The "USDT Collective Claims", which has attracted worldwide attention, is inseparable | full text translation
Translation, annotation: lawyers Xu Kai and Wang Gang of Beijing Deheng Law Firm
Source: Carbon chain value
Translator's description: This is the second time that we have translated the lawsuits of the cryptocurrency community after translating Klein v. White [the genus of Nakamoto and the million bitcoin]. This article is a class action lawsuit filed by the plaintiffs against Tether and Bitfinex for fraud, market manipulation and organized crime. Tether and Bitfinex have been involved in a number of cases before the class action lawsuit, and the most influential of them was the investigation and litigation against the New York City Attorney General, which is one of the reasons for this case (see the fourth part of this article). Section H). The case has been assigned to the district judge Katherine Polk Failla, who issued a notice on November 4th requesting the parties to go to the court for a preliminary pre-trial meeting on February 7, 2020. The attorneys entrusted by the defendant applied before the motion on November 15th, requesting the court to allow them to file a motion to reject all the plaintiff's claims, and to arrange a pre-action meeting for this purpose.
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Southern District Court, New York, United States (Case No. 1:19-cv-09236)
Plaintiff: David Leibowitz, Benjamin Leibowitz, Jason Leibowitz, Aaron Leibowitz, Peace Pinchas Goldshtein
Defendants: iFinex, BFXNA, BFXWW, Tether Holdings, Tether Operations, Tether, Tether International, DIGFINEX, Philip G. Potter, Giancarlo Deva Giancarlo Devasini, Ludovicus Jan van der Velde, Reginald Fowler, Crypto Capital, and Global Trade Solutions
Class action
Request a jury verdict
Agent: Kyle W. Roche (to be confirmed)
Joseph M. Delich
Roche Friedman Law Firm (ROCHE FREEDMAN LLP)
2nd Floor, 185 White Avenue, Brooklyn, NY
Agent: Vivo (Devin) Freedman, interstate practice pending] Roche Friedman Law Firm
Room 5500, South-South Biscayne Avenue, Miami, Florida
Vel@ rochefreedman. Com
Lawyer Xu Kai: ROCHE FREEDMAN LLP is also the plaintiff's agent in Klein v. White. In this case, their strategy made the defendant Craig White in a passive position. The law firm's official website shows that they focus on "complex and high-risk dispute resolution business." The firm has only three lawyers, the first of whom are in New York and the latter in Miami.
Plaintiff David Leibowitz, Benjamin Leibowitz, Jason Leibowitz, Aaron Leibowitz, Peace Check Pinchas Goldshtein himself and on behalf of all similar situations, iFinex, BFXNA, BFXWW, Tether Holdings, Tether Operations, Tether, Tether International, DigFinex, Phillips • Philip G. Potter, Giancarlo Devasini, Ludovicus Jan van der Velde, Reginald Fu Reginald Fowler, Crypto Capital, and Global Trade Solutions (hereinafter collectively referred to as the “defendant”) filed a lawsuit and alleged that:
01
introduction
“The methods and techniques of manipulation are limited to human creativity.”
(Cargill v. Harding, 1971)
1. This lawsuit involves a complex scam that uses disruptive innovation (cryptocurrency) to deceive investors, manipulate the market, and hide illegal gains.
2. Partial fraud, partial elevation of shipments, partial money laundering, this scam is mainly done by two companies (Bitfinex and Tether), which mixes corporate identity and client funds, while concealing the extensive cooperation between them so that they can Efficient manipulation of the cryptocurrency market with unprecedented efficiency.
3. Founded in 2012, Bitfinex is one of the world's largest cryptocurrency exchanges and a platform for individuals to buy and sell various cryptocurrencies.
4. Tether is a centralized servant called cryptocurrency called “tether” or “USDT”, which is one of the earliest “stabilized coins” in the world, although most cryptocurrencies are not supported by tangible assets. The “stabilized currency”, such as the USDT, aims to address the inherent volatility of cryptocurrencies by linking to tangible asset reserves.
5. Bitfinex and Tether have teamed up to manipulate a market that should be decentralized.
6. At the heart of this scam is Tether's claim that "the amount of tokens in circulation (USDT) is always equal to the dollar in its bank account." This statement has caused Bitfinex and Tether to signal to the market that the demand for cryptocurrency is growing rapidly, because each “printing” a USDT means another dollar invested in the market.
7. This statement is a lie.
8. Tether issued a massive USDT without dollar support to manipulate the price of the cryptocurrency. Because the market believes that a USDT equals one dollar lie, Bitfinex and Tether have the ability and indeed manipulate the market on an unprecedented scale, profiting from the volatility cycle they create.
9. From 2017 to 2018, Tether “printed out” 2.8 billion USDT, used it to flood the Bitfinex exchange and purchase other cryptocurrencies. This artificially pushed up the demand for cryptocurrencies and caused prices to soar.
10. When the cryptocurrency market reached a feverish, Tether's massive issuance of the USDT created the biggest bubble in human history. When the bubble burst, the market lost more than $450 billion in less than a month. This defoaming process continues to affect the cryptocurrency market, and if it is not manipulated, the price will not fall so low.
11. As explained below, economists estimate that from 2017 to 2018, half of the growth in the cryptocurrency market was manipulated by Bitfinex and Tether.
12. Even in the face of ongoing investigations by the Attorney General of New York, the Commodity Futures Trading Commission (CFTC) and the Department of Justice, Tether and Bitfinex continue to defraud the market, indicating that they are lawless.
13. Even if they are fully aware of their incredible damage to the cryptocurrency market, on October 5, 2019, Bitfinex and Tether issued a statement in which they generally described the allegations contained in the lawsuit, which they “predicted fully” "I will be sued and said, "If such a lawsuit is filed immediately, I will not be surprised."
14. It is premature to calculate damages at this stage, but there is no doubt that the damage caused by the defendant is unprecedented. Their liability for presumed collective damages may exceed $1.4 trillion. “As of January 6, 2018, the total market value of cryptocurrencies was approximately $795 billion; by February 6, 2018, the total market capitalization had fallen to $329 billion.” This period alone caused a potential loss of $466 billion. According to the Antitrust Law and the Anti-Organized Crime and Corruption Organization Act (RICO Act), the plaintiff may demand three times the damages.
Lawyer Xu Kai: RICO is the abbreviation of the Racketeer Influenced and Corrupt Organizations Act passed by the US Congress in 1970. Racketeer is intended to be a blackmailer, but the RICO Act has extended the interpretation of Racketeering, covering murder, kidnapping, fraud, robbery, Arson, usury, illegal gambling, bribery, postal and telecommunications fraud. Because there are three times compensation rules under the RICO Act (somewhat similar to China's Consumer Protection Law), in civil litigation, plaintiffs often try to interpret civil violations such as breach of contract, common law fraud, and product quality liability as RICO. Criminal acts under the Act.
