An alleged shadow banker for cryptocurrency exchanges is facing up to 90 years in jail after pleading guilty to bank fraud, bank fraud conspiracy and operation of an unlicensed money transmitting business.
The Department of Justice said on April 25 that Reginald Fowler, a former co-owner of the NFL’s Minnesota Vikings, had been charged with facilitating the fraudulent processing of $750 million from a number of top exchanges beginning as early as 2013 through 2019, when U.S. banks had cut off the industry.
Fowler acted on behalf of Crypto Capital, the DoJ alleged, saying the company “provided fiat-currency banking services to various cryptocurrency exchanges through a series of bank accounts opened under false pretenses” in order to allow those exchanges to send and receive fiat payments.
Among those using its services were Kraken, which ended its relationship with the company in early 2017, and Bitfinex, which wishes it did. The exchange was forced to borrow $625 million of dollars from its sister company, USDT stablecoin-issuer Tether, in 2019 after $850 million of its funds went missing.
On Oct. 25, 2019, Bitfinex issued a statement saying it had been “the victim of a fraud” by Crypto Capital after it was revealed that its funds had been seized as part of other investigations into Crypto Capital and its principals.
In April of that year, the New York Attorney General’s office sued iFinex, the parent company of both Bitfinex and Tether, alleging it left the stablecoin issuer’s cache of fiat backstopping USDT’s dollar-peg underfunded. The company settled the case for $18.5 million last year.
In a 2019 filing, the New York Attorney General’s office said that legal effort included authorities in Poland, Portugal and the U.S.
Read more: What Senate Banking Committee Chair Sherrod Brown Should Be Asking Tether
In the Shadows
In announcing the guilty plea this week, Damian Williams, the United States Attorney for the Southern District of New York, said: “Reginald Fowler helped process hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges, skirting the anti-money laundering safeguards required of licensed institutions that ensure the U.S. financial system is not used for criminal purposes, and lying to U.S. banks whose own policies would otherwise have prevented it.”
Plenty of major banks are now willing to process payments for cryptocurrency exchanges, and some of the largest financial institutions in the world now offer clients crypto services. Additionally, in 2020, Acting Comptroller of the Currency Brian Brooks came to the bank regulator from a position as general counsel of crypto exchange Coinbase.
See also: Wells Fargo, JPMorgan, Goldman and Others Ramp up Crypto Staffs
Noting that Crypto Capital and other related firms, including Global Trading Solutions (GTS), “offered these services at a time when traditional banks were reluctant to handle cryptocurrency transactions,” the DoJ alleged the companies “lied to banks in order to open accounts that were used to process cryptocurrency transactions without the banks’ knowledge.”
Fowler told banks that GTS was a real estate firm and the funds running through it represented real estate investments and rent payments, and had others do the same, the DoJ said following the plea announcement.
“As banks became aware of Fowler’s misrepresentations, they shut down GTS bank accounts and Fowler would move the scheme to new banks,” according to the DoJ. In 10 months, he processed about $750 million in cryptocurrency transactions — nearly $600 million in U.S. dollars, per the release.
“As the trade in cryptocurrencies continues to grow,” Williams added, Fowler’s “guilty plea reflects this Office’s continued commitment to the investigation and prosecution of those in the cryptocurrency sector who seek to continue to operate in the shadows.”
Fowler’s plea also included charges of conspiracy to operate an unlicensed money transmitting business and wire fraud.
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