Translation, commentary/Attorney Xu Kai and Wang Gang of Beijing Deheng Law Firm
Translator Note:
U.S. Court for the Southern District of New York (Case No. 1: 19-cv-09236)
Plaintiffs:
David Leibowitz, Benjamin Leibowitz, Jason Leibowitz, Aaron Leibowitz, Peace Pinchas Goldshtein
Defendants:
iFinex Corporation, BFXNA Corporation, BFXWW Corporation, Tether Holdings Limited, Tether Operations Limited, Tether Limited, Tether International Limited, DIGFINEX Corporation, Philip G. Potter, Giancarlo Deva Giancarlo Devasini, Ludovicus Jan van der Velde, Reginald Fowler, Crypto Capital, and Global Trade Solutions
class action
request for a jury verdict
Attorney: Kyle W. Roche (appearance pending)
Joseph M. Delich
Roche Freedman LLP
2nd Floor, 185 White Avenue, Brooklyn, NY
Kyle@rochefreemdan. com
Jdelich@rochefreedman. Com
Attorney: Velvel (Devin) Freedman [Velvel (Devin) Freedman, interstate practice pending] Roche Freedman LLP
Suite 5500 South Biscayne Boulevard, Miami, FL
vel@rochefreedman. Com
Lawyer Xu Kai:
Roche Freedman LLP is also the attorney for the plaintiff in the Kleiman v. White case. Their strategy in this case put the defendant Craig White in a passive position.
According to the firm's website, they specialize in "complex and high-stakes dispute resolution."
The firm has only these three lawyers, the first two of whom are based in New York and the latter in Miami.
Plaintiffs David Leibowitz, Benjamin Leibowitz, Jason Leibowitz, Aaron Leibowitz, and Ping Cha Pinchas Goldshtein (Pinchas Goldshtein) and on behalf of all similar circumstances, to iFinex Corporation, BFXNA Corporation, BFXWW Corporation, Tether Holdings Limited, Tether Operations Limited, Tether Limited, Tether International Limited, DigFinex Corporation, Philip • Philip G. Potter, Giancarlo Devasini, Ludovicus Jan van der Velde, Reginald Ford Reginald Fowler, Crypto Capital, and Global Trade Solutions (collectively, the "Defendants"), allege:
01
introduction
"The methods and techniques of manipulation are limited only by human creativity."
(Cargill v Harding, 1971)
1. This lawsuit concerns a sophisticated scam that used a disruptive innovation (cryptocurrency) to defraud investors, manipulate markets, and hide illicit proceeds.
2. Part fraud, part pumping, part money laundering, this scam was primarily done through two businesses (Bitfinex and Tether) who mixed business identities and customer funds while concealing extensive cooperation between them so that they could use Manipulate the cryptocurrency market with unprecedented efficiency.
3. Founded in 2012, Bitfinex is one of the largest cryptocurrency exchanges in the world and a platform for individuals to buy and sell various cryptocurrencies.
4. Tether is a centralized service provider for a cryptocurrency known as "tether" or "USDT", which is one of the world's first "stable coins", although most cryptocurrencies are not backed by tangible assets Yes, "stablecoins" such as USDT are designed to address the volatility inherent in cryptocurrencies by being pegged to a reserve of tangible assets.
5. Bitfinex and Tether teamed up to manipulate a market that was supposed to be decentralized.
6. At the heart of the scam is Tether's claim that "the amount of tokens (USDT) in circulation is always equal to the dollars in its bank account." This statement made Bitfinex and Tether signal to the market that the demand for the cryptocurrency is growing rapidly, because every USDT "printed" means an additional dollar put into the market.
7. This claim is a lie.
8. Tether issued a large amount of USDT without U.S. dollar backing to manipulate the price of cryptocurrencies. Because the market believes the lie that one USDT is equal to one U.S. dollar, Bitfinex and Tether can and do manipulate the market on an unprecedented scale, profiting from the volatility cycles they create.
9. From 2017 to 2018, Tether "printed" 2.8 billion USDT, using it to flood the Bitfinex exchange and buy other cryptocurrencies. This artificially drives up demand for the cryptocurrency and causes prices to skyrocket.
10. When the cryptocurrency market reached a frenzy, Tether’s large-scale issuance of USDT created the largest bubble in human history. When the bubble burst, the entire market lost more than $450 billion in less than a month. This defoaming process continues to affect the cryptocurrency market, and prices would not have fallen so low without manipulation.
11. As discussed below, economists estimate that from 2017 to 2018, half of the growth of the cryptocurrency market was manipulated by Bitfinex and Tether.
12. Even in the face of ongoing investigations by the New York Attorney General, the Commodity Futures Trading Commission (CFTC), and the Department of Justice, Tether and Bitfinex continue to defraud the market, demonstrating their lawlessness.
13. Even fully aware of the incredible harm they have done to the cryptocurrency market, on October 5, 2019, Bitfinex and Tether issued statements in which they broadly described the allegations contained in this lawsuit, which they "fully anticipated ” would be sued, and said it “would not be surprised if such a lawsuit was filed immediately”.
14. It is too early at this stage to calculate damages, but there is no doubt that the extent of the damages caused by the defendants is unprecedented. Their liability for putative collective damages could exceed $1.4 trillion. “As of January 6, 2018, the combined market capitalization of cryptocurrencies was approximately $795 billion; by February 6, 2018, the total market capitalization had dropped to $329 billion.” This time period alone represents a potential loss of $466 billion , under the Antitrust Act and the Anti-Organized Crime and Corrupt Organizations Act (RICO Act), plaintiffs may seek triple damages.
Lawyer Xu Kai: RICO is the abbreviation of the "Racketeer Influenced and Corrupt Organizations Act" passed by the U.S. Congress in 1970. Racketeer originally meant blackmailers, but the RICO Act expanded the interpretation of Racketeering, covering murder, kidnapping, fraud, robbery, Arson, usury, illegal gambling, bribery, postal and telecommunication fraud and other crimes. Because there is a triple compensation rule under the RICO Act (somewhat similar to my country's "Consumer Protection Law"), in civil lawsuits, the plaintiff's lawyers often try to interpret civil infringements such as breach of contract, common law fraud, and product quality liability as "RICO offenses under the Act.
02
Litigation parties
A. the plaintiff
15. Plaintiff David Leibowitz is a citizen of West Palm Beach, Florida. Since July 2014, David Leibovitz has held Bitcoin and Bitcoin Cash through his holdings in Pantera Bitcoin Fund Ltd. At the time of the case, David Leibovitz also personally held Ethereum and Litecoin.
16. Jason Leibowitz is a resident of New York. At the time of the case, Jason Leibovitz held Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Bitcoin Gold (bitcoin gold), Ripple XRP, Stellar Lumens, Tron, QTUM, Monero , ZCash, Dash, Augur, NEO, EOS, WAVES, OMG, Cardano, NEM, IOTA, POWR, ICON and STEEM and other cryptocurrencies.
17. Benjamin Leibowitz is a resident of New York. At the time of the case, Benjamin Leibovitz owned Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Bitcoin Gold, Ripple XRP, Stellar Lumens, Monero, ZCash, OMG, Cardono, NEO, and POWR, among others cryptocurrency.
18. Aaron Leibowitz is a citizen of Westchester County, New York. At the time of the case, 18. Alan Leibovitz owned cryptocurrencies such as Bitcoin, Bitcoin Cash, Ethereum, Waves, and EOS.
19. Pinchas Goldshtein is a citizen of Miami, Florida. At the time of the case, Pinchas Goldstein held bitcoin and bitcoin futures contracts.
B. The accused
i.Digfinex
20. The defendant, DigFinex, was established in the British Virgin Islands and is a resident of it. DigFinex is the ultimate parent company of Defendant Bitfinex (as defined below) and Defendant Tether (as defined below), and is the majority shareholder of iFinex and Tether Holdings Limited.
21. The shareholders of Digfinex are Ludovicus Jan van der Velde, Giancarlo Devasini, Paolo Ardoino, Philip Potter, Stuart Hoegner and Yongdong Group (Asia) Limited.
ii. Defendant Bitfinex
22. The defendants iFinex, BFXNA, and BFXWW are owned and operated by the same group of managers and employees, and they also jointly operate an online cryptocurrency trading platform called Bitfinex. The plaintiff will provide information about these defendants below more detailed allegations, but for ease of reference, we will refer to these Defendants collectively as "Bitfinex" or "Defendants Bitfinex" unless otherwise noted.
23. The defendant, iFinex, was established in the British Virgin Islands and is a resident of it. iFinex Corporation owns and operates the cryptocurrency online trading platform "Bitfinex" at Bitfinex.com. It wholly owned the equity of defendants BFXNA and BFXWW.
24. The defendant, BFXNA, was established in the British Virgin Islands and is a resident of it. This company is responsible for providing services to American customers who trade on the Bitfinex platform.
25. The defendant, BFXWW, was established in the British Virgin Islands and is a resident of it. This company is responsible for providing services to non-US customers who trade on the Bitfinex platform.
iii. Defendant Tether
26. The defendant Tether Holdings Co., Ltd., Tether Co., Ltd., Tether Operations Co., Ltd., and Tether International Co., Ltd. are owned and operated by the same small group of management and employees, and jointly operate an organization called "Tether", which issues and controls USDT. For ease of reference, we will refer to these Defendants as "Defendants Tether" or "Tether" unless otherwise noted.
27. The defendant Tether Holdings Co., Ltd. is the holding company of the defendants Tether Co., Ltd., Tether Operations Co., Ltd. and Tether International Co., Ltd.
28. The defendant, Tether Operations Limited, was established in the British Virgin Islands and is a resident of it.
29. The defendant, Tether International Limited, was established in the British Virgin Islands and is a resident of it. The company is in charge of servicing non-US customers of Tether trading USDT.
30. The defendant, Tether Co., Ltd., was incorporated in Hong Kong and was a Hong Kong resident. Tether Co., Ltd. is the subject of USDT issuance.
iv. Natural person defendants related to DigFinex, Bitfinex and Tether
31. Defendant Ludovicus Jan van der Velde (Ludovicus Jan van der Velde) has been the CEO of both Bitfinex and Tether since 2013, and he is also registered with DigFinex, iFinex and Tether Ltd. one of the two directors. Wilder is also a shareholder of DigFinex and Tether Holdings Ltd., and is the former CEO of DigFinex shareholder Yongdong Group (Asia) Co., Ltd. Wilder is a Dutch citizen.
32. Defendant Giancarlo Devasini participated in the creation of Bitfinex. He is the CFO of Bitfinex and Tether, and another registered director of DigFinex, iFinex and Tether Limited. He is a shareholder of Tether Holdings Ltd and DigFinex, and he is an Italian citizen. In the early days of Bitfinex and Tether, Devasini posted on the bitcointalk.org forum under the username "urwhatuknow".
