfinex claims in the letter that “it was only at the end of November 2018 … that Bitfinex became concerned it was being lied to.” According to the New York Attorney General, in the summer of 2018, “Bitfinex borrowed $400 million from Tether” without disclosure to customers.
The letter also reveals that Bitfinex “prepared a criminal referral to the Justice Department (DoJ) based on what it believed was a fraud.”
Bitfinex seeks $385,500,000 in restitution related to losses it accrued from CCC.
Fowler was scheduled to be sentenced on April 20 after a request for a further delay was denied, but reporter Matthew Russell Lee who covers the court suggested that the judge decided to adjourn after hearing from one victim.
Oz and Ravid Yosef who have also been charged along with Fowler are still fugitives.