However, the Taiwan-based bank also stopped trading with Tether and Bitfinex on April 22. Then, Tether, which had problems in the bank’s operation, stopped the customers’ money transfers. However, the indictment notes that Tether has released another 10 million USDT following the suspension.
Tether has started to rerun its transactions by opening an account on Puerto Rico-based Noble Bank. Tether, which does not have a US-based bank connection and stopped accepting its customers’ money, released another $390 million USDT in these five months, per the indictment. Prosecutor’s Office believes that as Tether printed $55 million USDT for two and a half years since it was established, $390 million USDT was too high to be accounted for in a period without bank access. In these five months, the Bitcoin price had increased from $1000 in April 2017 to $4000 in September 2017.
A series of confidential investment documents, called Paradise Papers, leaked to the German newspaper, Süddeutsche Zeitung, became online. Besides many scandals, the documents raised the suspicion that Bitfinex and Tether may be missing in their reserves per such documents.
OCTOBER 28, 2017 — DECEMBER 20, 2017
The indictment notes that Tether and Bitfinex released a total of 850 million USDT more on such dates. It argues that Tether should have reserves of $1,250,000,000 in total with such amount.
NOVEMBER 28, 2017 AND DECEMBER 20, 2017
Digfinex and iFinex opened an account at the Metropolitan Commercial Bank’s New York branch. Per the indictment, Tether and Bitfinex were still unable to make USD transactions despite such accounts. The reason is either the bank does not approve the transactions due to the records of Tether and Bitfinex, or the companies consciously abstain from making transactions for fear of closing the accounts again.
DECEMBER 05, 2017
Bitfinex opens an account for Crypto SP. ZOO at Poland-based Spoldzielczy Bank. Crypto SP is a subsidiary of Crypto Capital.
However, Bloomberg’s news revealed that Bitfinex refrained from revealing the source of money and used its bank account in Poland.
DECEMBER 21, 2017
Tether and Bitfinex stopped new membership and account openings until January 15, 2018. One billion USDT was printed and released in this period alone. This aggressive increase continued until January 24, 2018.
Per the indictment, Bitfinex is working with Crypto Capital for money transfers in early 2018 due to problems with banks. Bitfinex was allegedly holding about $1 billion in Crypto Capital account in early 2018 without any written agreements. Crypto Capital has previously worked with many well-known cryptocurrency companies such as Bitfinex for similar problems. The company often addresses international money transfers through shadow accounts with fake names.
JANUARY 24, 2018
The University of Texas prepared a Tether Report. It is significant in revealing the correlation between USDT supply and Bitcoin price. Per the report, Tether provides 50% of the growth in the entire market alone. It has two hypotheses.
- The hypothesis is that the Tether presses USDT in direct proportion to the investors’ demand. It is called the pull hypothesis. It refers to that investors have attracted USDT to the market.
- The hypothesis relies on Tether’s launch by pushing USDT above demand. It is called the push hypothesis. Tether is said to push or inflate the market.
Considering such hypotheses, we can say that the prosecutor’s Office conducts the process on the second hypothesis. Moreover, it mentions that Tether and Bitfinex are holding USDT printing to stabilize the BTC price at the ideal point for them. The findings following an extensive blockchain data claim that USDT was mostly printed during the periods when Bitcoin was falling and that a fake demand was created to buy BTC by USDT printed. It is claimed that such fake demand and the guaranteed USDTs at a rate of 1:1 do not constitute inflationary results, and the extra USDTs printed when the BTC price rises are sold and removed from the market. The report also notes that the required reserve can be replaced in USDT reserves with the profit obtained.
It claims that all these transactions are conducted not only on the Bitfinex exchange but in a scheme that includes Bittrex and Poloniex exchanges.
The indictment finds it suspicious that the aggressive increase of USDT supply, which has increased since December 21, lost its aggression and stopped on the date of publication of the report.
JANUARY 26, 2018
Bitfinex notified its customers that the bank account that it will use for deposit requests had been changed. Customers were asked to make their deposits into Haparc BV at the Netherlands-based bank ING Groep NV. Following Bloomberg reported it around one month later, ING decided to close the account.