02
Litigation participant
A. Plaintiff
15. The plaintiff, David Leibowitz, is a citizen of West Palm Beach, Florida. Since July 2014, David Leibovitz has held bitcoin and bitcoin cash through a shareholding in Pantera Bitcoin Fund Ltd. During the period of the case, David Leibovitz also personally held Ethereum and Litecoin.
16. Jason Leibowitz is a New York citizen. During the case, Jason Leibovitz held Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Bitcoin Gold, Ripple XRP, Stellar Lumens, Tron, QTUM, Monero , cryptocurrencies such as ZCash, Dash, Augur, NEO, EOS, WAVES, OMG, Cardano, NEM, IOTA, POWR, ICON, and STEEM.
17. Benjamin Leibowitz is a New York citizen. During the case, Benjamin Leibovitz owned Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Bitcoin Gold, Ripple XRP, Stellar Lumens, Monero, ZCash, OMG, Cardono, NEO and POWR. Encrypted currency.
18. Aaron Leibowitz is a citizen of Westchester County, New York. During the case, 18. Allen Leibovitz has cryptocurrencies such as Bitcoin, Bitcoin Cash, Ethereum, Waves and EOS.
19. Pinchas Goldshtein is a citizen of Miami, Florida. During the case, Pinchas Goldstein held Bitcoin and Bitcoin futures contracts.
B, the defendant
i.Digfinex
20. The defendant DigFinex was founded in the British Virgin Islands and is a resident. DigFinex is the ultimate parent of the defendant Bitfinex (defined below) and the defendant Tether (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 Perition Group (Asia) Limited.
Ii. Defendant Bitfinex
22. The defendants iFinex, BFXNA, and BFXWW are held and operated by the same group of managers and employees. They also jointly operate a cryptocurrency online trading platform called Bitfinex. The plaintiff will provide the following for these defendants. More detailed allegations, but for ease of reference, unless otherwise stated, we will refer to these defendants collectively as "Bitfinex" or "defendant Bitfinex."
23. The defendant iFinex was founded in the British Virgin Islands and is a resident. iFinex holds and operates the cryptocurrency online trading platform "Bitfinex" at Bitfinex.com. It wholly owns the shares of the defendants BFXNA and BFXWW.
24. The defendant BFXNA was founded in the British Virgin Islands and is a resident. This company is responsible for serving US customers who trade on the Bitfinex platform.
25. The defendant BFXWW was founded in the British Virgin Islands and is a resident. This company is responsible for serving non-US customers who trade on the Bitfinex platform.
Iii. Defendant Tether
26. The defendant Tether Holdings Ltd., Tether Co., Ltd., Tether Operations Limited and Tether International Limited are held and operated by the same small group of management and employees to jointly operate an organization called “Tether”, which issues and controls USDT. For ease of reference, we refer to these accused as “defendant Tether” or “Tether” unless otherwise stated.
27. The defendant Tether Holdings Limited is the holding company of the defendant Tether Co., Ltd., Tether Operations Limited and Tether International Limited.
28. The defendant Tether Operations Limited was established in the British Virgin Islands and is a resident.
29. The defendant Tether International Limited was established in the British Virgin Islands and is a resident. The company is responsible for serving non-US customers who are trading USDT at Tether.
30. The defendant Tether Co., Ltd. was incorporated in Hong Kong and is a Hong Kong resident. Tether Limited is the subject of the issuance of USDT.
iv.DigFinex, Bitfinex and Tether related natural person defendants
31. The accused Ludovicus Jan van der Velde has been the CEO of Bitfinex and Tether since 2013. He is also registered with DigFinex, iFinex and Tether Ltd. One of the two directors. Wilde is also a shareholder of DigFinex and Tether Holdings Ltd. and is the former CEO of DigFinex's shareholder, Yongdong Group (Asia) Limited. Wilde is a Dutch citizen.
32. The accused Giancarlo Devasini participated in the creation of Bitfinex. He is the Chief Financial Officer of Bitfinex and Tether and is another director registered with DigFinex, iFinex and Tether Limited. He is a shareholder of Tether Holdings Ltd. and DigFinex, an Italian citizen. In the early days of Bitfinex and Tether, Devasini posted on the bitcointalk.org forum with the username "urwhatuknow".
33. The defendant Philip G. Potter was the Chief Strategy Officer (CSO) of Bitfinex and Tether until June 2018. He is also an executive director of Tether Holdings and a shareholder of Digfinex. Philippe Porter is a New York citizen.
v. defendant Crypto Capital
34. The defendant Crypto Capital was established in Panama, and Crypto Capital operates a “payment processor” that sells itself to cryptocurrency exchanges. In fact, it is an illegal “shadow bank” that allows Bitfinex and Tether companies to enter the global financial system without supervision.
35. The defendant Global Trade Solutions AG was founded in Switzerland to hold and operate Crypto Capital. The Swiss Financial Markets Authority (FINMA) listed Global Trade Solutions in its public warning list in May 2019.
36. The defendant Reginald Fowler is an employee, agent or partner of the defendant Crypto Capital and Global Trade Solutions, a US citizen and resident of Arizona.
37. For ease of understanding, the organizational chart of a particular accused and the various relationships between them are shown in Schedule 16.
[Schedule 16]
03
Jurisdiction and jurisdiction
38. In accordance with the federal lawsuits set forth in Titles 1331 and 1337 of the United States Code and Section 1964(c) of Title 18, your Court has jurisdiction over the case.
39. According to Title 15 of the United States Code, Section 18, Section 1965 and Section 28, Section 1391, the defendant resides in the district, trades in the area, is found in the district or has an agent in the district. And a large part of the complaints affect the interstate commerce and commerce in the region, so the trial location is located in the district (Southern District of New York).
40. From the initial issue date of the USDT in October 2014 to the present period (the “class action period”), the above-mentioned defendants used interstate trade tools, including interstate routes, to enforce their illegal activities.
41. According to Section 6(a) of Title 15 of the United States Code, the alleged acts of manipulation, collusion and enforcement of the above-mentioned defendants have produced direct, significant and reasonably foreseeable US import trade and/or domestic trade with the United States. The effect was given to the plaintiff’s claim.
42. As each defendant conducts transactions in the United States (including this jurisdiction) and/or maintains close contact with them or their accomplices, the Court has personal jurisdiction for each defendant. This scam targets and intentionally harms those who live in the district, are located in the district or operate in the district.
43. The Court also has quasi-objective jurisdiction over the defendant’s US dollar account in New York.
Case fact
A. cryptocurrency and cryptocurrency transactions
44. A cryptocurrency is a digital asset intended to be used as a medium of exchange and/or a value storage tool. The cryptocurrency uses various encryption algorithms to ensure transaction security, control the issuance of new coins, and verify the transfer process of the underlying digital assets.
45. Bitcoin is the world's first decentralized cryptocurrency. It is also the largest and most popular cryptocurrency. Its market capitalization was $147 billion as of October 5, 2019. Bitcoin has spawned a cryptocurrency market, plus bitcoin, which currently has a market capitalization of $219 billion.
