The NYAG statement is highly critical of Bitfinex and Tether, accusing them of “recklessly and unlawfully [covering up] massive financial losses” and “illegally trading virtual currencies in the state of New York.”
The loan was taken to cover for the loss of $850 million in co-mingled client and corporate funds caused by entrusting its liquidity to a Panamanian company called Crypto Capital, according to NYAG.
The outcome of the case could have a huge impact on digital asset markets, with Tether regarded as the asset that backs up much of BTC's (and other popular assets) price.
Whenever the curtain is pulled back on the operations of Tether, the representations made by its executives change dramatically.
With a large portion of the "money" flowing into digital asset markets recently coming from USDT, any regulatory action against it could have a large negative impact, Jon Southurst writes.
Reginald Fowler has been embroiled in a legal battle for months over his involvement in the Crypto Capital/Bitfinex case.
New York Attorney General Letitia James has requested a New York court to extend the deadline for documents submission by iFinex Inc., the parent company of Bitfinex and Tether.
Reginald Fowler has been accused of misleading his lawyers regarding his financial status, having paid just $25,000 since the case started in 2018.
Former player and football league investor Reginald Fowler saw his legal team submit a motion to withdrawing their representation in the case.
There is perhaps no better illustration of this than Blockstream, a company which perpetuates the problems faced by Bitcoin knockoffs and then offers its own solution to those problems, while attempting to destroy and censor the better solutions that already exist (and have existed since the release of the White Paper).
Blockstream a nexus point for the crypto crime cartel
Blockstream is a blockchain technology company founded by Adam Back. Its activities should be of great interest to the wider digital asset community: they have raised over $80,000,000 since going public in 2014. But for a company who promises to form the foundations for the financial infrastructure of the future, that money has returned very little other than the undermining of digital asset adoption and ensuring the personal enrichment of its founders.
If you understand what Blockstream actually is—and who is running it—then this isn’t a surprise. Straight from the Roger Ver playbook, Blockstream is a fundamentally ideological company masquerading as a non-partisan blockchain company.
The stated purpose of Blockstream, in Back’s words, is to “sell sidechains to enterprises, charging a fixed monthly fee, taking the transaction fees and even selling hardware.”
A sidechain is not a blockchain at all. The fees from sidechains do not go to miners—they go to the developer of the chain, in this case Blockstream. Sidechains are typically used to patch the holes in the capabilities of the underlying protocol. Therefore, the better Bitcoin becomes, the more obsolete companies like Blockstream become.
Blockstream’s Liquid sidechain is a perfect example. According to them, Liquid was created because Bitcoin’s supposed high-latency means that the volume of transactions which take place on-chain is going to be limited, so the solution is to move a large volume of transactions off the main chain and onto this sidechain.
This is laughable in itself because we know that the original Bitcoin does scale and was designed to do so—more on that in a moment.
But most important about Liquid is that it works by replacing the on-chain Proof-of-Work model with a system where Blockstream appoints a small group of market participants to validate the side-chain transactions themselves and then submit them to the main chain. This small group is called the Liquid Federation, and by and large consists entirely of digital asset exchanges.
If this is raising red flags already, it should. Not only is this not decentralized, as Blockstream audaciously claims, it is entirely centralized in a small hand-picked cabal (read: cartel) of exchanges with which they will trust the transactions they are trying to lure off-chain.
What kind of entity does Blockstream find suitable to give this kind of control to? Well, included in this ‘federation’ are such criminal enterprises as BitMEX and Bitfinex, both of whom have been shown to treat the digital asset economy and the money trusted to them as a private cash dispensary and in BitMEX’s case, at least, were complicit in the dubious Bitcoin SV delisting attacks.
Here’s Bitfinex executive Zane Tackett admitting the company seed invested in Blockstream and also into Shapeshift:
Despite BitMEX’s founders being indicted and Bitfinex coming under investigation for covering up an $850 million loss and using user funds to do so, both are still members of the Blockstream federation.
The solution Blockstream says it wants
Blockstream has built itself on a business plan which requires bitcoin—as originally conceived in the White Paper—to fail. Blockstream needs bitcoin to be unscalable, with a hard block cap to ensure that mass adoption is impossible. Every failing of Bitcoin is a victory for Blockstream, because it allows them to provide a patchwork service on top of the original protocol to fill the need.
What does Blockstream make of Bitcoin SV, then? Bitcoin SV scales on-chain already, having demonstrated massive transaction volume and fractional cost. It does everything that Blockstream says Bitcoin can’t do.
In reality, the millions that have been funneled to Blockstream have funded the on-going misinformation campaign which passes the various Bitcoin imitators off as the real bitcoin and in which the proponents of the true bitcoin are subject to libel, slander and harassment.