FEBRUARY 16, 2018
Digfinex and iFinex open an account at Signature Bank’s New York branch. The bank is known for its cryptocurrency-friendly policies.
MARCH 28, 2018
Backpage.com has been the target of various charges, including sex scandals, and has been closed down. It turned out that this site laundered its money thanks to several cryptocurrency companies, including Crypto Capital, which Bitfinex works with.
APRIL 6, 2018
Poland seized Crypto Capital’s accounts in Polish banks, of which name was involved in scandals. Zloty, amounting to about $375 million, became unusable after that. Polish authorities announced that such accounts were not engaged in any economic activity but were used to address illegal organizations to send money.
MAY 16, 2018
The Arizona District Court ruled to confiscate funds from a bank account owned by Crypto Capital.
The indictment states that Bitfinex had financial problems during these days. The company’s CFO, Devasini, says, “If you open an account on Crypto Capital, we can make your transaction in seconds, regardless of USD or EUR.” in response to a client’s withdrawal request.
When the client sees that the EUR withdrawal has been stopped on the Bitfinex site, Devasini advises him to open an account through Crypto Capital again.
A speech under the name of “Merlin” by Devasini was reflected in Crypto Capital’s problem with money in the indictment. In this speech, Devasini is referred to as “Merlin” and the other party as “CCC” and addressed as OZ.
Merlin: Hi OZ, I’m sorry to bother you, but don’t we have an opportunity to withdraw at least $100 million? So many withdrawal requests have accumulated. We need to withdraw money from Crypto Capital. I know we can’t touch some money, but the rest?
Is it possible to withdraw money from Crypto Capital to Tether or in any other way? Our cash reserves have decreased.
CCC: I know I work with banks to run things as fast as possible. However, the more we push, the worse return we get, and our accounts are closed for no reason.
Merlin: Dozens of people are waiting for the money from Crypto Capital. I have to tell them a definite answer. Can’t you push it a little more? Please understand me. It is getting worse for the entire crypto economy. Bitcoin can go towards $1,000 if we don’t take immediate action.
Bitfinex began using the Hong Kong bank-based Prosperity Revenue Merchandising Limited account. It could connect to Citibank and made international USD transfers via this bank account.
OCTOBER 15, 2018
Following a strong perception in the market that Tether did not have sufficient reserves, a mass sale of USDT took place, leading to BTC’s purchase. Upon this sudden move, it dropped to a value of 1 USDT = $0.85. BTC price returned to its previous level after a sudden rise from around $6300 to $7600.
Such a move is considered the inability to respond to customers’ demands to withdraw money from Bitfinex and Tether. In comparison, such a situation was not stated in the indictment; per the media reports, the idea that Tether had incomplete reserves, especially when the demands of customers who wanted to withdraw large amounts of money could not be met, spread.
Bitfinex released a statement the same day. Per the statement, the company stated that there are no problems in withdrawing money, but technical difficulties occur in specific accounts and resolve as soon as possible.
OCTOBER 23, 2018
The US Justice Department has decided to confiscate Crypto Capital’s three bank accounts in the country.
OCTOBER 24, 2018
The day following Crypto Capital’s accounts was seized, Tether withdrew 500 million USDT from the market by burning it.
NOVEMBER 1, 2018
Tether published a letter it received from the Bahamas-based Deltec Bank. The letter explains that Tether has $ 1,831,000,000 in its bank account. It is precisely the amount of money Tether should keep in reserve. Therefore, the company aims to eliminate questions with this letter.
The indictment observes that there is distrust in this letter. It expresses an adverse opinion for the letter, mentioning that there is no signature on the letter and that the Bahamas is an inadequate country in regulation and control aspects.
NOVEMBER 27, 2018
The New York Attorney General submits subpoenas to Tether and Bitfinex and requests in detail all of its financial transactions.