33. Defendant Philip G. Potter was the Chief Strategy Officer (CSO) of Bitfinex Corporation and Tether Corporation until June 2018. He is also a director of Tether Holdings and a shareholder of Digfinex. Philip Potter is a citizen of New York.
v. Defendant Crypto Capital Corporation
34. Defendant Crypto Capital, incorporated in Panama, operates a "payment processor" that markets itself to cryptocurrency exchanges. In effect, it is an illegal "shadow bank" that allows Bitfinex and Tether businesses to enter the global financial system without regulation.
35. The defendant, Global Trade Solutions AG, was established in Switzerland and holds and operates Crypto Capital. The Swiss Financial Market Supervisory Authority (FINMA) placed the global trade solutions company on its public warning list in May 2019.
36. Defendant Reginald Fowler is an employee, agent, or partner of Defendants Crypto Capital Corporation and Global Trade Solutions, Inc. He is a US citizen and a resident of Arizona.
37. For ease of understanding, the organizational chart of the specific defendants and their various relationships with each other is shown in Schedule 16.
【Schedule 16】
03
Jurisdiction and place of jurisdiction
38. Your Court has original jurisdiction in this case pursuant to a federal action brought under 28 U.S.C. Sections 1331 and 1337 and 18 U.S.C.
39. Pursuant to Title 15, United States Code, Section 22, Title 18, Section 1965, and Title 28, Section 1391, because the defendant resides, deals in business, is found in the District, or has an agent in the District , and a large part of the actions involved have affected interstate trade and commerce in this district, so the trial venue is located in this district (Southern District of New York).
40. During the period from the date of USDT's initial issuance in October 2014 to the present (the "Class Action Period"), the above-mentioned defendants used the tools of interstate commerce, including interstate lines, to carry out their violations.
41. Pursuant to Title 15, U.S.C., Section 6(a), the above-mentioned defendants' manipulation, conspiracy, and conduct of the alleged conduct had a direct, material, and reasonably foreseeable effect on U.S. imports and/or on U.S. domestic commerce. impact, giving the plaintiff the right to claim.
42. This Court has personal jurisdiction over each of the Defendants because of their transactions in the United States (including this jurisdiction), and/or their or their accomplices' close association. This scam targets and is intended to harm people who live in, are located in, or do business in the area.
43. The Court also has quasi in rem jurisdiction over the defendants through their U.S. dollar accounts in New York.
04
case facts
A. Cryptocurrencies and Cryptocurrency Trading
44. A cryptocurrency is a digital asset intended to serve as a medium of exchange and/or store of value. Cryptocurrencies use various encryption algorithms to ensure transaction security, control the issuance of new coins, and verify the transfer process of underlying digital assets.
45. Bitcoin, the world's first decentralized cryptocurrency, is also the largest and most popular cryptocurrency, with a market capitalization of $147 billion as of October 5, 2019. Bitcoin has given birth to a cryptocurrency market that, together with Bitcoin, currently has a market capitalization of $219 billion.
46. In essence, Bitcoin is a ledger that records the ownership and transfer process of each existing Bitcoin. This ledger is called the blockchain.
47. Instead of a bank account number, each Bitcoin user has a “public key,” which is the address used to receive Bitcoins from other people. On the Bitcoin blockchain, each public key and the amount of bitcoins associated with that particular public key can be easily identified.
48. There are two ways to get bitcoins.
49. The first method is "mining". Since there is no central authority, the Bitcoin code dictates that new Bitcoins be issued to individuals who volunteer computer resources to maintain updates to the Bitcoin ledger, a process known as Bitcoin "mining."
50. The second method is to obtain from others, including gifts and purchases.
51. An online cryptocurrency exchange is a place where you can buy bitcoins. Cryptocurrency exchanges are similar to traditional stock or commodity exchanges in that they provide a convenient marketplace for buyers and sellers of cryptocurrencies.
52. In the early days, Bitcoin was the only tradable cryptocurrency. As cryptocurrencies became more popular, exchanges started listing other cryptocurrencies.
53. As the cryptocurrency market grows, so does the trading volume on exchanges. In early 2013, Bitcoin’s daily trading volume was hovering between $1 million and $25 million. By the end of 2017, Bitcoin’s daily transaction volume had soared to between $200 million and $3.8 billion.
B. Bitfinex
54. Bitfinex was first announced in 2013 by its then-CTO Raphael Nicolle on the online cryptocurrency forum bitcointalk.
55. Bitfinex is now one of the “largest and least regulated” cryptocurrency exchanges in the world. While many exchanges only offer crypto-to-crypto trading, Bitfinex is one of the few exchanges that allows users to deposit and withdraw "fiat currency."
56. Bitfinex has issued conflicting statements about where it operates. Sometimes it states that its principal place of business is Hong Kong, sometimes it says it only has an office in Taiwan. In 2019, Bitfinex’s general counsel swore: “Neither Bitfinex nor Tether have a headquarters or general office. Locations of offices in London and Taiwan.
57. In June 2016, the Commodity Futures Trading Commission (hereinafter referred to as "the Commission") imposed a fine of US$75,000 on Bitfinex because the Commission determined that "Bitfinex engaged in illegal over-the-counter commodity transactions and was not registered with the Commission as a broker for futures transactions, Violations of Sections 4(a) and 4(d) of the Commodity Exchange Act".
58. The Commission also believes that "Bitcoin and other cryptocurrencies should be considered commodities by definition and subject to the Commodity Exchange Act."
C. Tether
59. Tether controls the cryptocurrency USDT, one of the first stablecoins. A stablecoin is a cryptocurrency designed to maintain a stable value relative to one or more assets such as gold or fiat currencies. Unlike the underlying asset it represents, a stablecoin can be transferred between two parties instantaneously and at minimal cost.
60. Stablecoins attempt to address the illiquidity and price volatility of the cryptocurrency market. In fact, price volatility is one of the main obstacles preventing cryptocurrencies from becoming a means of exchange and a unit of price storage. As one former Goldman Sachs CEO put it, “Something that goes up and down 20% in a day doesn’t feel like a store of value.”
61. Unlike Bitcoin, USDT cannot be obtained from mining. In fact, Tether unilaterally controls the generation of new USDT.
62. Tether’s origins can be traced back to July 2014, when a startup called Realcoin, backed by investor Brock Founded by Brock Pierce, first CEO Reeve Collins, and software engineer Craig Sellars, by issuing Realcoin they "digitize the dollar and make the digital dollar Access to the Bitcoin Blockchain".
63. Collins stated that Realcoin is "injected into circulation or withdrawn from circulation depending on whether the corresponding dollar is increased or decreased." He also claimed that Realcoin has found a "major partner bank" that will "maintain a real-time records,” its “lawyers are working to apply for money-transmitting licenses with the appropriate states.”
64. In November 2014, Realcoin rebranded itself to Tether and renamed Realcoins to "Tether" or USDT, listed and traded on cryptocurrency exchanges around the world.
65. In September 2014, two months before the name change, the defendants Porter and Devasini registered and established Tether Holdings Limited in the British Virgin Islands.
66. One month later, on October 6, 2014, Tether issued the first batch of stablecoins, "printing" 100 USDT, claiming to be worth $100.
67. After the name change, Collins reiterated Realcoin’s commitment. He openly declared that “the amount of USDT in circulation is always equal to the amount of USDT in their bank account” and that “there is no peg or formula to complicate the process.” He stated unequivocally: “When you want to redeem them We'll give you cash when the time comes."
68. At the same time as the name change in November 2014, Tether announced that it had "established new partnerships in the Bitcoin field, including a cooperation agreement with the Hong Kong-based Bitcoin exchange Bitfinex."
69. However, they did not disclose in the November 2014 announcement that Tether's holding company was created in September 2014 and has been controlled by Bitfinex's CFO and CSO, Devasini and Porter.
70. They also failed to disclose that Wilder and Devasini, the CEO and CFO of Bitfinex, also registered and became directors of Tether Limited in September.
71. An archived copy of the Tether website from March 2015 identifies Porter and Devasini as its "advisors," but doesn't mention Wilder at all.
72. Even without strong evidence of wrongdoing, the fact that the same people who control Bitfinex (a cryptocurrency exchange) secretly control Tether (a cryptocurrency purportedly backed by the U.S. dollar) is disturbing. Doubts abound.
73. This control structure was hidden from the public for over a year until the November 2017 leak of the Pardise Papers.
Lawyer Xu Kai: On November 5, 2017, about 13.4 million overseas investment-related documents of Appleby Law Firm were leaked, involving more than 100,000 companies or individuals. The group of leaked documents is known as the Paradise Papers because of their involvement in offshore investments.
74. It is also suspicious that the first transfer of USDT is always from Tether's "vault wallet" to Bitfinex, and not directly to other exchanges.
75. Tether's treasury wallet is an account controlled solely by Tether, where all creation and destruction of USDT takes place. All new USDT created is first sent to this wallet, and any USDT that is redeemed must likewise be transferred back to this wallet to be "revoked," i.e. destroyed.
76. Tether’s exclusive relationship with Bitfinex’s USDT initial offering indicates that Bitfinex is Tether’s only customer.
77. As of the date of the prosecution, USDT is the most widely used cryptocurrency in the world in terms of transaction volume, surpassing even Bitcoin. The CTOs of Bitfinex and Tether recently boasted that USDT has an almost complete monopoly on the stablecoin market, accounting for 98.7% of global stablecoin trading volume.
78. It is also the fourth largest cryptocurrency in the world with a market capitalization of over $4.1 billion, which means that Tether should hold over $4.1 billion in deposits in its bank accounts.
D. Tether’s history of USDT/USD 1:1 guarantee
79. Tether has been marketing USDT to traders, allowing them to move in and out of positions between different cryptocurrencies and different cryptocurrency exchanges. Its selling point is that USDT provides a blockchain mapping of stable prices for both worlds. It is as stable and secure as the US dollar, while being transferable and divisible like other cryptocurrencies.
80. The value of USDT is guaranteed by Tether, that is, each USDT corresponds to a reserve of one dollar.
81. Until March 20, 2015, Tether’s website was claiming that USDT was “100% backed by actual fiat currency assets in the reserve account and maintained a one-to-one ratio with any currency. For example, 1USDT=1USD. Conversion And the payment fee is almost zero, [USDT] can be exchanged for cash at any time.
82. At the same time, Tether's website also claimed, "The Tether currency is basically a blockchain-based mapping of dollars, euros, and yen, always at a 1:1 ratio to the underlying asset."
83. On June 17, 2016, Tether released a white paper to further assure the world that each USDT is backed by actual assets. It promises:
“Each USDT in circulation always represents one dollar held in our reserves (i.e. a one-to-one ratio), meaning that all USDT in existence (at any point in time) is always exactly equal to the USD reserve balance.”
84. The white paper also mentions Tether's commitment to "maintain 100% cashability" and promises that USDT "can be exchanged or redeemed for the corresponding fiat currency in accordance with the terms of service, or, if the holder prefers, an equivalent value of Bitcoin."
85. Finally, it also describes the whole process in the diagram below: store legal currency, create USDT, redeem legal currency, and destroy USDT.