46. In essence, Bitcoin is a ledger that records the ownership and transfer of each existing Bitcoin. This ledger is called a blockchain.
47. Each Bitcoin user has a "public key" instead of a bank account number. This "public key" is the address used to receive bitcoin from other people. On the Bitcoin blockchain, each public key and the number of bitcoins associated with that particular public key can be easily identified.
48. There are two ways to get Bitcoin.
49. The first method is “mining”. Since there is no central authority, the Bitcoin code stipulates that new bitcoins are issued to individuals who voluntarily provide computer resources to maintain bitcoin account updates, a process known as bitcoin "mining."
50. The second method is obtained from others, including gifts and purchases.
51. Online cryptocurrency exchange is a place where Bitcoin can be purchased. Cryptographic exchanges are similar to traditional stock or commodity exchanges, which provide a convenient market for buyers and sellers of cryptocurrencies.
52. In the early days, Bitcoin was the only tradable currency that could be traded. As cryptocurrencies became more popular, exchanges began to go online with other cryptocurrencies.
53. With the development of the cryptocurrency market, the trading volume of exchanges is also growing. At the beginning of 2013, the daily trading volume of Bitcoin hovered from $1 million to $25 million. By the end of 2017, the daily trading volume of Bitcoin soared to between $200 million and $3.8 billion.
B. Bitfinex
54. Bitfinex was first announced in 2013 by its then chief technology officer, Raphael Nicolle, in the online cryptocurrency forum, bitcointalk.
55. Bitfinex is now one of the "largest, least regulated" cryptocurrency exchanges in the world. While many exchanges only offer cryptocurrency to cryptocurrency trading services, Bitfinex is one of the few exchanges that allows users to access "funded currency."
56. Bitfinex has issued conflicting statements regarding its location. Sometimes it is stated that its principal place of business is Hong Kong, and sometimes it is said that there is only an office in Taiwan. In 2019, Bitfinex's General Counsel swears: "Bitfinex and Tether have no headquarters or head office. The company is operating in different regions including Hong Kong, Switzerland and Taiwan." Today, Bitfinex's website only indicates that it is The location 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 is engaged in illegal over-the-counter commodity transactions and has not been registered as a futures broker intermediary in the Commission. Violation of Sections 4(a) and 4(d) of the Commodity Exchange Act.
58. The Commission also considered that “bitcoin and other cryptocurrencies should be recognized as commodities for their definition and the Commodity Exchange Act should apply.”
C.Tether
59. Tether controls the cryptocurrency USDT, one of the first stable currencies. A stable currency is a cryptocurrency designed to maintain a stable value relative to one or more assets, such as gold or fiat. Unlike the underlying assets it represents, stable coins can be transferred instantaneously between the parties to the transaction at minimal cost.
60. Stabilizing coins attempt to address the problem of insufficient liquidity and price volatility in the cryptocurrency market. In fact, price volatility is one of the main obstacles preventing cryptocurrency from becoming a means of exchange and a unit of price storage. As a former Goldman Sachs CEO said, “20% of things going up and down in a day don’t feel like a value storage unit.”
61. Unlike Bitcoin, USDT cannot be obtained from mining. In fact, Tether unilaterally controlled the creation of the new USDT.
62. The origins of Tether can be traced back to July 2014, when a startup called Realcoin claimed that it had produced a stable currency that could be “supported by an audited dollar reserve of 1:1”, Realcoin by investor Brock · Brock Pierce, the first CEO of Reeve Collins, and software engineer Craig Sellars, who, through the release of Realcoin, "digitize the dollar and make the dollar Access to the Bitcoin blockchain."
63. Collins said that Realcoin “injecting circulation or recovering from circulation depends on whether the corresponding dollar has increased or decreased.” He also claimed that Realcoin has found a “major cooperative bank” that will “maintain the real-time reserve of the dollar. Record, "its lawyers are working hard to apply for a currency transfer license to the corresponding state."
64. In November 2014, Realcoin renamed itself Tether and renamed Realcoins to “Tether” or USDT, which is traded on cryptocurrency exchanges around the world.
65. In September 2014, the first two months of the renaming, the defendants Porter and Devasini registered Tether Holdings Limited in the British Virgin Islands.
66. One month later, on October 6, 2014, Tether issued the first stable currency, “printed” 100 USDT, claiming a value of $100.
67. After the name change, Collins reiterated Realcoin's commitment. He publicly declared that "the number of USDTs in circulation is always equal to the number of dollars in their bank accounts" and that "there is no process of anchoring or formulating complications." He said unequivocally: "When you want to redeem them We will give you cash when you are."
68. At the same time as the name was changed in November 2014, Tether announced “a new partnership in the field of Bitcoin, including a cooperation agreement with Bitfinex, the Hong Kong bitcoin exchange”.
69. However, they did not disclose in the November 2014 announcement that Tether's holding company was created and controlled by Bitfinex's CFO and CSO, Devasini and Porter in September 2014.
70. They also did not disclose that Wilde and Devasini, the CEO and CFO of Bitfinex, also registered Tether Co., Ltd. in September and became their director.
71. An archived copy of the Tether website, which began in March 2015, confirmed that Porter and Devasini were their “consultants” but did not mention Wilde at all.
72. The fact that the same group of people controlling Bitfinex (a cryptocurrency exchange) is secretly controlling Tether (a cryptocurrency that is allegedly supported by the dollar) is even if there is no strong evidence that it contains wrongdoing. Doubtful sinus.
73. This control structure was concealed from the public for more than a year until the November 2017 Pardise Papers leaked.
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. Because of the many offshore investments involved, this group of leaked documents is called Paradise Papers.
74. It is also questionable that the first transfer of USDT is always transferred from Tether's “treasury wallet” to Bitfinex, rather than directly to other exchanges.
75. Tether's treasury wallet is a separate account controlled by Tether, where all the creation and destruction of USDT takes place. All new USDTs are first sent to this wallet after they are created, and any redeemed USDT must also be transferred back to this wallet and then “erased”, ie destroyed.
76. The exclusive relationship between Tether and Bitfinex's initial USDT indicates that Bitfinex is the sole customer of Tether.
77. As of the date of prosecution, USDT is the most widely used cryptocurrency in the world in terms of transaction volume, even exceeding Bitcoin. Bitfinex and Tether's chief technology officer recently boasted that USDT almost completely monopolized the stable currency market, accounting for 98.7% of global stable currency trading volume.
78. It is also the world's fourth-largest cryptocurrency with a market capitalization of more than $4.1 billion, which means that Tether should hold more than $4.1 billion in deposits in its bank accounts.
D.Tether's history of USDT/USD 1:1 guarantee
79. Tether has been marketing the USDT to traders, allowing them to enter and exit positions between different cryptocurrencies and different cryptocurrency exchanges. Its selling point is that USDT provides a stable price blockchain mapping for the two worlds. It is as stable and secure as the US dollar, and is as easy to transfer and segmentable as other cryptocurrencies.
