Crypto Capital Executive Indicted in NY Court

Crypto Capital executive Oz Yosef has been indicted on three criminal counts by the U.S. Attorney’s Office of the Southern District of New York.

Citing court documents from October 23rd, Oz Yosef has been indicted by the U.S. authorities on three criminal counts, which are conspiracy to commit bank fraud, bank fraud and conspiracy to operate an unlicensed money transmitting business.

It appears that the filing confirmed allegations from cryptocurrency exchange Bitfinex, which has recently claimed to have been a victim of fraud regarding Crypto Capital — its former payments processor. Bitfinex has issued a statement on the matter, saying that it was not involved in money laundering and that it has been lied to by Crypto Capital representatives including its former president and Oz Yosef.

Accordingly, Crypto Capital spread the firm’s funds across multiple bank accounts in several countries, making it difficult to access. The crypto exchange further added that Crypto Capital provided false reassurances regarding its reputation, expertise and operations, which lead to the disappearance of $880 million.

Bitfinex presented itself as the victim of Crypto Capital following the latter’s president arrest by Polish authorities due to money laundering scandals involving the Columbian Cartel. On Thursday, Crypto Capital president Ivan Manuel Molina Lee was extradited by Polish authorities on charges of money laundering, subsequently charged with laundering 1.5 billion zloty ($390 million).

Upon Lee’s arrest, Stuart Hoegner – Bitfinex’s general counsel – released a statement last Friday, on behalf of the exchange, maintaining its claim to be a victim of fraud and will pursue the company in retrieving its lost funds.

Following investigations conducted over this past spring by multiple international authorities, including U.S. authorities, Crypto Capital’s funds have been frozen, out of which $880 million belonged to crypto exchange Bitfinex.

Meanwhile, there have been doubts circulating about both the company’s heads stem from the losses of the $880 million. Previous reports revealed that Tether – a cryptocurrency governed by Bitfinex – had previously stated that the lost funds weren’t actually lost but had been “seized and safeguarded.”

The lost funds triggered an investigation by the New York Attorney’s Office into the relationship between Bitfinex and sister firm Tether. The New York General Attorney has been investigating this case since last year and found damning messages exchanged between a senior Bitfinex executive and a representative of Crypto Capital.

The exchanged messages were centered around the $880 million funds, with the Bitfinex exec urging Crypto Capital to release the money but was told it was seized by the U.S. and Polish authorities. Bitfinex didn’t buy the excuse and said that it fears that Crypto Capital is engaged in fraud, speculation that ultimately landed Lee behind bars.

Ethfinex Launches Decentralized OTC Service

Ethfinex, the hybrid cryptocurrency exchange that was launched by Bitfinex has announced its decentralized OTC service.

Over-the-counter (OTC) trading desks are widespread in cryptocurrency markets, facilitating large trades between parties so as to prevent the wider market from being affected by the price fluctuation. Traditionally this incurs high costs to participants and trust in an escrow.

Almost every major cryptocurrency exchange has an OTC desk, but a decentralized approach to trading is relatively novel in the space. The key distinction is that large trades are brokered off of the exchange’s main order book, and there is no 3rd party escrow – meaning it’s exclusively peer-to-peer sales.

Ethfinex Trustless, as the service is named, executes trades by using the blockchain to enforce the deal in an atomic transaction. Traders on the platform find each other, or are connected by agents, then express an intention to buy or sell, before transactions are closed via smart contracts.

This market first removes the need for escrow, and opens up OTC to anyone at significantly lower fees of 0.02% (vs 2-5% on more traditional OTC desks).

Will Harborne, Founder of Ethfinex Trustless states:

“Extending the capabilities of Ethfinex Trustless to include an OTC service is an important step in fulfilling the potential of decentralisation in the cryptocurrency market. It opens the doors to those previously prohibited by expensive OTC desks, and provides security in blockchain enforced atomic deals. Customers no longer have to place trust in a third party, or take the risk of trades directly with the counterparty themselves.”

The exchange further noted that trades could be completed for any ERC-20 token, not just the ones currently listed on the exchange. With no sign-up process or KYC, customers can get started by connecting their wallet to Ethfinex. There are however certain restricted jurisdictions, whose citizens are not permitted to participate in Ethfinex Trustless OTC.