86. One year later, on April 5, 2017, in the lawsuit against Wells Fargo, Wilder filed a veracity assurance statement, explaining:
Customers who want to buy cryptocurrencies through Bitfinex must deposit USD or [USDT] into their Bitfinex account, and they will receive the equivalent amount in cryptocurrencies until they redeem for fiat. Likewise, customers who want to buy [USDT] via Tether must deposit USD into their Tether account and they will receive the equivalent [USDT] until they redeem USD... This system works because customers trust Bitfinex and Tether will return USD deposited to Bitfinex or Tether to them at their request.
87. As of February 2019, Tether’s website still states that each USDT in circulation is “backed 1-1 by traditional currency in our reserves. Therefore, 1 USDT is always equal to 1 USD.”
88. On March 4, 2019, when Tether was under criminal investigation by the Department of Justice, the Commodity Futures Trading Commission (CFTC), and the New York Attorney General (New York Attorney General), Tether’s guarantee was amended to claim that, Each USDT is “pegged 1:1 to the U.S. dollar” and is 100% backed by reserves that “may sometimes include other assets.”
89. As of August 17, 2019, there are issues concerning (1) "the outstanding currency [USDT] is backed 1:1 by traditional currencies", (2) "1 USDT is always equivalent to 1 U.S. dollar", (3) "users are free to Deposit, trade, and withdraw USDT” and “exchange these currencies back into fiat currency” statements continue to appear on Bitfinex’s website.
90. Tether’s attorney told the New York Attorney General’s Office, “When investors deposit dollars into Tether, or deposit dollars into an authorized trading platform to purchase [USDT], the new [USDT] will be issued. "
91. Although these expressions vary in form, they have not changed substantially for at least 5 years. But USDT is not actually backed 1:1 by the US dollar, any other currency, or even "other assets". As will be explained in detail below, Tether’s 1:1 guarantee is a lie, and Tether and Bitfinex have used this lie to monopolize the stablecoin market, thereby manipulating the cryptocurrency market.
E. The cryptocurrency market is susceptible to manipulation
"Illiquid markets like bitcoin are easily manipulated."
—Defendant Giancarlo Devasini, December 5, 2012.
92. Bitfinex and Tether’s plans benefit in part from the inherent volatility and lack of regulation in the cryptocurrency market. This volatility makes the cryptocurrency market extremely vulnerable to price manipulation.
93. Volatility is due to a variety of factors, including that regulators are still evaluating how best to apply the existing regulatory framework to this market.
94. Part of the reason is also that cryptocurrencies are more commodities than stocks. They don’t sell products, make a profit, hire employees, or return bonuses—characteristics that make them easier to value. Unlike commonly traded commodities such as gold or silver, the cryptocurrency asset class is relatively new and does not have a long trading history to help traders understand the factors behind its market demand.
95. Finally, this market does not have large-scale institutional capital to form an effective price anchor.
96. Thus far, the above conditions have created an environment of high price volatility and are therefore vulnerable to price manipulation.
97. One notorious example of manipulation occurred between 2013 and 2014 by an automated trading program known as WillyBot.
98. Automated trading programs like Wiley Robot enable traders to execute manipulative strategies with precision. These programs are often referred to as "bots".
99. From 2013 to 2014, Mark Karpeles, the owner and operator of the cryptocurrency exchange Mt.Gox, successfully manipulated the price of Bitcoin by using the "Willie Robot" in less than From about $150 to over $1,000 in 3 months, the price dropped to $500.96 when Mt. Gox finally suspended trading due to insolvency.
100. Before the crash, "Mt.Gox was the largest Bitcoin exchange" and "handled 70% of the world's Bitcoin trading volume". Mark Capels is its sole owner and operator.
101. On May 25, 2014, an anonymous trader released a report titled "The Wiley Report: Evidence of Mt.Gox's Large-Scale Fraudulent Activities and Its Impact on Bitcoin Price".
102. The Wiley Report conducted a detailed analysis of the leaked transaction logs of Mt.Gox and concluded that: Someone programmed a trading robot to buy 10-20 bitcoins every 5 to 10 minutes. The report concluded that this "significantly" affected the price of Bitcoin and was key to Bitcoin's rise to $1,000.
103. Since then, more academic studies have reached the same conclusion. In an article published last year, a research team found that:
"Suspicious trading activity by a single trader was the main reason for the massive price surge of bitcoin against the US dollar, from around $150 to over $1,000 in just two months in late 2013."
104. The researcher observed that "Willy's account has been active since September 9, 2013" and continued to trade until November 30, 2013 when the data was cut off. Since Mark Capels owns and operates the exchange, "Willy" didn't actually have to pay for bitcoin, and during that time "purchased approximately 268,132 bitcoins for just under $112 million." currency". This finding of the researchers is clearly expressed in the following passage:
Comparing Willy's active days to inactive days reveals a dramatic difference: In the Mt. Gox case, USD/BTC rose by $21.85 during the 50 days Willy was active, while on the days Willy was inactive , USD/BTC fell by $0.88. The same dramatic difference applies to other exchanges. These results are staggering and suggest that Wiley's actions could have caused a massive spike in exchange rates across all exchanges.
105. While it was initially unclear who controlled the Willy robot, Mark Karpels eventually admitted to controlling it during a 2017 trial.
106. The Wiley Bot scam amply demonstrates that control of an exchange and trading with non-existent funds will allow one individual to have a huge impact on cryptocurrency prices, even without the complexities of brush trading, wash trading, and cyber fraud manipulation strategy. Purchasing cryptocurrencies with non-existent U.S. dollars interferes with the natural price discovery process and misleads market participants.
F. How Tether and Bitfinex Created the Bitcoin Bubble in 2017-2018
It's going to be the biggest bubble of our lifetimes...you can make a ton of money on the way up, that's the plan.
— Michael Novogratz, September 26, 2017.
107. Bitfinex and Tether used USDT and their control of the Bitfinex exchange to inflate the largest bubble in history.
108. From 2014 to 2016, the price of Bitcoin fluctuated between $200 and $800. By the end of 2016, Bitcoin (and investors in other cryptocurrencies) started to make huge gains.
109. On March 1, 2017, the price of Bitcoin climbed to $1,200. Throughout the first half of 2017, Bitcoin continued to make huge gains, rising to just over $2,000 in July.
110. Since then, the price of Bitcoin has risen rapidly until on December 17, 2017, the price of Bitcoin reached a record high of nearly $20,000. At the time, Bitcoin’s market capitalization was nearly $327 billion, roughly equivalent to Amazon’s market capitalization over the same period.
111. Then the market crashed.
112. From January to February 2018, the price of Bitcoin fell to $6,200. Throughout 2018, the Bitcoin market continued to bleed. Bitcoin's market cap dropped to $62 billion, or $3,500 per bitcoin.
113. Bitfinex and Tether created and burst the largest bubble in history, resulting in the disappearance of $265 billion worth of Bitcoin wealth.
114. The chart below illustrates the magnitude of this event by comparing the relative prices of Bitcoin and other notable bubbles:
115. This economic disaster is not limited to Bitcoin. As bitcoin fell, so did the rest of the cryptocurrency market it spawned. “As of January 6, 2018, the combined market capitalization of all cryptocurrencies was approximately $795 billion; by February 6, 2018, the total value had dropped to $329 billion.” [CFTC v McDonnell, 2018]
116. As explained below, USDT is not really backed 1:1 by USD. Bitfinex and Tether issued billions of unbacked USDT to manipulate the price of Bitcoin and other cryptocurrencies.
117. This scheme enables Bitfinex and Tether to buy large amounts of Bitcoin without paying (like Mark Capels did in 2013-2014) and gain amazingly from the boom and bust cycles they created profit.
i. Prof. Griffin’s analysis shows that Tether and Bitfinex have manipulated the Bitcoin price
118. In June 2018, two professors, John Griffin and Amin Shams, published an analysis article on the USDT issue on the Social Science Research Network (SSRN), entitled Is Bitcoin Really Untethered (Tether)? (hereinafter referred to as "Griffin")
119. Griffin’s main conclusion is that USDT-driven price manipulation accounted for half of Bitcoin’s price growth between March 1, 2017, and March 31, 2018.
120. Griffin examines two alternative hypotheses to explain how Tether issued USDT during this period.
121. The first hypothesis is that Tether issued USDT in response to a legitimate demand for pegged cash. Under this assumption, USDT is fully backed by the U.S. dollar. This assumption is known as the "pull assumption" because investors are "pull" USDT into the market.
122. Another hypothesis is that Tether issued USDT as part of a supply-driven ruse to manipulate the price of Bitcoin by purchasing Bitcoin with unbacked USDT. This assumption is known as the "push assumption" because Tether issues USDT independently of demand and "pushes" it into the market.
123. Since Tether controls the issuance of USDT, Bitfinex and Tether can set a strategic price ladder for Bitcoin, trigger the execution of buy orders with unbacked USDT, and ensure that the price of Bitcoin will never fall below the preset price at no cost. set lower limit. As with Willy Bot, continued buying can lead to higher bitcoin prices.
124. The issuance of a large amount of USDT and used to purchase Bitcoin usually has an inflationary effect, causing the price of USDT to fall relative to Bitcoin, but the 1: 1 reserve guarantee sets a lower limit for the price of USDT relative to the US dollar, resulting in Bitcoin Relative to the dollar rose.
125. According to the Push Hypothesis, as the price of Bitcoin rises, Bitfinex and Tether can cash out by selling the Bitcoin they bought in USD, possibly at a slower rate, through opaque channels, than their purchases have on the price. Much less impact.
126. In other words, Tether and Bitfinex bought Bitcoin with fake USDT to lure trend investors, and then sold them to cash in real USD.
127. In case anyone doubts it, Tether can exchange cryptocurrencies for USD, or use its USD profits to in turn provide reserves for USDT, claiming that these reserves have always been there.
128. To determine which assumptions were valid, Griffin examined more than 200g of transaction data from more than 10 different sources. The openness of the blockchain allows him to analyze data such as USDT transaction volume and circulation.
129. Griffin first confirmed that Tether sends all new USDT to Bitfinex, and Bitfinex basically sends USDT to two other exchanges: Poloniex and Bittrex. For example, as of February 2018, Bitfinex had sent 2.99 billion USDT to Poloniex.
130. Griffin then asserts that USDT was issued and used to purchase Bitcoin when the price of Bitcoin fell, but there was no redemption data to reflect this when the price of Bitcoin rose. He believes that this shows that USDT is used to prevent the decline, rather than real market behavior.
131. In other words, Tether and Bitfinex bought Bitcoin with USDT when the price fell, in order to keep the price artificially high.
132. Griffin then analyzed Tether issuance between March 1, 2017, and March 31, 2018, to test the extent of the correlation between issuance and Bitcoin price increases. He found that issuance timing is highly correlated with Bitcoin halving nodes.