80. The value of USDT is sourced by Tether, which means that each USDT corresponds to a reserve of one dollar.
81. Until March 20, 2015, Tether's website claimed that USDT “provides 100% support from the actual legal currency assets in the reserve account and maintains 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 stated that “the Tether currency is basically a mapping of the US dollar, the euro, and the Japanese yen on the blockchain, and they always maintain a 1:1 ratio with the underlying assets.”
83. On June 17, 2016, Tether released a white paper to further assure the world that each USDT has actual asset support. It promises:
“Each USDT in circulation always represents one dollar in our reserve (ie, one-to-one ratio), which means that all existing USDTs (at any time) are always exactly equal to the dollar reserve balance.”
84. The White Paper also mentions Tether’s commitment to “keep 100% redeemable” and promises that USDT “can be redeemed or redeemed for the corresponding currency in accordance with the Terms of Service, or, if the holder likes, equal value of Bitcoin.”
85. Finally, it also describes the entire process in the chart below: storing French currency, creating USDT, redeeming legal currency, and destroying USDT. 
86. One year later, on April 5, 2017, in a lawsuit against Wells Fargo, Wilde submitted a statement of authenticity, explaining:
Customers who want to purchase cryptocurrencies through Bitfinex must deposit USD or [USDT] into their Bitfinex account and they will receive the equivalent cryptocurrency until they redeem the currency. Similarly, customers who want to purchase [USDT] through Tether must deposit the US dollar into their Tether account, and they will receive the equivalent [USDT] until they redeem the US dollar… This system works because the customer trusts Bitfinex And Tether will return the dollars deposited into Bitfinex or Tether to them at their request.
87. Until February 2019, Tether's website still indicated that every USDT in circulation was “1-1 supported by the traditional currency in our reserve. Therefore, 1USDT is always equal to $1.”
On March 4, 88.2, when Tether received a criminal investigation by the Department of Justice, the Commodity Futures Trading Commission (CFTC), and the New York Attorney General, Tether's guarantee was amended to claim that Each USDT is “1 to 1 linked to the US dollar” and is 100% supported by the “sometimes may include other assets” reserve.
89. As of August 17, 2019, relevant (1) "unpaid currency [USDT] is supported by traditional currency 1:1", (2) "1USDT is always equivalent to 1 US dollar", (3) "users are free Statements of depositing, trading and retrieving USDT" and "returning these currencies back to legal currency" continue to appear on the Bitfinex website.
90. Tether’s attorney told the Office of the Attorney General of New York, “When an investor deposits US dollars into Tether, or deposits dollars into an authorized trading platform to purchase [USDT], the new [USDT] will be issued."
91. Although these expressions differ in form, there has been no substantial change in at least five years. But the USDT did not actually receive a 1:1 support for the US dollar, any other currency, or even "other assets." As explained in more detail below, Tether's 1:1 guarantee is a lie, and Tether and Bitfinex use this lie to monopolize the stable currency market and manipulate the cryptocurrency market.
E. The cryptocurrency market is easy to manipulate
“Poor liquidity markets like Bitcoin are easy to manipulate.”
– Defendant Giancarlo Devasini, December 5, 2012.
92. Bitfinex and Tether's plans benefit in part from the inherent volatility and unsupervised cryptocurrency market. This volatility makes the cryptocurrency market highly susceptible to price manipulation.
93. Volatility is caused by a number of factors, including regulators still assessing how best to apply existing regulatory frameworks to this market.
94. Part of the reason is that cryptocurrencies are mostly commodities rather than stocks. They don't sell products, don't make a profit, don't hire employees, and don't return dividends—these characteristics make them more affordable. Unlike commodities that are usually traded, such as gold or silver, the cryptocurrency asset class is relatively new and has no long-term trading history to help traders understand the factors behind their market demand.
95. Finally, this market does not have large institutional capital and cannot form effective price anchors.
96. At this point, the above conditions create an environment in which prices fluctuate significantly and are therefore subject to price manipulation.
97. A notorious manipulation example occurred between 2013 and 2014 through an automated trading program called WillyBot.
98. Automated trading programs like the Willy Robot enable traders to accurately execute manipulative strategies. These programs are often referred to as "robots."
99. Between 2013 and 2014, Mark Karpeles, owner and operator of Mt. Gox, a cryptocurrency exchange, used the “Willie Robot” to successfully manipulate the price of Bitcoin. In three months, it rose from about $150 to more than $1,000. When Mt.Gox finally stopped trading because of insolvency, the price fell to $500.96.
100. Before the crash, “Mt.Gox is the largest bitcoin exchange” and “handles 70% of the world's bitcoin trading volume”. Marc Capelles is its sole owner and operator.
101. On May 25, 2014, an anonymous trader published a report entitled "Willie Report: Evidence from Mt.Gox Mass Fraud and Its Impact on Bitcoin Prices."
102. The Willie Report analyzed the Mt.Gox leaked transaction log in detail and concluded that someone had written a program that would allow a trading robot to purchase 10-20 bitcoins every 5 to 10 minutes. The report concludes that this “greatly” affects bitcoin prices and is the 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:
“The suspicious trading activity of a single trader is the main reason for the sharp rise in bitcoin against the US dollar. In just two months in late 2013, the price rose from around $150 to over $1,000.”
104. The researchers observed that the Willy account was active from September 9, 2013 and continued to trade until November 30, 2013. Since Mark Capelles owns and operates the exchange, “Willie” does not actually need to pay for bitcoin, during which time “about 268,132 bits were purchased for just under $112 million. currency". The findings of the researchers are clearly expressed in the following paragraphs:
Comparing Willy's active days with inactive days, you can see a dramatic difference: In the Mentougou case, Willy's active 50 days, the dollar/btc rose by $21.85, while Willy was not active. The dollar/btc fell by $0.88. The same dramatic differences apply to other exchanges as well. These results are shocking, suggesting that Willie’s actions may have caused the exchange rate of all exchanges to soar.
105. Although it was not clear at the outset who controlled the Willie robot, Mark Capelles finally admitted to controlling it in the 2017 trial.
106. Willie Robot's scam fully demonstrates that the control of the exchange and the use of non-existent funds to trade will have an enormous impact on the price of cryptocurrencies, even without the complexity of brushing transactions, shuffling transactions and cyber fraud. Manipulation strategy. The purchase of cryptocurrencies in non-existent US dollars interferes with the natural price discovery process and misleads market participants.
How F. Tether and Bitfinex make the 2017-2018 Bitcoin bubble
This will be the biggest bubble in our life…you can make a lot of money in the process of ascending, this is our plan.
– Michael Novogratz, September 26, 2017. 107. Bitfinex and Tether used the USDT and its control of the Bitfinex exchange to blow up the biggest bubble in history.