FEBRUARY 21, 2019
Bitfinex and Tether reach a loan agreement. Per the agreement, Tether can lend up to $900 million to Bitfinex. Bitfinex is allegedly taking advantage of this agreement to use an approximately $700 million loans. As the guarantee for this loan, Bitfinex cites 60,000,000 iFinex shares owned by Digfinex. The interest rate is set at 6.5%. Per media reports, one of the terms of the deal is that Bitfinex and Tether shareholders and users are not notified of the loan agreement.
APRIL 25, 2019
The New York Attorney General’s Office publishes a unilateral practice based on the Martin Act. Under this practice, while Tether and Bitfinex are asked to submit additional documents for the investigation, it is decided to apply interim injunction to the financial movements of Tether and Bitfinex not to affect the course of the investigation. This measure restricts the activities of companies.
MAY 04, 2019
Bitfinex announces the LEO (Unus Sed Leo) token and states that they aim to raise $1 billion through the token.
The LEO token will be regularly withdrawn by Bitfinex and burned, as explained, and the supply will be steadily reduced. Bitfinex stated that it would use 27% of the revenue from the Tokinex platform for this buyback. Tokinex is a platform used by the exchange to list new tokens and perform private and public sales.
Bitfinex also announced that the token would not be made available to countries in the risky country category by the USA, Canada, and FATF.
MAY 17, 2019
Bitfinex announced that it reached the maximum target by collecting $1 billion in investment in the private sale that it issued for LEO.
MAY 21, 2019
The LEO token is publicly traded on the exchange. The token has a market capitalization of $1.236 billion as of September 24, 2020.
AUGUST 19, 2019
Judge Cohen rejected Tether and Bitfinex’s objections to the case, and the investigation was decided to continue.
October 6, 2019
The New York Attorney General has filed a lawsuit against Tether, Bitfinex, iFinex, Crypto Capital.
OCTOBER 25, 2019
Crypto Capital’s head, Ivan Manuel Molina Lee, was arrested in Poland.
FEBRUARY 21, 2020
Money laundering and fraud charges were filed against the CEO of Global Trade Solutions. Global Trade Solutions is the owner of Crypto Capital.
JUNE 3, 2020
Bittrex and Poloniex cryptocurrency exchanges are the last of the defendants to be involved in the case. The indictment observes the reason as they voluntarily helped Bitfinex even manipulate the market. Per the system, it is claimed that the USDTs to be released are first sent to Bitfinex, then the required amount of USDT is transferred to Bittrex and Poloniex and taken back after manipulation.
AUGUST 7, 2020
Bittrex and Poloniex lawyers requested a summary judgment in their letter to the court. They also stated that the exchange account allegedly used in the manipulation belonged to a separate user. It was noted that the user in question performs inter-exchange trade transactions due to arbitrage transactions and is not different from other users. Therefore, the justification of the case was claimed to be invalid.
SEPTEMBER 17, 2020
The New York Attorney General noted that Bitfinex did not deliver the requested information and documents in full by the deadline, and such records should be delivered. Bitfinex and Tether complained that the requested documents were too old and difficult to access. Judge Cohen noted that companies should have easy access to the requested records.
The judge did not set a new deadline but decided to extend the duration of the decision preventing Tether from lending to Bitfinex.
As of December 16, 2020, it has a market size of $ 19.7 billion. The market size was positively affected, especially after the economic crash after covid-19.
It is a Panama based bank under Global Trade Solutions. Global Trade Solutions is a licensed financial institution located in the Canton of Zug, Switzerland.
Exchanges such as Kraken, Binance, Bitmex also preferred Crypto Capital because banks did not want to work with cryptocurrency companies before, but their relationship was short. Bitfinex and Canadian-based cryptocurrency exchange QuadricaCX are companies that have money in Crypto Capital and have an ongoing relationship.
Crypto Capital has continued to work with the same system for a long time. The company, which conducts money transfers through shadow accounts abroad, is being investigated after the scandal initiated by the backpage.com site for establishing a front company, money laundering, being involved in sex trafficking, or indirectly helping out backpage.com, and being in contact with drug cartels.