133. Griffin concludes that his above findings are "most consistent with the supply-driven manipulation hypothesis". Tether is artificially pushing USDT into the market.
134. Griffin explained in an interview with Bloomberg:
First, [USDT] was created by Tether Ltd, usually in large amounts like $200 million. Almost all new coins flowed to Bitfinex. When the price of bitcoin falls, Bitfinex and other exchanges buy bitcoin in a coordinated manner to keep the price high.
135. The chart below depicts the correlation between USDT issuance and Bitcoin price increases:
136. Griffin also observed that there is evidence that “round-number thresholds” are being used as “price anchors to set floors” that “stabilize and drive up” bitcoin prices. The premise of price anchors is that "if investments show a floor for entry, then they can entice other traders to buy."
ii. Other studies corroborate the conclusions of Griffin's paper
137. A few months before Griffin’s article was published, a report entitled “Quantitative Research on Tether Effects” (hereinafter referred to as “Tether Report”) was published online, similar to Griffin’s analysis, “Tether Report” The conclusions drawn are: Tether’s issuance had a considerable impact on the market; the 48.8% increase in BTC prices during the same period occurred within two hours after Bitfinex received 91 Tether “appropriations”. The report warns that “Bitfinex deposit and withdrawal statistics are unusual and, in normal financial circumstances, should be further scrutinized.”
138. The Tether report analyzed Bitcoin price data and USDT transaction records and found that:
The price data suggests that Tether may not be generated independently of Bitcoin price, but rather when Bitcoin falls; it also shows that the notion that Tether does not have much impact on Bitcoin price is false. One interpretation of these data shows that Tether is responsible for half of the increase in the price of Bitcoin, even without considering the subsequent impact and the psychological effect of repeated market rises. This transaction data could trigger intense scrutiny and audits due to suspicious transaction patterns.
139. On October 3, 2019, the cryptocurrency research company TokenAnalyst, "on the mission of bringing transparency to the decentralized economy", came to a similar conclusion that Tether's behavior of issuing USDT is related to the rise in the price of Bitcoin.
140. Tokenanalyst analyzed the “historical relationship between BTC price and USDT supply” and determined that “on the days of minting #USDT ERC20, the likely behavior of BTC price increases is 70.0%”, “on the days of minting #USDT Omni, There is a 50.0% probability that the price of BTC will rise.”
Lawyer Xu Kai: To put it simply, USDT ERC20 is based on the Ethereum network and stored on the Ethereum address.
USDT Omni is based on the Bitcoin network and stored on Bitcoin addresses.
141. In July 2018, Dr. Gerard Martinez reviewed the Griffin article, and after reviewing the relevant evidence, Dr. Martinez concluded, “The statistics support the theory that Tether Corporation and Bitfinex used Tether to buy Bitcoin at key moments in Bitcoin’s price surge in 2017 and early 2018”; The company buys Bitcoin with newly minted Tether and pushes to create a fraudulent bull market that will attract more investors to buy Bitcoin, thereby inflating the bubble (trend effect)”; then as part of “a strategy.. ...Tether Corporation will transfer newly purchased bitcoins to their account at Bitfinex."
iii. Further Evidence of the Bitfinex and Tether Conspiracy
142. These empirical conclusions are supported by other evidence that Bitfinex and Tether jointly manipulate the market.
143. For example, in April 2017, Porter publicly discussed Bitfinex's plans to create a "private marketplace for trading between equity (shareholders)" Bitfinex today "offers an order type called 'hidden', where ' Hidden' orders don't appear on publicly visible order books." This is exactly the kind of "opaque channel" Griffin posits, the mechanism by which bitcoins are sold without causing prices to crash.
144. This hidden market is fully consistent with a report published by the New York Attorney General, which found that Bitfinex fostered an environment of abuse. Bitfinex "does not impose any restrictions on employee transactions," despite "the transactions of platform employees creating a conflict of interest."
145. Furthermore, in June 2014, a month after the publication of the Willy Report on mt.Gox, Giancarlo Devasini all but admitted that he was working on his own " Willy Bot to drive Bitcoin price to $10K:
146. A report by the New York Attorney General confirmed Bitfinex’s ability to plant trading bots like “Willybot.” The report found that Bitfinex offers some "special order types" that "are only useful to professional autotraders using complex algorithmic strategies, where orders can be submitted and withdrawn in a way that the average trader cannot see ( impossible to even see) market signals.
147. As discussed below (see Section IV.G below), Bitfinex and Tether have self-proclaimed capabilities to issue hundreds of millions of USDT, but the termination of access to their long-standing banking relationships and US correspondent bank accounts is equally concerning.
148. In fact, during this liquidity crisis, Devasini admitted to manipulating the price of Bitcoin. In October 2018, Devasini wrote to a Crypto Capital representative: "Please understand that all of this is extremely dangerous for everyone, and for the entire crypto community...if we do not quickly Take action and [Bitcoin] could drop below $1,000 soon.”
149. In other words, while Tether lost its ability to settle in dollars, it started printing money and issued an asset that was said to be backed by dollars. This makes no sense unless Tether sends USDT that is not backed 1:1 by USD.
150. Further confirming that the issuance of USDT is unconstrained, on July 13, 2019, Tether accidentally issued 5 billion USDT and then revoked it in just 20 minutes. The company’s CTO, Ardoino, attributed this to a “token decimal issue.”
151. On October 15, 2018, the market was concerned that Tether did not have all the reserves it claimed. The massive sell-off caused the price of USDT to drop to $0.85.
152. On November 20, 2018, Bloomberg reported that the U.S. Department of Justice is cooperating with the CFTC (Commodity Futures Trading Commission) in a criminal investigation, "The issues the Department of Justice is investigating include how Tether creates new coins and why they are mainly entered through Bitfinex. market. "
153. On November 27, 2018, the New York State Attorney General's Office subpoenaed Bitfinex and Tether.
154. The Justice Department’s criminal investigation focused on Bitfinex and Tether to find out whether the 2017 cryptocurrency rally was “driven in part by manipulation.”
155. The issuance of USDT to manipulate prices continues to this day. The chart below shows the strong correlation between USDT issuance and Bitcoin price gains in 2019.
G. Bank Fraud and Money Laundering Using Crypo Capital Enables Price Manipulation in the Cryptocurrency Market
Being in the Bitcoin business is really a game of cat and mouse with correspondent banks. The problem with being a big company is...we can't stay under the radar anymore.
—Philip G. Potter, Bitfinex CSO (Chief Strategy Officer)
156. As discussed below, access to the United States financial system was a significant component of the defendants' conspiracy. In fact, Tether's entire premise hinges on it leveraging the U.S. financial system (i.e., dollar deposits) to back the digital assets it makes.
157. To facilitate their access to U.S. dollars, Bitfinex and Tether partnered with a Panamanian company called Crypto Capital.
158. Tether and Bitfinex are increasingly entangled in a complex money laundering game with Crypto Capital as traditional banks begin closing Tether and Bitfinex accounts to address money laundering and other compliance concerns.
159. It is inexplicable that in the face of growth pressure, Tether company still does not stop printing presses, it often issues a large number of USDT, even if it does not have access to dollar banks.
160. By early 2018, Crypto Capital allegedly controlled more than $1 billion in funds from Bitfinex, but there was no written agreement between the four-year business partners.
161. Most of the following are criminal acts. Crimes committed by Tether, Bitfinex, Crypto Capital, and their executives include bank fraud (18 USC § 1344), money laundering (18 USC § 1956); stemming from certain illegal activities currency transactions (18 U.S.C. 1957), unlicensed money transfer operations (18 U.S.C. 1960), and wire fraud (18 U.S.C. 1343).
162. In fact, the executives of Bitfinex and Tether have publicly discussed many of these acts and intend to continue to engage in the above-mentioned illegal and criminal activities.
i. Overview of the US Correspondent Banking System
163. In order to conduct USD transactions, Bitfinex and Tether require: (1) a U.S. bank account or (2) an account with a bank in the U.S. that has a “correspondent account” with U.S. banks. In the second case, the correspondent account acts as an intermediary to settle transactions in U.S. dollars.
164. In cross-border transactions, money is never actually "moved". In order to facilitate transfers in other countries' currencies, banks in one country often open "correspondent accounts" with foreign banks. "Generally speaking, it is difficult for foreign banks to set up branches in the United States, so they will open a correspondent account with a US bank to conduct dollar transactions."
165. For cross-border transactions in US dollars, a series of bank account numbers are credited or debited accordingly. The diagram below depicts a typical USD transaction.
(1) Bitfinex instructs its bank to wire USD to customers located in the UK;
(2) The Taiwan (local) bank debits the Bitfinex Taiwan account and instructs its US correspondent bank to process the transaction;
(3) The U.S. correspondent bank of the Bank of England debits the account of the U.S. correspondent bank of Taiwan Bank according to the instructions, and then credits the U.K. (local) bank;
(4) The British (local) local bank credits the customer's (UK local) account as instructed;
(5) The British customer obtained the funds.
166. For international transactions denominated in U.S. dollars, a U.S. correspondent bank account is required.
167. For correspondent banks, these transactions present a significant AML risk because only one step is required between the originator and the beneficiary to get the money out of the bank. Money launderers often take advantage of this disconnect by using shell companies to mask the real counterparty.
168. This is no secret. The FBI recently told Congress that “the abuse of shell companies, front companies, nominee shareholders, or other means of concealing the true beneficiaries of assets is a significant hole in the U.S. anti-money laundering (AML) system.”
ii. U.S. correspondent banking is critical for Bitfinex and Tether
169. Since Bitfinex and Tether need to collect U.S. dollars, convert ill-gotten gains into U.S. dollars, and satisfy customers’ requests to cash out U.S. dollars, U.S. correspondent banks are central to Defendants’ manipulation scheme.
170. In fact, in April 2017, Bitfinex and Tether told the Federal Court that the only type of transaction they had with customers was U.S. dollars: “Bitfinex can only accept U.S. dollars or remittances in U.S. dollars from customers to buy cryptocurrencies” and “Tether can only accept customer U.S. dollars or U.S. dollar remittance to purchase.”
171. Defendants Bitfinex and Tether made the foregoing representations in a lawsuit filed against Wells Fargo for the termination of Wells Fargo's correspondent banking services.
172. The statements made by Bitfinex and Tether in this case highlight how important US correspondent banking access is to their businesses, and the loss of such access would render them unable to operate and issue USDT. Specifically, they told the court that Wells Fargo's "decision to suspend U.S. dollar wire transfers to Plaintiffs' correspondent bank account posed an existential threat to their business," and that if they "failed to remit U.S. dollars to customers, [they] business will be paralyzed" and "stand still".
173. On or about November 28, 2017, Philip Porter opened new business accounts for DigFinex and iFinex at the New York Branch of Metropolitan Commercial Bank. On or about December 20, 2017, Porter opened another new account at the New York branch of Metropolitan Bank on behalf of Tether Holdings. On or about February 16, 2018, Porter opened additional new accounts at the Signature Bank New York branch on behalf of DigFinex and iFinex.