108. From 2014 to 2016, the price of Bitcoin fluctuated between $200 and $800. By the end of 2016, Bitcoin and other cryptocurrencies (investors) began to make huge gains.
109. On March 1, 2017, the price of Bitcoin climbed to $1,200. Throughout the first half of 2017, Bitcoin (investors) continued to make huge gains, rising to just over $2,000 in July.
110. Since then, the price of Bitcoin has risen rapidly until December 17, 2017, when bitcoin prices reached a record high of nearly $20,000. At that time, the market value of Bitcoin was close to $327 billion, roughly equivalent to the market value of Amazon over the same period.
111. Then the market collapsed.
From January to February, 112.2018, the price of Bitcoin fell to $6,200. Throughout 2018, the Bitcoin market continued to bleed. The market value of Bitcoin fell to $62 billion, or $3,500 per bitcoin.
113. Bitfinex and Tether made and pierced the biggest bubble in history, resulting in the disappearance of Bitcoin wealth worth $265 billion.
114. The chart below illustrates the scale of this event by comparing the relative prices of Bitcoin and other famous bubbles:
115. This economic disaster is not limited to Bitcoin. As bitcoin fell, other parts of the cryptocurrency market it spawned also fell. "As of January 6, 2018, the market value of all cryptocurrencies totaled approximately $795 billion; by February 6, 2018, the total value had fallen to $329 billion." [CFTC v McDonnell, 2018]
116. As explained below, the USDT is not really supported by the US dollar 1:1. Bitfinex and Tether have issued billions of USDTs that do not have US dollar support to manipulate the price of Bitcoin and other cryptocurrencies.
117. This program allows Bitfinex and Tether to purchase large amounts of bitcoin without paying (like Marc Capelles between 2013 and 2014) and get amazing from the boom and bust cycles they created. profit.
i. Prof. Griffin's analysis shows that Tether and Bitfinex manipulate bitcoin prices
In June, 188.2018, 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 not bound by (Tether)? (hereinafter referred to as "Griffin")
119. Griffin's main conclusion is that USDT-driven price manipulation during the period from March 1, 2017 to March 31, 2018, accounted for half of the increase in bitcoin prices.
120. Griffin examined two alternative hypotheses to explain how Tether issues the USDT during this period.
121. The first assumption is that Tether issued the USDT in response to the legitimate need to anchor cash. Under this assumption, the USDT is fully supported by the US dollar. This assumption is called “pull hypothesis” because investors are “pulling” USDT into the market.
122. Another assumption is that Tether issues USDT as part of the supply-driven trick and buys bitcoin through unsupported USDT to manipulate its price. This assumption is known as the “push hypothesis” because Tether issues the USDT independently of demand and “pushes” it into the market.
123. Since Tether controls the issuance of the USDT, Bitfinex and Tether can set a strategic price ladder for Bitcoin, triggering the execution of a buy order with an unsupported USDT, and ensuring that the price of Bitcoin is never lower than the pre-set at no cost. The lower limit. Like the Willy robot, continued purchases can cause bitcoin prices to rise.
124. The issuance of a large number of USDTs and the purchase of bitcoin usually have an inflationary effect, resulting in a fall in the price of USDT 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 Rising against the dollar.
125. According to the push hypothesis, as the price of Bitcoin rises, Bitfinex and Tether can be cashed by selling the bitcoins they buy in US dollars, possibly at a slower rate, through opaque channels, than their purchase behavior versus price. The impact is much smaller.
126. In other words, Tether and Bitfinex use the fake USDT to buy bitcoin to attract trend investors and then sell them to the real dollar.
127. If in doubt, Tether can exchange cryptocurrency for US dollars, or use its US dollar profits to provide reserves for USDT, and claim that these reserves are always there.
128. In order to determine what assumptions are true and effective, Griffin examined more than 10 different sources of transaction data over 200g. The openness of the blockchain allows him to analyze data such as USDT trading volume and circulation.
129. Griffin first confirmed that Tether sent all new USDTs to Bitfinex, and Bitfinex basically sent 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 concluded that when the price of bitcoin fell, the USDT was issued and used to purchase bitcoin, but did not redeem the data when the bitcoin price rose to reflect this. He believes that this shows that the USDT is used to stop the decline, not the real market behavior.
131. In other words, Tether and Bitfinex use the USDT to buy bitcoin when prices fall, artificially keeping prices high.
132. Griffin then analyzed the issuance of Tether between March 1, 2017 and March 31, 2018 to test the extent of the relationship between the issuance and the rise in bitcoin prices. He found that the timing of the release was highly correlated with half of the bitcoin rising nodes.
133. Griffin’s conclusion is that his above findings “are most consistent with the supply-driven manipulation hypothesis”. Tether is artificially pushing the USDT into the market.
134. Griffin explained in an interview with Bloomberg:
First, [USDT] was created by Tether Co., Ltd., usually in large quantities such as $200 million. Almost all of the new coins have flowed to Bitfinex. When Bitcoin prices fall, Bitfinex and other exchanges will buy Bitcoin in a coordinated manner to maintain high prices.
135. The chart below depicts the correlation between USDT circulation and bitcoin price increases:
136. Griffin also observed that there is evidence that the “integer threshold” is used as the “price anchor for the lower limit”, thus “stabilizing and pushing up” the bitcoin price. The premise of the price anchor is "If the investment shows the bottom line, then they can induce other traders to buy."
Ii. Other studies confirm the conclusion of Griffin's article
137. In the first few months of the publication of Griffin's article, a report entitled “Quantitative Research on the Tether Effect” (hereafter referred to as “Tether Report”) was published online, similar to Griffin's analysis, Tether Report. The conclusion is that the impact of Tether's issuance on the market is considerable; 48.8% of the BTC price increase during the same period occurred within two hours after Bitfinex received 91 Tether “grants”. The report warns that "Bitfinex deposit and withdrawal statistics are not common and should be reviewed in the normal financial environment."
138. The Tether report analyzes bitcoin price data and USDT transaction records and finds:
Price data suggests that Tether may not be generated independently of bitcoin prices, but rather when bitcoin falls; it also states that Tether's claim that bitcoin prices have little effect is wrong. An understanding of these data suggests that Tether is responsible for half of the bitcoin price increase, even if the subsequent effects and the psychological effects of repeated market increases are not considered. Due to suspicious trading patterns, these trading data may trigger rigorous review and auditing.
On October 3, 139.2019, cryptocurrency research company TokenAnalyst, "has the mission of bringing transparency to the decentralized economy," came to a similar conclusion. Tether's issuance of USDT is related to the rise in bitcoin prices.
140. Tokenanalyst analyzed “the relationship between BTC price and USDT supply in history” and determined that “the day of casting #USDT ERC20, the possible behavior of BTC price increase is 70.0%”, “in the days of casting #USDT Omni, The probability of a BTC price increase is 50.0%."
Lawyer Xu Kai: In short, the USDT ERC20 is based on the Ethereum network and is stored at the Ethereum address. The USDT Omni is based on the Bitcoin network and is stored on the Bitcoin address.
