Reggie Fowler to plead guilty to running digital asset shadow bank

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Reginald Fowler, the man who was busted providing shadow banking services to digital asset firms including Bitfinex, has told the court that he intends to plead guilty to charges of fraud, money laundering and running an unlicensed money transmitting business.

Fowler, a one-time investor in the NFL’s Minnesota Vikings, was accused of running a scheme whereby he would open bank accounts with fraudulent details and then funnel hundreds of millions of dollars through those accounts on behalf of cryptocurrency exchanges which either couldn’t access regular banking services for compliance reasons or sought to bypass money-laundering requirements entirely.

One of Fowler’s best-known corporate vehicles was Crypto Capital Corp, the Panamanian entity that supposedly disappeared with more than $850 million of co-mingled client and corporate funds belonging to Bitfinex, sister company to Tether. Tether agreed to loan Bitfinex the money to fill the gap left by this loss at a time when it was insisting that its stablecoin USDT was fully backed by U.S. dollars. The loans were not disclosed to investors.

Fowler, currently out on $5 million bail, was due to begin trial in May, but in the letter filed to the New York District Court his attorneys said that Fowler was prepared to forego his right to trial and enter an open plea to the charges against him.

An open plea means a plea which is made without any deal with the prosecution. This is usually done in the hope that an open plea might encourage a more lenient sentence than that being offered by the prosecution in any plea deal. Indeed, Fowler almost accepted a plea deal in 2020 but the deal ultimately fell through due to the prosecution’s insistence on a $371 million forfeiture order.

Fowler’s attorneys have requested the plea hearing to take place on April 25. They also request the ability for Fowler to attend the hearing remotely over New York City’s ‘alarming’ number daily COVID cases.

It might put an end to the Reggie Fowler saga, but it will be little solace to those affected by the knock-on effects of a scam the size of which Fowler was running. His allegedly fraudulently obtained funds were used to pay for his stake in the Alliance of American Football (AAF), a startup football league which collapsed after running out of money. Fowler’s funding was frozen some time in December 2018 without any warning to the AAF. An explanation only came months later, when Fowler was formally charged the following April. By that point, the League was already in the process of folding, leaving scores of hopeful football players, coaches and executives out in the cold.

Financial empires built on crypto-sand are becoming something of a feature of the cryptocurrency industry. Tether, already banned from operating in New York after being found to have lied about the backing of its stablecoin, is potentially propping up large parts of the digital asset market and beyond. If Tether’s scheme blows up in similar fashion to that of their banker, the effects may be far-reaching—as well as the indictments.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.