174. These accounts demonstrate the reliance of Bitfinex and Tether on the U.S. banking system, particularly the Bank of New York.
175. However, as will be discussed below, the particular account described above is not of any use to the defendants in their day-to-day business. This may be due to the inability of these banks to provide the necessary correspondent banking services, or it may also be due to the experience of having their accounts blocked, causing Bitfinex and Tether to no longer try to conduct business publicly through regulated banks because they are worried about being blocked again.
iii. Bitfinex and Tether's cat and mouse game
176. Early on, Bitfinex and Tether used Taiwanese banks to maintain US correspondent bank accounts with Wells Fargo.
177. On March 31, 2017, Wells Fargo no longer provided correspondent banking services to Bitfinex and Tether.
178. Two weeks after Wells Fargo discontinued the service, on April 12, 2017, Porter told the cryptocurrency trading community WhalePool, “It’s getting harder and harder to move money.”
179. Porter goes on to explain that offshore banking is somewhat of a “turn-the-eye relationship” for banks, and that Bank of America is getting out of the dollar clearing business because “a lot of money laundering and Banks are being held accountable for their correspondent banking business in criminal cases” and “money laundering is their biggest concern”.
180. Porter, however, clarified that “the problem is not Wells Fargo, it’s the system.” He then described Bitfinex’s past efforts to circumvent the “system” of laundering laws that banks are mandated to comply with, and said Bitfinex will continue to do so These laws:
There are also other correspondent banks that do not do our business, and Wells Fargo is just the last correspondent bank of our Taiwanese bank.
There are other ways we can do it, and being in the Bitcoin industry is really a game of cat and mouse with correspondent banks. It has always been like this. The downside of being a big company is that we have a lot of money in the bank and we can no longer stay under the radar like we used to... .
Now Taiwan is also suspended... the business of opening new offshore accounts. This is just one example. Even if we want to register some new corporate entities, turn around some capital, these things that we usually do, now have to slow down.
181. In other discussions at the same time, Porter said that we have had little problems with the banking system in the past, but we have been able to work around it or deal with it, open new accounts, or transfer to a new corporate entity, etc., every time Every Bitcoin practitioner must learn the tricks of these cat and mouse games.
182. One way the defendants attempted to conceal the true risk profile of their transactions from banks and regulators was by setting up a Hong Kong company, Renrenbee Limited, to create the appearance of compliance with anti-money laundering laws.
183. However, when Renrenfeng was originally registered under the name Bitfinex Limited in March 2013, Ludovicus Jan van der Velde was listed as a director, and in 2013 Giancarlo Devasini also became a director in December.
184. In April 2014, Bitfinex Co., Ltd. changed its name to Renrenfeng Co., Ltd. and registered as a money service operator (MSO) in Hong Kong to appease Bitfinex customers while not disclosing to banks that Bitfinex was the real counterparty.
185. In January 2016, the defendant even set up a website specifically for Renrenfeng Co., Ltd. to reinforce the illusion that it was an independent legal entity.
186. Lies continue. In June 2016, Tether issued a white paper falsely claiming that it was "concluding an agency agreement with RenRenBee Limited." It provides anti-money laundering compliance work and customer due diligence procedures."
187. Bitfinex also falsely claimed that Renrenbee Limited (Renrenbee Limited) was an independent provider of compliance services. Although Renren Co., Ltd. no longer exists, the "Know Your Customer" (KYC) form on the Bitfinex website states that "Bitfinex's KYC/AML collection and processing is carried out by Renren Co., Ltd., a designated money service operator. "
188. The falsehood of Renrenfeng’s compliance function is further proved by the fact that Bitfinex and Tether did not comply with standard KYC and AML practices. According to the New York Attorney General, unlike most exchanges, Bitfinex does not "require new customers to submit a series of customer personally identifiable information and government-issued identification documents" before trading, requiring only "an email address to conduct cryptocurrency transactions." ".
189. As part of a cat-and-mouse game, Bitfinex and Tether often open and use bank accounts in the name of shell companies to conceal their relationship to the transaction.
190. Around January 26, 2018, Bitfinex began instructing customers to deposit funds into Haparc BV’s account at ING Groep NV Bank in the Netherlands. ING Bank closed the account a month after Bloomberg reported the incident.
191. In October 2018, Bitfinex began to use a Hong Kong bank account opened by a company named "Prosperity Revenue Merchandising Limited" to conduct US dollar transactions through the US agent account of Citibank.
iv. Bitfinex and Tether rely on Crypto Capital to further confuse and circumvent AML laws and continue to operate
192. Beginning in 2014, Bitfinex and Tether cooperated with defendant Crypto Capital, Inc., a "third-party payment processor," without any contract or written agreement.
193. Despite the absence of any written agreement, “As of 2018, Bitfinex has co-located more than $1 billion in customer and corporate funds with Crypto Capital.”
194. Evidence from the end of 2017 to 2018 shows that there are problems with Bitfinex and Tether's banking business, and there is an urgent need to find an entry into the US banking system.
195. On December 5, 2017, Bloomberg published a report stating that Tether refused to disclose the location of its cash reserves without a confidentiality agreement. The same article reported that online documents showed that Bitfinex was instructing potential clients to deposit funds into another company, Crypto SP. ZOO, in an account at Spoldzielczy Bank in Poland.
196. On March 28, 2018, the United States indicted several individuals associated with Backpage.com with multiple counts of money laundering and prostitution. The charge specifically names Crypto Capital as one of the companies accused Backpage used to launder money.
197. One week later, on April 6, 2018, Polish law enforcement seized $375 million worth of Zloty (Polish currency) from the accounts of Crypto SP. ZOO (Bitfinex shadow account), Neso SP. ). These companies are all shell companies controlled by Crypto Capital.
198. Polish law enforcement found that the companies “did not actually carry out any economic activity” and were “set up only for the purpose of making their bank accounts available for international financial crimes”.
199. The seizure affected Bitfinex's ability to make payments. Throughout 2018, Devasini “repeatedly pleaded with someone at Crypto Capital (“Oz”) to return Bitfinex’s funds.”
200. About a month later, on May 16, 2018, the U.S. District Court for the District of Arizona seized funds from an account at Crypto Capital Corporation.
201. With no other option, Bitfinex was directing clients to use Crypto Capital until early October 2018, even though Bitfinex had been begging Crypto Capital for months to return their funds.
202. For example, on October 5, 2018, in an exchange with a Bitfinex customer trying to withdraw fiat currency, Devasini wrote: “If you are interested in a faster solution, please consider www.cryptocapital.co . . ” A minute later, he wrote: “Fiat currency turnover in Crypto Capital is measured in minutes. We send and receive dollars, euros, and yen in real time.”
203. When a customer pointed out that withdrawals in euros on the Bitfinex website were still frozen, Devasini responded: "As I stated earlier, if you open an account with Crypto Capital, we can trade in euros with no problem."
204. Devasini’s assurances to clients obscured the fact that Bitfinex’s banking relationship with Crypto Capital was in disarray.
205. On October 15, 2018, Devasini, using the screen name "Merlin", had the following communication with a representative of Crypto Capital, which has the screen name "CCC":
Merlin：
OZ, sorry to bother you every day, is there any way to transfer at least 100 million to [XX]? We are facing massive withdrawals, and unless we can get some funds out of Crypto Capital, we will not be able to face them anymore run on.
Merlin：
I understand that some of the funds are held by [XXX], but is there a way for other funds?
Merlin
Normally I don't bother you (and I never do), but this is a very special situation and I need your help, thank you.
Blackbirds
I've been talking to you for a while
Merlin
Many withdrawals waited too long
Merlin
Is there a way we can get money from you? Tether or something else? We have very little cash reserves outside of Crypto Capital.
Merlin
please help me
CCC：
I see. We are doing our best to contact these banks so that as many of these instructions as possible can be processed by them. Every time I press them, they excuse that the account has been closed for no reason.
Merlin：
Dozens of people are now waiting to withdraw cash from Crypto Capital.
Merlin：
At this point, I need to give the customer an accurate reply, and I can no longer play football.
Merlin：
I mean international.
CCC：
I will let you know when there is news.
CCC：
All international payments are in progress.
Merlin：
Please understand that all of this is extremely dangerous for everyone in the entire crypto community.
Merlin：
If we don't act fast, Bitcoin will drop below $1000.
206. A month later, on November 21, 2018, Merlin made another desperate plea to a Crypto Capital representative, stating that "it's always hard to tell our clients the truth":
Merlin：
Please keep us updated, if we don't get some funds from you this week we'll be in big trouble.
Merlin：
I wish we could have some clarity, it's always hard to tell us what's really going on with our customers and it leads to a lot of uncertainty.
207. Evidence gathered by the New York Attorney General's investigation of Bitfinex and Tether indicates that "Merlin" is most likely Devasini.
208. In other words, Bitfinex and Tether needed access to the U.S. financial system so badly that they deposited funds with Crypto Capital despite their apparent involvement in money laundering, account seizure, and inability to transfer funds.
209. During this period, Defendant Reginald Fowler was at the center of Crypto Capital related operations. Fowler registered the shell companies and bank accounts that Bitfinex and Tether relied on.
210. According to the U.S. Attorney for the Southern District of New York, Defendant Fowler was involved in “a scheme to operate a shadow bank on behalf of a cryptocurrency exchange in which hundreds of millions of dollars were traded through accounts controlled by [him] around the world.” As follows As mentioned, these exchanges include Bitfinex.
Lawyer Wang Gang: Shadow banking refers to the credit intermediary system (including various related institutions and business activities) that is outside the banking regulatory system and may cause systemic risks and regulatory arbitrage.
211. Interviews conducted during the course of DOJ’s investigation “partially confirmed” publicly reported claims that Crypto Capital and other Fowler-related companies were “unable to return $851 million to Bitfinex.”
212. As the New York Attorney General alleged, “because of the inability to withdraw funds held by Crypto Capital” — at least in part because law enforcement had frozen multiple accounts — “Bitfinex was unable to honor withdrawal requests from customers.”
213. Virtually all of the above-mentioned cat-and-mouse tactics with banks constitute serious federal crimes.
214. The inability of Bitfinex and Tether to honor withdrawal requests after their accounts were seized by law enforcement clearly demonstrates that their illicit activities are inextricably linked to their business operations.
v. The issuance of USDT is inconsistent with the actual economic situation of Tether
215. Bitfinex and Tether's banking problems limit their ability to issue or redeem USDT - either because they lose some of their 1:1 reserves, or because they can't get more cash to back their upcoming USDT issuance.
216. However, in these times of crisis, Tether often issues large amounts of new USDT.
217. On March 31, 2017, Wells Fargo terminated its partnership with Bitfinex and Tether. A few weeks later, on April 17, 2017, Bitfinex and Tether lost their last direct banking relationship in Taiwan and stopped accepting deposits. Just the next day, Tether issued 10 million USDT.