In July 141.2018, Dr. Gerard Martinez reviewed the Griffin article. After reviewing the evidence, Dr. Martinez concluded that “statistics support the theory that Tether And Bitfinex used Tether to buy bitcoin at the critical moment of bitcoin price spikes in 2017 and early 2018;" After the short-term price drop in Bitcoin, these companies will print Tether…"; "Tether Limited The company uses the newly minted Tether to buy bitcoin and promotes the creation of a fraudulent bull market that will attract more investors to buy bitcoin, which will blow up the bubble (trend effect); then as part of the strategy: …. Tether will transfer the newly purchased bitcoin to their account on Bitfinex."
Iii. Further evidence of Bitfinex and Tether conspiracy
142. These empirical conclusions are supported by other evidence that Bitfinex and Tether are jointly operating the market.
143. For example, in April 2017, Porter publicly discussed Bitfinex's plan to create a “private market for equity (shareholders) transactions.” Bitfinex today “provides an order type called 'hidden', where ' The hidden' order will not appear in the publicly visible order book. This is exactly the kind of "opaque channel" that Griffin assumed, that is, the mechanism to sell bitcoin without causing a price crash.
144. This hidden market is fully consistent with a report issued by the Attorney General of New York, which believes that Bitfinex has fostered an environment of abuse of authority. Although “the trading of platform employees creates a conflict of interest”, Bitfinex “does not impose any restrictions on employee transactions”.
145. In addition, in June 2014, a month after the publication of the Willy Report on mt.Gox, Giancarlo Devasini almost admitted that he was developing his own “ Willy Bot pushed the price of Bitcoin to $10,000:
146. A report by the New York Attorney General confirmed that Bitfinex has the ability to implant trading robots like the Willie Robot. The report found that Bitfinex offers some "special order types" that are only useful for professional automated traders who use complex algorithm strategies. Under this strategy, orders can be submitted or withdrawn in response to general traders not seeing ( It is not even possible to see the market signal.
147. As described below (see Section 4 G below), Bitfinex and Tether self-proclaimed the ability to issue hundreds of millions of USDTs, but their long-term banking relationships and US correspondent bank accounts were terminated, which is equally worrying.
148. In fact, in this liquidity crisis, Devasini admitted to manipulating the price of Bitcoin. In October 2018, Devasini wrote to a representative of Crypto Capital: "Please understand that all of this is extremely dangerous for everyone, for the entire encryption community… if we are not Take action, [bitcoin] may soon fall below $1,000."
149. In other words, Tether, while losing its ability to settle US dollars, launched a printing press to issue an asset that was allegedly supported by the dollar. This is meaningless unless Tether issues a USDT that does not receive $1:1 support.
150. Further confirming that the release of USDT was unconstrained, on July 13, 2019, Tether unexpectedly issued 5 billion USDT and then withdrew it in as little as 20 minutes. The company's CTO, Ardoino, attributed this to the "tokens of decimals."
On October 15, 151.2018, the market worried that Tether did not have all the reserves it claimed. The massive sell-off caused the USDT price to fall to $0.85.
On November 20, 1522, the Bloomberg News reported that the US Department of Justice is cooperating with the CFTC (Commodity Futures Trading Commission) for criminal investigations. “The issues being investigated by the Justice Department include how Tether creates new coins and why they mainly enter through Bitfinex. market."
On November 27, 153.2018, the Office of the Attorney General of New York summoned Bitfinex and Tether.
154. The Ministry of Justice’s criminal investigation focused on Bitfinex and Tether to find out whether the 2017 cryptocurrency gains were “partially driven by manipulation”.
—Philip G. Potter, Bitfinex CSO (Chief Strategy Officer)
156. As mentioned below, access to the US financial system is an important part of the defendant's conspiracy. In fact, Tether's entire premise depends on its use of the US financial system (ie, US dollar deposits) to support the digital assets it manufactures.
157. In order to facilitate its access to the US dollar, Bitfinex and Tether collaborated with a Panamanian company called Crypto Capital.
158. As traditional banks began closing Tether and Bitfinex accounts to address money laundering and other compliance issues, Tether and Bitfinex and Crypto Capital were getting deeper and deeper due to complex money laundering games.
159. It is puzzling that in the face of growth pressure, Tether has not stopped printing presses, and it often issues a large number of USDTs, even if it cannot enter the US dollar bank.
160. It is alleged that by the beginning of 2018, Crypto Capital had controlled more than $1 billion in Bitfinex funds, but there was no written agreement between the four-year business partners.
161. The following are mostly criminal acts. Crimes committed by Tether, Bitfinex, Crypto Capital and its executives include bank fraud (United States Code, Title 18, Section 1344), money laundering (United States Code, Title 18, Section 1956); originating from specific illegal activities Currency transactions (US Code 18, Section 1957), undocumented remittance operations (US Code 18, Section 1960) and telecommunications fraud (United States Code, vol. 18, pp. 1343).
162. In fact, executives of Bitfinex and Tether have publicly discussed many of these acts and intend to continue to engage in the above-mentioned crimes.
i. Overview of the US correspondent banking system
163. In order to trade in US dollars, Bitfinex and Tether need to: (1) a US bank account or (2) an account with a bank account with a "proxy account" in the United States and the United States. In the second case, the proxy account acts as an intermediary to settle the USD transaction.
164. In cross-border transactions, money has never actually “flowed”. In order to facilitate the transfer of money in other countries' currencies, a country's banks often open "agent accounts" in foreign banks. “In general, it is difficult for foreign banks to set up branches in the United States, so they will open a proxy account at a US bank to conduct dollar transactions.”
165. In order to conduct cross-border transactions in US dollars, a series of bank accounts are correspondingly credited or debited. The chart below depicts a typical dollar trade.
(1) Bitfinex instructs its bank to wire the US dollar 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 Bank of England's US correspondent bank debits the Bank of America's US correspondent bank account as a debit, and then counts the UK (local) bank as a lender;
(4) The UK (local) local bank credits the customer (UK local) account as a lender;
(5) The UK client received the funds.
166. For international transactions in US dollars, the use of a US correspondent account is required.
167. For correspondent banks, these transactions have a significant risk of anti-money laundering because the sponsor and the beneficiary need only one step to take the money out of the bank. Money launderers often use this disconnect to cover up real counterparties through shell companies.
168. This is no secret. The US Federal Bureau of Investigation (FBI) recently told Congress that “the abuse of shell companies, named companies, and shareholder shareholders or the real beneficiaries of hidden assets by other means is a major loophole in the US anti-money laundering (AML) system.”
Ii. US correspondent banks are critical to Bitfinex and Tether
169. Since Bitfinex and Tether need to collect US dollars, convert illegal proceeds into US dollars, and satisfy customers' requirements for cashing in US dollars, the US correspondent bank is crucial to the defendant's manipulation plan.
