Two Charged With Running ‘Shadow Banking’ Service for Crypto Exchanges

The U.S. Department of Justice announced Tuesday that it has hit two individuals with bank fraud charges in connection to a system for depositing funds to cryptocurrency exchanges.

In a statement, U.S. Attorney’s Office for the Southern District of New York alleged that Reginald Fowler of Arizona and Ravid Yosef, said to live in Tel Aviv, Israel, were part of a scheme that involved using bank accounts to move money into a series of unnamed cryptocurrency exchanges.

Court documents released by the Justice Department purport that the alleged money services business operated between February and October 2018. During that period, prosecutors say, the two “opened and used numerous bank accounts at financial institutions that were insured by the [FDIC],” including one based in Manhattan.

Two of the bank accounts named in the court document are allegedly held under the name Global Trading Solutions LLC, one apiece from HSBC Bank USA and HSBC Securities USA/Pershing LLC.

That firm was previously identified in October as having done business with crypto exchange Bitfinex, which is being investigated along with stablecoin issuer Tether by the New York Attorney General’s Office in a development that last week spilled into public view. Past reporting suggests that the corporate entity said to be involved is tied to Crypto Capital, a payment processing firm that has provided services to crypto exchange Bitfinex and others.

“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,” U.S. Attorney Geoffrey Berman said in a statement. “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.”

Fowler was charged with bank fraud, conspiracy to commit bank fraud and and a count of operating an unlicensed money transmission business (along with a charge of conspiracy to operate an unlicensed money transmission business), whereas Yosef, who has not been arrested at the time of announcement, was charged with bank fraud and conspiracy to do so.

According to the press statement, agents from the FBI’s New York Money Laundering Investigations Squad and the U.S. Internal Revenue Service (IRS) participated in the investigation.

Crypto Capital connection

While the court documents themselves don’t directly state it, supplementary reporting suggests that Global Trading Solutions LLC is tied to licensed financial institution Global Trade Solutions AG. Global Trade Solutions is the parent company of Crypto Capital, a payment processor named in in the NY AG’s investigation of Bitfinex and Tether, the company behind the USDT stablecoin. The firm is cited as parent company on Crypto Capital’s website.

In addition to doing business with Bitfinex, Crypto Capital’s website names among its customers the now-defunct QuadrigaCX and Coinapult, among others. According to the Wayback Machine, past customers include exchanges Kraken, BTCC and Bitt.

In a letter published by journalist Amy Castor, dated December of last year, Global Trade Solutions’s Ivan Molina wrote that “Global Trade Solutions AG and related entities are being denied banking services in the United States, Europe and other select international locations, as a result of certain AML and financial crimes investigations by the United States Federal Bureau of Investigation and cooperative international law enforcements and/or regulatory agencies.”

“Authorities investigating GTS and related entities have effectively frozen bank accounts and disabled traditional banking services as it relates to crypto currency and exchange services; in many instances ex parte without a warrant or court order,” Molina stated, a possible reference to the timing in Tuesday’s indictment which indicated that the funds in the HSBC accounts were seized in October.

He then outlines account seizures at HSBC in London, as well as similar actions occurring in the United States, moves that “have resulted in bank accounts being frozen and blocked without warning or explanation, banking services terminated, and access to bank accounts denied.”

Molina included two links in his letter, one of which was to a story by crypto publication The Block that reported the use of Global Trading Solutions LLC’s services for depositing funds to Bitfinex.

As reported last week, Bitfinex and Tether are accused of papering over an alleged $850 loss using funds originally intended to provide backing for Tether’s USDT stablecoin. Yet per the court filings, lawyers for Bitfinex and Tether told the AG’s office that the funds aren’t actually lost, but had been seized from Crypto Capital and are  being held by authorities in the US, Poland and Portgual.

To date, neither Bitfinex or Tether have been charged with any crimes, and the two sides are set to meet in court in New York on Friday.

This story is actively developing and will be periodically updated with more information. 

The superseding indictment can be found below:

u.s. v. Ravid Yosef and Reginald Fowler s1 19 Cr. 254 Redacted 0 by CoinDesk on Scribd

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