218. On April 22, 2017, Tether issued a statement stating that “our Taiwanese banks have frozen and rejected all international wire transfers for Tether.” Therefore, we do not expect a significant increase in the supply of tethers until these restrictions are lifted. "
219. Tether’s next public banking relationship was five months later when it opened an account with Noble Bank International in Puerto Rico.
220. Tether issued 390 million USDT during the five months that it was unable to enter mainstream banks. Under such circumstances, it is doubtful that Tether has accumulated so much cash. If you also consider that Tether issued a total of less than 55 million in the first two and a half years (October 2014 to March 2017), then this figure is even more inconceivable. explained.
221. In other words, within 5 months of losing the US dollar settlement channel, Tether issued USDT 7 times the sum of the previous two and a half years.
222. When Tether was able to use the Wells Fargo correspondent account, the total outstanding USDT was about 60 million U.S. dollars, which increased to about 450 million U.S. dollars after it could not be used.
223. Tether is becoming looser and looser, and the situation will only get worse.
224. From October 28, 2017 to December 20, 2017, Tether issued an additional 805,048,400 USDT, which brings the total of all outstanding USDT to over $1.25 billion. Therefore, Tether’s assumed cash reserves are also over $1.25 billion. Suspiciously, Tether has refused to disclose what has become of its huge cash reserves without a non-disclosure agreement.
225. Despite seemingly unprecedented demand for USDT, Bitfinex and Tether stopped new user registrations on December 21, 2017, and stated that they would not reopen until January 15, 2018.
226. During the brief period of less than a month closed to potential new entrants (December 28, 2017 to January 23, 2018), Tether issued over 1 billion new USDT, all of which (USDT) is said to Backed by dollars that Tether has stored in bank accounts that it refuses to disclose and cannot be audited.
227. On January 24, 2018, this series of rapid and large-scale issuance came to an abrupt end, the day the "Tether Report" was published online. The "Tether Report" revealed the relationship between USDT issuance and Bitcoin price increases.
228. Oddly though, even as Crypto Capital accounts started being targeted by law enforcement agencies around the world (March, April, May, and October 2018), the releases continued. On March 20, 2018, Tether issued another 300 million USDT, bringing the total value of all outstanding USDT to over $2.52 billion. On May 18, 2018, Tether issued another 250 million USDT.
229. The issuance of USDT finally made the public doubt the legitimacy of Tether and Bitfinex. In mid-2018, Bitfinex's worsening liquidity crisis and mounting evidence that Bitfinex and Tether were manipulating bitcoin prices led to mounting pressure on Bitfinex and Tether to prove their legitimacy.
230. Two weeks after Griffin’s article was published, on June 25, 2018, Tether issued $250 million. A Bloomberg reporter then showed a bank statement showing that on July 6, 20, and 24, Tether sent $250 million to Bitfinex, and Bitfinex sent $250 million USDT to Tether’s storage wallet. Just after some strong evidence of Tether issuing unsecured USDT and manipulating the price of Bitcoin appeared, the above account situation was disclosed and used as evidence of the real existence of Tether's cash reserves.
231. On October 15, 2018, when the fact that Bitfinex was unable to cash out became more apparent, a large-scale sell-off caused the price of USDT to drop to $0.85.
232. On October 23, 2018, the U.S. Department of Justice publicly seized three U.S. accounts with HSBC held by Reginald Fowler and/or Global Trading Solutions LLC Crypto Capital Corporation funding.
233. The next day, Tether "repealed" 500 million USDT from the Tether treasury wallet, allowing these USDT to withdraw from circulation, exempting the support obligation of 500 million USD.
234. Tether abolished the 500 million USDT because its dollar reserves are increasingly questioned, and it needs to provide evidence that he has enough reserves to support all outstanding USDT. But Tether does not have so many reserves. Its solution is to withdraw 500 million USDT from circulation to reduce his cash reserve needs so that it matches the bank bill figures.
235. One week later, on November 1, 2018, Tether published a letter purportedly from Deltec Bank (with no identifiable signature on it), stating that the “portfolio cash value” of Tether’s accounts was $1,831,322,828, If true, that would be enough to cover the current reduced total in circulation.
236. Deltec Bank is located in the Bahamas, a jurisdiction with fundamental deficiencies in anti-money laundering controls. In fact, just four days after Tether announced its partnership with Deltec Bank, there were public reports that “in order to combat corruption linked to the Nicolas maduroer regime, authorities have taken steps to seize Deltec Bank’s Assets in Bank Accounts of Bank and Trust Company and Ansbacher (Bahamas) Corporation.”
H. Investigation by the New York Attorney General
237. On April 25, 2019, the New York Attorney General’s Office submitted an ex parte application pursuant to the Martin Act and was approved, requiring Bitfinex and Tether to submit specific documents as evidence, and a preliminary injunction restricting them from “taking any action to access, loan , extension of credit, guarantee, pledge or other similar assignment or request between Bitfine and Tether to preserve the status quo and protect the interests of tether holders and Bitfinex customers in New York."
238. The lawsuit in this case alleges that the Bitfinex trading platform allows New York residents to buy and sell cryptocurrencies and "explains that Bitfinex handed over $850 million to Panamanian firm Crypto Capital without any written agreement or guarantee, and it will never be withdrawn." Out".
239. The lawsuit document also stated that even if Tether knew that Crypto Capital Company’s funds could not be withdrawn,
In November 2018, Tether still transferred $625 million in its Deltec bank account to the Bitfinex account. Bitfinex credited USD 625 million to Tether through the classified account of Crypto Capital, and deducted the corresponding amount from Bitfinex. The purpose of the deal is for Bitfinex to decouple liquidity issues from Tethers. (Evidence 2, p. 85, testimony of Whitehurst)
In March 2019, the defendant planned to transfer back the USD 625 million transferred from Bitfinex to Tether through the Crypt4o capital company account, so that the USD 625 million transferred from Tether’s Deltec account to Bitfinex’s name could be packaged as Tether’s loan to Bitfinex . That said, the transaction documents consider the $625 million that Bitfinex received in November 2018 as part of Bitfinex’s $900 million in available credit.
As a result, Tether weakened the 1:1 USD support for tethers step by step: first, in November 2018, although the Crypto Capital Company account could not be withdrawn, USD 625 million was real cash; second, in November 2018, such The unreliable support was also replaced by an IOU issued by Bitfinex. Bitfinex's own liquidity problems were so serious that they needed a 9-figure loan. (iFinex Inc. v. James, No. 2019-03341)
240. As doubtful as it was before, it can definitely be said now that Tether no longer has USD cash reserves backing USDT 1:1.
241. On August 19, 2019, Judge Cohen rejected the jurisdictional objections of Bitfinex and Tether, and at the same time rejected his request to terminate the investigation by the New York prosecutors since May 16, 2019. (James v. iFinex Inc., No. 450545/2019). Bitfinex and Tether appealed and filed a stay pending appeal (iFinex Inc. v. James, No. 2019-03341). The court made an order to preserve discovery on September 24, 2019.
05
class action
242. Plaintiff brings this action in court on his own behalf and, pursuant to Federal Rules of Civil Procedure 23(a) and (b), represents the following class:
At any time from October 6, 2014 to the present (class action period), in the United States of America and its territories, any natural person or person who has held or traded cryptocurrencies including but not limited to USDT, Bitcoin and Bitcoin derivatives legal entity. (the "collective")
243. This class does not include the following persons: Any defendant customer, defendant and its officers, directors, managing directors, officers, employees, subsidiaries or affiliates who have entered into an arbitration clause with Bitfinex or Tether on its website. In addition, the presiding judge and clerk of this case, his spouse, and the relatives of the judge within three generations and their spouse.
244. Plaintiff reserves the right to amend the definition if further investigation and/or discovery indicates that the class definition should be narrowed, expanded, or otherwise adjusted.
245. The class has so many members that it is impractical for all members to sue together. Plaintiffs do not know the exact number of class members at this time, but believe that tens of thousands of class members are identifiable through blockchain ledger information. They may become aware of this pending action by receiving regular notices of class actions by e-mail.
246. Defendants' conduct applies generally to the class, so final injunctive relief should apply to the class as a whole.
247. Common questions of law and fact are more important to all group members than individual questions.
248. Plaintiff's claims are typical of those that other members will also make. Defendant's conduct targeted and affected all members in a similar manner, all of whom were harmed by Defendant's conduct.
249. Plaintiff will continue to fully and properly protect all interests of class members. Plaintiffs hired experienced and competent attorneys in class actions and cryptocurrency litigation, and Plaintiffs had no conflict of interest with class members.
250. To adjudicate this dispute fairly and efficiently, a class action is currently the best solution, since it is impractical for all members to jointly sue. At the same time, class members filing lawsuits separately will bring a heavy burden to the court and result in different judgments for the same case. Class actions, on the other hand, will save a great deal of time, effort, and expense, and will ensure consistent decisions for similarly situated persons without sacrificing procedural fairness or other adverse outcomes. Moreover, the interest of class members to litigate separately and control the course of the litigation is on paper. The class is highly cohesive, and prosecutions through representatives are justifiable. Finally, because individual class members may suffer relatively minor damages, the costs and burdens of individual litigation (prohibitively) make class members unlikely to obtain relief.
251. Plaintiff contends that there will be no difficulty in administering this action as a class action.
252. Accordingly, plaintiffs request that the court proceed with this action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and (b), and that plaintiffs will represent the class, Roche Friedman LLP The firm (Roche Freedman LLP), as lead class counsel, sent this class action to potential class members through reasonable means pursuant to Federal Rules of Civil Procedure 23(c)(2).
06
cause of action
First cause of action: market manipulation
Pursuant to the Commodity Exchange Act ("CEA")
(against Digfinex, defendant Bitfinex, defendant Tether and natural person defendants)
253. The plaintiff no longer repeats the content of paragraphs 1 to 252 above.
254. Bitcoin, Bitcoin derivatives, including Bitcoin futures contracts, and other cryptocurrencies that are commodities within the meaning of Title 7, United States Code, Section 1(a).
255. Digfinex, the defendant Bitfinex, the defendant Tether and the natural person defendants related to the above-mentioned subjects, through the accused acts, intentionally implemented the illegal and artificial pricing of derivatives such as Bitcoin, Bitcoin futures contracts and other cryptocurrencies, which violated the Commodity Transaction Act.
256. As stated above, DigFinex, Defendant Bitfinex, Defendant Tether, and related natural person defendants, individually or jointly, have the ability and did implement artificial pricing.
257. Pursuant to Section 6(c)(1) and Section 22 of the Commodity Exchange Act, Title 7, United States Code, Sections 9 and 25, any person who, directly or indirectly, uses, employs, or It will be unlawful to attempt to use or employ, in connection with any swap contract or agreement for the sale of goods interstate, or in a futures contract involving forward delivery in accordance with or applicable rules, any manipulative or deceptive device or device Behavior. It also violates the relevant regulations of the United States Commodity Futures Trading Commission (CFTC), which should be announced within one year of the effective date of the Dodd-Frank Act.