170. In fact, in April 2017, Bitfinex and Tether told the Federal Court that the only type of transaction they had with their clients was the US dollar trade: “Bitfinex can only receive customer dollars or US dollars to purchase cryptocurrencies” and “Tether can only receive customers. Dollar or dollar remittance purchase."
171. The defendants Bitfinex and Tether filed a lawsuit against Wells Fargo for the termination of its correspondent banking services by Wells Fargo and made the above statement in the lawsuit.
172. The statements made by Bitfinex and Tether in this case highlight how important US agency access is to their business, and losing such access will result in their inability to operate and issue USDT. Specifically, they told the court that Wells Fargo "decided to suspend the dollar wire transfer of the plaintiff's current account, posing a threat to their business," and if they "cannot remit US dollars to customers, [they] The business will be "and "stagnant."
173. On November 28, 2017, Philippe Porter opened a new business account for DigFinex and iFinex at the New York Branch of Metropolitan Commercial Bank. On December 20, 2017, Porter opened another new account on behalf of Tether Holdings in the New York branch of Daduhui Bank. On February 16, 2018, Porter opened more new accounts on behalf of DigFinex and iFinex at the Signature Bank New York branch.
174. These accounts indicate the reliance of Bitfinex and Tether on the US banking system, especially on New York banks.
175. However, as described below, the above specific accounts are of no use to the defendant's daily business. This may be because these banks are unable to provide the necessary proxy banking services, or they may have experienced the account being blocked, causing Bitfinex and Tether to be closed again and not even attempt to open their business through regulated banks.
Iii. Bitfinex and Tether's cat and mouse game
176. In the early days, Bitfinex and Tether used Bank of Taiwan to maintain a US correspondent bank account opened at Wells Fargo.
177. On March 31, 2017, Wells Fargo no longer provided proxy services to Bitfinex and Tether.
178. Two weeks after the Wells Fargo stopped the service, on April 12, 2017, Porter told the cryptocurrency trading community WhalePool, “The capital turnover is getting harder and harder.”
179. Porter continues to explain that offshore banking is, to some extent, a “close-knit relationship” for banks, and Bank of America is withdrawing from the dollar clearing business because “in many money laundering and In criminal cases, banks are held accountable for their agency business. "Money laundering is their biggest concern."
180. However, Porter clarified that “the problem is not in Wells Fargo, but in this system.” Subsequently, he described Bitfinex’s efforts in the past to circumvent the “system” of the law that the bank mandated, and said that Bitfinex will continue to circumvent it. These laws:
There are also other agencies that do not do our business. Wells Fargo is only the last agent of our Taiwanese bank.
There are other ways we can do it. The bitcoin industry is actually playing cat and mouse games with the agent. This has always been the case. The downside of becoming a big company is that we have a lot of deposits in the bank, and we can't think of the "radar" in the past.
It is now suspended in Taiwan… opening a new offshore account business. This is just one example. Even if we want to register some new corporate entities and turn over some of the money, what we usually do now has to slow down.
181. In other discussions of the same period, Porter said that we had a small problem with the banking system in the past, but we can bypass it or deal with it, open a new account, or transfer to a new corporate entity, etc. Bitcoin practitioners must learn the tricks of these cat and mouse games.
182. One way in which the defendant tried to conceal the true risk profile of his transaction from banks and regulators was the establishment of a Hong Kong company, Renrenbee Ltd., to create the illusion of complying with anti-money laundering laws.
183. Ludovicus Jan van der Velde was listed as a director in 2013 when the Bee Company was originally registered under the name Bitfinex Ltd. in March 2013. In December, Giancarlo Devasini also became a director.
184. In April 2014, Bitfinex Co., Ltd. changed its name to Renren Bee Co., Ltd. and registered as a money service operator (MSO) in Hong Kong to appease Bitfinex customers without revealing to banks that Bitfinex is a real counterparty.
185. In January 2016, the defendant even established a website specifically for Renren Bee Co., Ltd. to reinforce the illusion that this is an independent legal entity.
186. The lie continues, and Tether lied in a white paper published in June 2016 that he “is in the process of entering into a proxy agreement with RenRenBee Limited”, whereby Renren will act as a Tether agent. It provides anti-money laundering compliance work and customer due diligence procedures."
187. Bitfinex also falsely claimed that Renrenbee Limited is an independent provider of compliance services. Although Renren.com is no longer available, the “Know Your Customer” (KYC) form on the Bitfinex website shows that “Bitfinex’s KYC/AML collection and processing work is performed by the designated currency service operator Merchant Bee Company Limited. ”
188. The falsehood of the human bee compliance function is further evidenced by the fact that Bitfinex and Tether do not follow the standard KYC and AML conventions. According to the Attorney General of New York, unlike most exchanges, Bitfinex does not “require new customers to submit a series of customer personally identifiable information and government-issued identification documents before the transaction”, requiring only “an email address to conduct cryptocurrency transactions”. ".
189. As a means of cat and mouse games, Bitfinex and Tether often open and use bank accounts in the name of shell companies to cover up their relationship with the transaction.
Around January 26, 190.2018, Bitfinex began instructing customers to deposit funds into Haparc BV's account at ING Groep NV Bank in the Netherlands. A month after Bloomberg reported the incident, ING Bank closed the account.
In October, 191.2018, Bitfinex began using a Hong Kong bank account called "Prosperity Revenue Merchandising Limited" and trading in US dollars through Citibank's US agent account.
Iv. Bitfinex and Tether rely on Crypto Capital to further confuse and circumvent anti-money laundering laws and continue to operate
192. Since 2014, Bitfinex and Tether have cooperated with the defendant Crypto Capital, a “third-party payment processor”, without any contract or written agreement.
193. Although there is no written agreement, “By 2018, Bitfinex has pooled more than $1 billion in client and corporate funds in Crypto Capital.”
194. Evidence from the end of 2017 to 2018 shows that there are problems with the banking operations of Bitfinex and Tether, and it is urgent to find an entry into the US banking system.
195. On December 5, 2017, Bloomberg published a report stating that Tether refused to disclose its cash reserve location without a confidentiality agreement. The same article reported that the online document showed that Bitfinex was instructing potential customers to deposit funds into another company, Crypto SP. ZOO's account at Spoldzielczy Bank in Poland.
196. On March 28, 2018, the United States sued several people related to Backpage.com on charges of money laundering and prostitution. The allegation specifically pointed out that Crypto Capital was one of the companies used by the defendant Backpage to launder money.
197. One week later, on April 6, 2018, Polish law enforcement seized a $375 million zloty (Polish currency) from Crypto SP. ZOO (Bitfinex Shadow Account), Neso SP. ZOO and ITRAN SP. ZOO accounts. ). These companies are all shell companies controlled by Crypto Capital.
198. Polish law enforcement agencies found that these companies “have not actually carried out any economic activities” and “just set up for the purpose of making their bank accounts available for international financial criminal activities”.