In addition to being the person behind Blockstream’s business model, Adam Back has accused Bitcoin founder Craig Wright of lying about having invented Bitcoin, that he had forged the evidence which supports him, and that he had committed tax fraud. Back also inadvertently admitted that Blockstream employs a ‘large’ team whose job it is to ‘debunk and disprove.’ Given the scale of the misinformation peddled by Blockstream, it’s no surprise that they have a dedicated propaganda team, but Back’s admission of this is bold, to say the least.
Former Blockstream CTO Gregory Maxwell once provided a step-by-step guide to exploiting a possible vulnerability between BTC and Bitcoin SV which would allow users to steal unsplit coins. The vulnerability was not disclosed in accordance with Bitcoin SV’s bug bounty system, but was instead posted to social media site Reddit.
Speaking of Reddit, Maxwell was exposed for using multiple Reddit accounts to spread misinformation about bitcoin and denigrate Craig Wright. This is par for the course for Maxwell, who was banned by Wikipedia for bullying, harassment and using multiple accounts to reinforce edits he was making on Wikipedia.
Former Blockstream CEO and co-founder Austin Hill made his debut into the business world by scamming $100,000 out of unsuspecting Canadians. He placed advertisements in newspapers offering to pay people up to $600 a week to review television shows. Those that wrote in were asked to pay a deposit of $49 for a hastily cobbled-together training program, and Hill was relying on these people simply not completing the program. Hill has openly admitted to all of this. Rather than acting as a wholesome story about how Hill found the light and went on to work with Blockstream, the actual story reads more like a troubling origin story that is consistent with Blockstream, a company which is designed to profit from perpetuating the flaws of Bitcoin’s imitators.
Of the cofounders who don’t appear to be involved in theft, fraud and slander, most appear to be happy to leave Blockstream behind. Co-founder Matt Corallo said on Twitter that he’s embarrassed to have helped co-found the company. In response, Luke Dashjr, apparently another co-founder, speculated that Blockstream has let troll propaganda redefine the company.
Bitcoin loses out
Consider how corrupt Blockstream is, and the damage it is doing to those who have bought the false vision of Bitcoin that the likes of Adam Back have sold. Blockstream, employer of many BTC Core developers, creates and sells sidechains which exist to address flaws in the underlying protocol. The flaws that Blockstream is trying to address—like scalability—were actually all created by Blockstream themselves. The original protocol worked and still works today as BSV. Blockstream only exists to try to confuse the world on the design brilliance of the original protocol of Bitcoin, trading today only as BSV.
Bitcoin SV is the answer to the problem that Blockstream is pretending to solve: only Bitcoin SV’s solution precludes the likes of Blockstream entirely. Our thesis holds true: a good test for criminality is whether a company and its executives are in favor of Bitcoin SV and Craig Wright, or if they spend their time trying to tear them down. Blockstream continues to make a tidy sum by doing the latter, and the rest of the cartel are reaping the benefits as well.
That is how criminal cartels work, after all.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream and Ethereum—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market." title="Crypto Crime Cartel: Blockstream needs Bitcoin to fail" />
Blockstream perpetuates the problems faced by Bitcoin knockoffs and then offers its own solution to those problems, while attempting to destroy and censor the better solutions that already exist.
Reginald Fowler is looking to renew his plea talks with U.S. prosecutors, eight months after rejecting the first plea deal.
The AG’s request seeking a conference before the New York Supreme Court has now been granted.
Judge Joel Cohen responded to the AG’s request, stating, “The Court will conduct a conference with the parties on September 17, 2020 at 11 a.m. The Court will circulate a videoconference link to counsel in advance of the conference.”
Judge Cohen further directed the two parties to submit letters to the court outlining their positions on the issues in question. The letters must be no more than 3 pages in length and must be filed on or before September 14.
Bitfinex has now confirmed that it will be filing its response to the proposed steps. Speaking exclusively with CoinGeek, a spokesperson for the company stated:
“Despite our best efforts, we were not able to reach an agreement. While we continue to be willing to discuss a potential resolution, we will file our response to the proposed next steps in due course. We will continue to pursue a fair and reasonable process.”
The New York AG has been pursuing Bitfinex and Tether since last year, accusing the two of secretively covering up an $850 million loss at the exchange. In July this year, a New York State appeals court ruled that the investigation could continue. This was after Bitfinex submitted multiple filings seeking to have the case dismissed." title="Bitfinex, NYAG called to video conference with New York court" />
Attorney General Letitia James’s request seeking a conference before the New York Supreme Court has now been granted.