258. The CFTC promptly promulgated 17 CFR Section 180.1:
It is unlawful for any person, directly or indirectly, in connection with any swap contract or agreement for the sale of goods across state lines, or in a futures contract for forward delivery in accordance with the relevant rules, to do, willfully or negligently:
(1) use or employ, or attempt to use or employ, any manipulative device, trick or trick to commit fraud;
(2) Make or attempt to make any untrue or misleading statements about material facts, or conceal necessary material facts in order to make the statements untrue or misleading.
(3) Engaging or attempting to engage in any conduct, action or business that constitutes fraud or deceit to any person;
(4) Willfully or negligently, recklessly, spread or cause to spread, attempt to spread or attempt to cause to spread, by mail or in interstate commerce, by any means of communication, false or misleading or inaccurate reports concerning crops, market information, market conditions, etc. .
(Rule 180.1(a))
259. Digfinex, Defendants Bitfinex, Defendants Tether and related natural person defendants violated Rule 180.1(a), among other things, they spread false information that USDT is backed by USD reserves 1:1, and used these USDTs without corresponding reserves Buying Bitcoin and maintaining false prices distorts market demand for USDT, Bitcoin, and other cryptocurrencies by issuing unbacked USDT to manipulate transactions on at least the Bitfinex platform. These illicit practices affect the balance of supply and demand, mask true prices, and lead to artificial pricing in the cryptocurrency market.
260. As a direct result of Defendant's unlawful conduct, Plaintiff and Class Members suffered actual losses and damages from artificial pricing that they would not have suffered had it not been for Defendant's alleged violations. Plaintiffs and class members traded bitcoin, bitcoin derivatives, including bitcoin futures contracts, and other cryptocurrencies at artificial prices in a market manipulated by the defendants. This conduct caused harm to both plaintiffs and the class.
261. Therefore, the plaintiff requests the court to rule that the above-mentioned defendants violated the Commodity Exchange Act, that is, Section 1 of Title 7 of the United States Code, and harm the interests of the plaintiff, and jointly or separately judge the above-mentioned defendants to be liable for damages to the plaintiff, and return the illegal income.
Second cause of action: principal-agent liability
According to the Commodity Exchange Act
(Against Digfinex, Defendant Bitfinex, Defendant Tether and Natural Person Defendant)
262. Plaintiff no longer repeats paragraphs 1 through 261 above.
263. Bitcoin, Bitcoin derivatives, including Bitcoin futures contracts, and other cryptocurrencies may be defined as commodities under section 1(a) of title 7, United States Code.
264. Pursuant to section 2(a)(1) of the Commodity Exchange Act, 7 U.S.C. 2(a)(1), Digfinex, Defendants Bitfinex, Defendants Tether, and Natural Person Defendants are individually responsible for the actions of their agents, representatives and/or other persons employed by them.
265. Plaintiffs and Class Members have suffered losses including Bitcoin, Bitcoin futures contracts and other derivatives and other cryptocurrencies due to the alleged violations.
266. Therefore, the plaintiff requested the court to find that the above-mentioned defendants violated the Commodity Exchange Act, that is, Section 1 of Title 7 of the United States Code, and damaged the interests of the plaintiff, and jointly or separately judge the above-mentioned defendants to be liable for damages to the plaintiff.
Third cause of action: Aiding and abetting
According to the Commodity Exchange Act
(Against Digfinex, Defendant Bitfinex, Defendant Tether, Natural Person Defendant, and Defendant Crypto Capital Corporation)
267. Plaintiff no longer repeats paragraphs 1 through 266 above.
268. Bitcoin, Bitcoin derivatives, including Bitcoin futures contracts, and other cryptocurrencies may be defined as commodities under Title 7, United States Code, Section 1a.
269. The above-mentioned defendants all knowingly aided, abetted, advised, induced, and/or caused the other defendants to violate the US Goods Act. All parties are aware that the other defendants manipulated cryptocurrency prices by discovering unreserved USDT and manipulating transactions, and materially and willfully facilitated such manipulation to create artificial pricing, in violation of Section 22(a) of the Commodity Exchange Act ( 1), subsection (1) of section 25(a) of title 7, United States Code.
270. Therefore, the plaintiff requested the court to find that the above-mentioned defendants violated the Commodity Exchange Act, that is, Section 1 of Title 7 of the United States Code, and damaged the interests of the plaintiff, and jointly or separately judge the above-mentioned defendants to be liable for damages to the plaintiff.
Fourth cause of action: unfair competition
According to the Sherman Act
(for defendant Tether)
271. Plaintiff no longer repeats paragraphs 1 through 270 above.
272. This action is based on 15 U.S.C. § 15, which provides civil remedies for a party injured by a violation of 15 U.S.C. § 2.
273. The defendant Tether controls more than 80% of the stable currency market in the United States and the world. Therefore, Tether has a monopoly.
274. Tether's monopoly position allows it to raise prices and eliminate competition.
275. As mentioned above, Tether has flooded the stablecoin market with a large amount of USDT issued without corresponding reserves, thereby deliberately maintaining its market monopoly position and excluding competition.
276. Issuing USDT without a corresponding reserve is to gain a larger market share, to eliminate competition from stablecoins, and to maintain price control over the Bitcoin and cryptocurrency markets.
277. By reducing consumer choice and deceptively manipulating the price of Bitcoin and other cryptocurrencies, Tether’s conduct harms competition, consumers, and class members.
278. Plaintiffs and Class Members suffered direct and indirect economic losses as a result of Tether’s abuse of its dominant market position.
279. Accordingly, Plaintiffs petitions the Court to adjudge and order that Plaintiffs and Class Members have antitrust subject standing pursuant to Sections 15 and 26 of Title 15 of the Clayton Antitrust Act; Tether violated the Sherman Antitrust Act. Trust Act, 15 U.S.C. § 2; Judgment against Defendant, either jointly or severally, in favor of Plaintiff and Class Members; Defendant pays Plaintiff and Class Members actual economic loss, treble damages, and attorneys' fees.
Fifth cause of action: RICO
Pursuant to the Organized Crime and Corrupt Organizations Act (RICO Act), 18 U.S.C. Section 1962(c)
(for all defendants)
280. Plaintiff no longer repeats paragraphs 1 through 279 above.
281. This claim is against DigFinex, Defendant Bitfinex, Defendant Tether, Natural Person Defendant, and Defendant Crypto Capital (collectively, the "Five Defendants").
282. The five defendants collectively constitute an "organization" within the meaning of 1961(4) of title 18, United States Code, that is, a group of persons actually united, engaged in, and affecting interstate commerce.
283. Each of the five defendants consented to and committed organized acts to defraud Plaintiffs by manipulating cryptocurrency prices through organized criminal conduct.
284. For fraudulent purposes, the five defendants committed a number of related organized crimes within the meaning of section 1961(5) of title 18 of the United States Code, including, but not limited to:
a. Operating a money transmission business without a license (18 U.S.C. 1960(b)(1)(A))
i. A person engaged in the business of transmitting cryptocurrency shall be a money transmission service provider as defined in subsection (5) of 31 CFR § 1010.100(ff), and a "financial institution" as defined in § 1010.100(t) .
ii. To engage in the business of transmitting money without a license in New York is a Class A misdemeanor, Section 650(2) of the New York Banking Act.
iii. From the beginning of the class action period to the present, DigFinex, the defendant Bitfinex and the natural person defendant operated Bitfinex to engage in the money transfer business in and out of the state, "without a legal currency exchange license", in New York State and other states, "this behavior can be found to be punishable as a felony or misdemeanor". Section 1960(b) of title 18, United States Code, subsection (1)(A).
iv. From the beginning of the class action period to the present, DigFinex, the defendant Tether and the natural person defendant operated Tether to engage in the money transfer business in and out of the state, "without legal currency exchange license", in New York State and other states, "this behavior can be found to be punishable as a felony or misdemeanor". Section 1960(b) of title 18, United States Code, subsection (1)(A).
v. From the beginning to the present, Crypto Capital Corporation, Global Trade Solutions Corporation, and Reginald Fowler operated Crypto Capital in the in- and out-of-state money transfer business, "without legal currency exchange licenses", in New York State and other states, "The conduct may be considered a felony or a misdemeanor under state law." Section 1960(b) of title 18, United States Code, subsection (1)(A).
b. Operating a money transmission business without a license (18 U.S.C. 1960(b)(1)(B))
i. From the beginning of the class action period to the present, DigFinex, Bitfinex and the natural person defendants operated Bitfinex to engage in the money transmission business and failed to "comply with the money transmission business registration requirements under section 5330 of title 31 of the United States Code" ” Subsection (1)(B) of section 1960(b) of title 18, United States Code.
ii. Although the five defendants registered BFXNA Inc. as a money service provider of the Financial Crimes Enforcement Network (FinCEN), they falsely claimed that their business was limited to Wyoming, and they used Bitfinex’s currency through a large number of unregistered entities and shell companies throughout the United States Transfer business.
iii. From the beginning to the present, DigFinex, the defendant Tether and the natural person defendant operated Bitfinex to engage in money transfer business, and failed to "comply with the money transfer business registration requirements under Section 5330 of Title 31 of the United States Code and the rules of this chapter" "United States Subsection (1)(B) of section 1960(b) of title 18 of the Code.
iv. Although DigFinex, Defendant Tether and Natural Person Defendants registered Tether Limited as a money services business with the Financial Crimes Enforcement Network (FinCEN), they falsely claimed that their business was limited to Wyoming, and that it was carried out in the United States through a large number of unregistered entities and shell companies Tether's money transfer business.
v. From its inception and to the present, Crypto Capital Corp., Global Trade Solutions Inc., and Reginald Fowler operated Crypto Capital Corp. in a money transmission business that failed to "comply with 31 U.S.C. Section 5330 and "Requirements for Registration of Money Transmitting Businesses under the Regulations of this Section" 18 U.S.C. Section 1960(b)(1)(B).
c. Operating a money transmission business without a license (18 U.S.C. 1960(b)(1)(C)).
i. From the beginning to the present, the five defendants have operated Bitfinex, Tether and Crypto Capital to engage in the "fund transfer or transportation" business. They are clear that "these funds come from criminal acts or are intended to support and assist illegal acts", which violates the law. Section 1960(b) of title 18, United States Code, subsection (1)(C).
ii. For example, Devasini continued to instruct clients to use Crypto Capital to deposit and withdraw funds despite knowing that Crypto Capital funds had been seized by law enforcement agencies.
d. Money Laundering (18 U.S.C. § 1956)
i. During the period involved in the case, the five defendants used and instructed customers to use bank accounts opened by Crypto Capital Corporation to engage in U.S. dollar transactions with the intention of concealing or concealing the true nature, location, source, ownership or control of funds, including:
1. An account in the name of Crypto spz . oo opened in Spoldzielczy Bank, Poland, used around November 2017;
2. Accounts in the names of Global Trade Solutions, MOGW Energy Trade LDA, and Eligibility Criterion Unipessoal LDA opened with Savings Credit Bank around February 2018;
3. Accounts opened in the name of Global Trade Solutions Co., Ltd., including accounts with HSBC Bank NA in New York around October 2018, accounts with corporate banks and trust companies in New Jersey in 2018, and accounts in New York in 2018 Citibank account.