Bitfinex launched its Etheruem-token trading platform, Ethfinex, in September last year, facilitating trading of over 50 ERC-20 tokens. The two companies share the same leadership, with Bitfinex owning a major share of the exchange.

Bitfinex and Tether In the Spotlight as the NYAG Alleges Them of Fraud

Crypto exchange Bitfinex has allegedly lost $850 million, and in order to cover the shortfall the exchange used funds from affiliated stablecoin operator Tether, according to court files published on April 26th.

NYAG Starts Court Proceedings

The New York Attorney General, Letitia James, has revealed that the court had received court filing alleging that that iFinex Inc. — the operator of Bitfinex — Tether Limited, and their affiliates were in violation of New York law in connection with fraudulent activities, executed without the knowledge New York-based crypto investors.

According to court filings, the exchange hadn’t revealed the loss to investors, with executives of the exchange and Tether engaged in a series of conflicting corporate transactions where Bitfinex got access to up to $900 million of Tether’s cash reserves. Allegedly, Bitfinex took hundreds of millions of dollars Tether’s reserves and subsequently used them to cover up losses as well as its inability to process clients’ withdrawals.

Attorney General James has released a statement that said:

“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds. New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

Following this statement, the court has ordered that both affiliates immediately cease the dissipation of the US dollars that back tether tokens and to hand over documents for the investigation process. It further adds that both companies are prohibited from destroying potentially related documents.

Bitfinex and Tether Riposte

Meanwhile, Tether’s statement, which was a joint statement with Bitfinex, asserts that the court filings “were written in bad faith and are riddled with false assertions”, claiming that the $850 million were in fact not lost, but seized and safeguarded. It further states that both companies are currently working on getting those funds released.

Respectively, both Tether and Bitfinex insisted on having fully cooperated with prosecutors and called on the Attorney General’s Office to “focus its efforts on trying to aid and support our recovery efforts.”

Tether had previously faced a controversy in January of 2018, when critics of Tether alleged that the crypto, which had claimed to have $1 in reserve for every unit of stablecoin issued, was in reality operating a fractional reserve and issuing more tokens than it had backing for, which were then sent to the Bitfinex exchange. Subsequently, both exchanges faced a subpoena from U.S. regulators and after being ordered to undergo an unofficial audit, it was found that stablecoin had the appropriate amount of backing dollars.

At present, the Attorney General is seeking an injunction to compel Bitfinex and Tether to continue trading, in order not to harm the customers of both entities.

Stablecoins Experience High Volatility Due to USDT Falling Off the Peg

The price of the tether stablecoin (USDT) has fallen to an 18-month low Monday, despite a general rise in the wider crypto markets.

The price of Tether (USDT), a crypto stablecoin backed by the US dollar pegged to $1, has fallen by around 4 percent in the past 24 hours to $0.96.

The slide in the USDT price has pushed up the premium carried by bitcoin (BTC) prices on the Bitfinex exchange above $600. Bitcoin achieved $7,500 on Bitfinex but the inflated price of BTC by USDT is of less significance to the global cryptocurrency exchange market. It can be argued that the decline of USDT portrayed lack of maturity and strong infrastructure in the market, which could push away institutional investors such as pensions and academic funds that are interested to commit to the asset class.

Some reports are putting the price drop down to traders losing faith in the token, amid claimed lack of transparency over tether’s true USD holdings and rumored issues at partner firm Bitfinex.

Interestingly, other recently introduced stablecoins like Gemini Dollar (GUSD) and TrueUSD (TUSD) are up. Already, the price of TUSD has increased to $1.08, by more than 8 percent, and has risen quite substantially against USDT on Binance, which suggests that traders have started to favor newly emerging stablecoins that have the backing of banks and authorities.

Since 2014, Tether has provided cryptocurrency-only exchanges an alternative to the US dollar with which traders can hedge their positions to the stability of the US dollar. Prior to 2018, there were no alternatives to USDT, forcing the industry to depend on USDT as a widely accepted stablecoin. It demonstrates why a growing negative sentiment in Tether market is influencing USDT holders to fly to less risky alternatives like TrueUSD, USDC, and GUSD.

Irrespective of the reason for this drop, it is safe to say that traders have rotated money out of USDT and into Bitcoin and other stablecoins.