ii. During the period involved in the case, the defendant used Renrenbee Limited as a shell company to open a bank account for US dollar transactions with the intention of concealing or concealing the true nature, location, source, ownership or control of the funds.
iii. Around January 24, 2018, the five defendants used Haparc BV as a shell company to open a bank account with ING bank to engage in dollar transactions, with the purpose of concealing or concealing the true nature, location, source, Ownership or Control.
iv. Around June 15, 2018, the five defendants registered Hong Kong company Rongli Commercial Co., Ltd. Beginning on October 16, 2018, using the company as a shell company to open a bank account at the Bank of Communications and conduct US dollar transactions through the correspondent account of Citibank New York, with the intention of concealing or concealing the true nature, location, source, ownership, or control.
e. Bank fraud (18 U.S.C. 1344)
i. From 2015 to the present, the Five Defendants, through false and fraudulent disguises, representations, and promises, knowingly and attempted to commit a deception or scheme to defraud U.S. financial institutions of obtaining money, funds, credits, assets, securities, and other Other property in the custody and control of a U.S. financial institution.
ii. Using the shell companies mentioned in paragraph 284(d) above, the five defendants repeatedly "made use of multiple entities, stripped important information from wire transfer instructions, etc., and provided false statements to mislead the bank's decision-making", "intent to and commit acts that endanger U.S. banks and expose them to actual or potential losses."
f. Money business derived from specified unlawful activity (18 U.S.C. § 1957) i. The five defendants also knowingly engaged in money business involving funds from specific unlawful activity, violating 18 U.S.C. Sections 1960, 1956, 1344, Unlicensed Money Transmitting Business, Money Laundering, and Funding for Bank Fraud.
g. Money operations arising from specified illegal activities (18 U.S.C. § 1957)
i. The five defendants also knowingly engaged in money operations involving funds from certain unlawful activities, namely, unlicensed money transmission operations, money laundering, and bank fraud activities in violation of 18 U.S.C. §§ 1960, 1956, and 1344.
[Translator's Note:
The original text is repeated]
h. Wire fraud (18 U.S.C. 1343)
i. The five defendants intentionally engaged in telecommunications fraud, and made a large number of false statements through telecommunications such as the Internet, especially USDT will be backed by a 1: 1 US dollar reserve, in violation of Section 1343 of Title 18 of the United States Code.
ii. For example, Devasini directed clients to use Crypto Capital despite knowing that Crypto Capital was unable to process transactions, in violation of 18 U.S.C. § 1343.
285. Money laundering, bank fraud, money transactions derived from certain unlawful activities, wire fraud, and unlicensed money transmission operations as described above, constitute violations under the RICO Act pursuant to subsection (5) of section 1961 of title 18, U.S.C. Organized crime patterns.
286. The five defendants violated Section 1962(c) of Title 18 of the United States Code by directly or indirectly participating in the handling of organizational affairs through the above-mentioned organized crimes and activities.
287. As a direct result of the five defendants' organized criminal conduct and violations of 18 U.S.C. § 1962(c), the five defendants were able to manipulate cryptocurrency prices and damage plaintiffs' property.
288. Accordingly, Plaintiff petitions the Court to enter judgment against the five Defendants, ordering Defendants to pay Plaintiff and class members actual economic loss, treble damages, and attorneys' fees.
Sixth cause of action: Fraud
(against the defendant Bitfinex and the defendant Tether)
289. Plaintiff does not repeat paragraphs 1 to 288.
290. Bitfinex and Defendant Tether repeatedly made material misrepresentations, or misleadingly omitted material facts, including the following examples:
a. On October 5, 2019, the Bitfinex website falsely stated: "All Tether tokens are fully backed by reserves, and are issued and traded on Bitfinex according to market demand, not for the purpose of controlling the price of encrypted assets.
b. On August 20, 2019, the Bitfinex website falsely stated: “Any rumors about our holdings in Tether (USDT), its USD reserves, and the exchange between Bitfinex and Tether are rumors.
c. Until August 17, 2019, the Bitfinex website falsely stated that "outstanding [USDT] is backed 1:1 by traditional currencies", that is, "1 USDT is always equal to 1 US dollar".
d. On March 4, 2019, Tether's website falsely claimed that USDT was "pegged to the US dollar 1: 1" and "100% backed by reserves".
e. Until February 19, 2019, Tether's website falsely stated that "each [USDT] is backed 1:1 by the traditional currency we reserve. Therefore, 1 USDT is always equal to 1 US dollar."
f. In a sworn statement dated April 5, 2017, Ludovicus Jan van der Velde falsely claimed that Tether was a fintech company operating a platform that The platform is used to store, send, and buy and sell a digital currency called tethers, which is fully supported by the US dollar reserves stored by customers. "[USDT] can be redeemed or exchanged for corresponding US dollars", "Customers need to purchase through Tether (USDT) , must deposit an equal amount of USD in their Tether account until they request USD redemption. … For this system to work, customers depend on Bitfinex and Tether’s ability to cash out.”
g. On June 17, 2016, Tether issued a white paper falsely claiming, “Every USDT in circulation represents 1 dollar in our reserves (that is, a 1:1 ratio), which means that at any time, the total amount of USDT Both are equal to the total amount of U.S. dollar reserves, and said that USDT "can be exchanged or redeemed for the corresponding legal currency in accordance with the terms of service of Tether Co., Ltd., or Bitcoin of equivalent value according to the customer's wishes. "
h. Until at least March 20, 2015, Tether's website falsely stated that "Tether's currency is actually a blockchain reflection of dollars, euros, and yen." The value of [USDT] is always linked to the underlying asset Keep a 1:1 ratio. "
i. At least before March 20, 2015, Tether's website falsely stated that USDT was "100% backed by the actual legal currency assets in our reserve account, and was always maintained at a 1: 1 ratio. For example: 1USDT = 1 US dollar, and There are virtually zero conversion and transfer fees, and [USDT] can be redeemed for cash at any time.”
j. On January 15, 2015, Bitfinex falsely claimed that "every [USDT] is backed by the corresponding currency 1:1, which can be viewed and verified in real time on the Tether.to website and the blockchain. Tether will be fully transparent and Verified by audit that it is 100% reserved at all times.”
k. Bitfinex’s use of USDT without a corresponding reserve is also fraudulent because it is a false statement about the price and market demand of Bitcoin.
291. Defendant Bitfinex and Defendant Tether made the above statement knowingly false or in disregard of the truth.
292. Defendant Bitfinex and Defendant Tether never corrected these fundamental misrepresentations, continuing to represent to Plaintiff and the public that USDT is backed by 1:1 reserves.
293. Defendant Bitfinex and Defendant Tether intend to make the market and the plaintiff as a market participant rely on false statements of these important facts.
294. Plaintiff reasonably relied on these misrepresentations of material facts to buy and sell cryptocurrencies at artificial prices created by these material misrepresentations.
295. As an actual and proximate result of the foregoing actions, Plaintiff suffered actual damages requiring court determination.
296. Defendant Bitfinex and Defendant Tether have intentionally, deliberately, maliciously and intolerably committed all of the above acts.
297. Therefore, the plaintiff requests that the defendant Bitfinex and the defendant Tether compensate the plaintiff for the actual loss and make punitive damages.
Seventh cause of action: Violation of the New York State Deceptive Trade Practices Act
Pursuant to Section 349 of the New York General Commercial Code
(against the defendant Bitfinex and the defendant Tether)
298. Plaintiff no longer repeats paragraphs 1 through 297.
299. In carrying out the above acts, Defendants Bitfinex and Defendants Tether engaged in unfair, deceptive, untrue or misleading conduct by omitting or not disclosing material facts, namely that USDT is not 1:1 backed by U.S. dollar reserves , the market demand they create is fraudulent.
300. The illegal, unfair, and deceptive business practices of Defendants Tether and Defendants Bitfinex pose a continuing threat to Plaintiffs and the Class. Defendants Tether and Defendants Bitfinex systematically practiced deceit and unfair dealings against the public and knowingly defrauded the market.
301. Defendants Bitfinex and Defendants Tether intentionally and knowingly violated Section 349 of the New York General Commercial Code, which has caused damages to Plaintiffs and the Class.
302. In addition, Defendants Bitfinex and Defendants Tether’s fraudulent activities targeted consumers with the intent of manipulating the cryptocurrency market in order to transfer wealth from consumers to themselves.
303. According to Section 349 of the New York General Commercial Code, defendant Bitfinex and defendant Tether should be compelled to return their illegal gains.
304. Pursuant to New York General Commercial Code section 349-h, plaintiff is entitled to all available damages, including treble damages, injunctive relief, and attorneys' fees.
Eighth Cause of Action: Permanent Injunctive Relief
(for defendant Bitfinex and defendant Tether)
305. The plaintiff will not repeat paragraphs 1 to 304, and if necessary, submit this claim as an alternative.
306. Unless the defendant Tether and the defendant Bitfinex are permanently prohibited from issuing USDT without corresponding reserves, and are permanently prohibited from manipulating the price of Bitcoin through the USDT and Bitfinex exchanges, permanent and irreparable damage will be caused.
307. Accordingly, plaintiff seeks permanent injunctive relief to restrain such conduct.
308. Therefore, the plaintiff requests the court to issue a permanent injunction against the defendant Tether and the defendant Bitfinex in accordance with the law.
Lawyer Wang Gang: American law regards the injunction as a kind of "extraordinary legal relief", that is, a relief that can only be given to the parties in strict accordance with the law. In the United States, injunctions generally include temporary restraining order (TRO / temporary restraining order), preliminary injunction (preliminary injunction) and permanent injunction (permanent injunction). Permanent injunction refers to a kind of relief given to the winning party when the court finds that the defendant has infringed the rights and makes a judgment after the case has been substantively heard and the disputes are fully investigated, which can ensure that the defendant will never endanger the interests of the plaintiff again.
Costs, Interest, and Attorney's Fees
309. Accordingly, plaintiff asks the court to support reasonable litigation costs, pre- and post-judgment interest, and reasonable attorneys' fees.
jury
310. Plaintiff requests that all claims be tried by jury.
October 6, 2019
Plaintiff's attorney:
Kyle W. Roche (appearance pending)
Joseph M. Delich
Roche Freedman LLP
2nd Floor, 185 White Avenue, Brooklyn, NY
Kyle@rochefreemdan. com
Jdelich@rochefreedman. Com
Velvel (Devin) Freedman [Velvel (Devin) Freedman, cross-state practice to be determined]
Roche Friedman LLP
Suite 5500 South Biscayne Boulevard, Miami, FL
vel @rochefreedman. Com
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