199. This seizure affects Bitfinex's ability to pay. Throughout 2018, Devasini "please pleaded with someone from Crypto Capital ("Oz") to return Bitfinex funds."
200. About a month later, on May 16, 2018, the Arizona District Court of the United States confiscated funds from an account of Crypto Capital.
201. Since there is no choice, even Bitfinex has been pleading for Crypto Capital to return funds for several months, and it is not until early October 2018 that Bitfinex is still guiding customers to use Crypto Capital.
202. For example, on October 5, 2018, in a conversation with a Bitfinex customer trying to extract legal currency, Devasini wrote: "If you are interested in a faster solution, please consider www.cryptocapital.co "A minute later, he wrote: "The currency that is turned over in Crypto Capital is in minutes. We are real-time revenues in dollars, euros, and yen."
203. When the client pointed out that the Euro cash withdrawal on the Bitfinex website was still frozen, Devasini responded: "As I said before, if you open an account at Crypto Capital, we can trade the euro without any problems."
204. Devasini’s pledge to the client obscures the fact that the bank relationship between Bitfinex and Crypto Capital has fallen into chaos.
On October 15, 2022, Devasini made the following communication with the representative of Crypto Capital, whose name was “Merlin” and whose name was “CCC”:
Merlin:
OZ, I am sorry to bother you every day. Is there any way to transfer at least 100 million to [XX]? We are facing large-scale withdrawals, unless we can get some money from Crypto Capital, we will no longer be able to face Run on.
Merlin:
I understand that some funds are held by [XXX], but is there any other way to fund it?
Merlin
In general, I will not bother you (I have never done this before), but this is a very special situation, I need your help, thank you.
Merli
I have already told you for some time.
Merlin
Many withdrawals waited too long
Merlin
Is there a way for us to get money from you? Tether or other form? Outside of Crypto Capital we have very little cash reserves.
Merlin
please help me
CCC:
I know. We are doing our best to contact these banks and let them deal with them as much as possible. Every time I urged them, they all turned off the account in an inexplicable way.
Merlin:
Dozens of people are now waiting to withdraw from Crypto Capital.
Merlin:
At this point I need to give the customer an accurate reply and can no longer play the ball.
Merlin:
I mean internationally.
CCC:
I will inform you of the news.
CCC:
All international payments are in progress.
Merlin:
Please understand that all of this is extremely dangerous for everyone in the entire encryption community.
Merlin:
If we don't act quickly, Bitcoin will fall below $1,000.
206. One month later, on November 21, 2018, Merlin again desperately pleaded with representatives of Crypto Capital, stating that “it is always difficult to tell our customers the truth”:
Merlin:
Please feel free to let us know the latest progress. If we can't get some money from you this week, we will have a lot of trouble.
Merlin:
I hope that we can have some clarity, it is always difficult to tell our customers the real situation, which will lead to a lot of uncertainty.
207. The evidence collected by the New York Attorney General’s investigation of Bitfinex and Tether indicates that “Merlin” is likely to be Devasini.
208. In other words, Bitfinex and Tether are in urgent need of access to the US financial system, so that they are still depositing funds into Crypto Capital despite Crypto Capital's apparent involvement in money laundering, account closure and inability to transfer funds.
209. During this period, the accused Reginald Fowler was at the heart of Crypto Capital's operations. Fowler registered the shell companies and bank accounts on which Bitfinex and Tether depend.
210. According to the Federal Prosecutor of the Southern District of New York, the defendant Fowler participated in “the trick of operating a shadow bank on behalf of the cryptocurrency exchange, in which hundreds of millions of dollars were traded through accounts controlled by him around the world.” These exchanges include Bitfinex.
Lawyer Wang Gang: Shadow banking refers to a credit intermediary system (including various related institutions and business activities) that is outside the banking supervision system and may cause systemic risks and regulatory arbitrage.
211. The interview conducted during the investigation of the Ministry of Justice “partially confirmed” that Crypto Capital and other Fowler-related companies in the public report “cannot return 851 million US dollars to Bitfinex”.
212. As the Attorney General of New York has alleged, “because of the inability to withdraw funds held by Crypto Capital” – at least in part because law enforcement has frozen multiple accounts – “Bitfinex is unable to meet the customer’s withdrawal requirements.”
213. In fact, all the cat and mouse strategies described above with banks constitute serious federal crimes.
214. After the account was seized by the law enforcement agencies, Bitfinex and Tether were unable to honor the withdrawal request, which clearly indicates that their illegal activities are inseparable from business operations.
v. The USDT issue is inconsistent with the actual economic situation of Tether
215. Banking issues with Bitfinex and Tether limit their ability to issue or redeem USDTs—one because they lost part of the 1:1 reserve, and because they couldn't get more cash to support their upcoming USDT.
216. However, in these times of crisis, Tether often issues a large number of new USDTs.
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. On the second day, Tether issued 10 million USDT.
218. On April 22, 2017, Tether issued a statement stating that “our Taiwan bank has frozen and rejected all international wire transfers from Tether.” Therefore, we expect that the supply of tethers will not increase significantly until these restrictions are lifted. ”
219. Tether's next public bank relationship was five months after it opened an account at Noble Bank International in Puerto Rico.
220. Within five months of being unable to enter mainstream banks, Tether issued 390 million USDT. In this case, it is doubtful that Tether has accumulated so much cash. If you consider that Tether's first two and a half years (October 2014 to March 2017) only issued less than 55 million, then this number is even more impossible. explained.
221. In other words, within 5 months of losing the US dollar clearing channel, Tether issued a USDT seven times the sum of the previous two and a half years.
222. When Tether can use Wells Fargo's proxy account, the outstanding USDT totals approximately $60 million and will increase to approximately $450 million if it is not available.
223. Tether is getting looser and looser, and the situation will only get worse.
224. From October 28, 2017 to December 20, 2017, Tether issued another 805,048,400 USDT, which resulted in a total of all outstanding USDT exceeding $1.25 billion. As a result, Tether's assumed cash reserves also exceeded $1.25 billion. It is doubtful that in the absence of a confidentiality agreement, Tether refused to disclose the whereabouts of its huge cash reserves.
225. Although the demand for USDT seems to be unprecedented, Bitfinex and Tether stopped registering new users on December 21, 2017, and stated that they will not reopen until January 15, 2018.
226. In the short period of less than a month after the closure of potential new entrants (December 28, 2017 to January 23, 2018), Tether issued more than 1 billion new USDTs, all of which (USDT) are said to be Supported by Tether in US dollars in bank accounts that it refuses to disclose and cannot audit.
On January 24, 227.2018, this series of rapid and large-scale issuance came to an abrupt end, the day the Tether Report was published online. The Tether Report reveals the relationship between the USDT issue and the rise in bitcoin prices.
228. But the strange thing is that even though Crypto Capital’s accounts have become the target of law enforcement agencies around the world (March, April, May and October 2018), the issue continues. On March 20, 2018, Tether issued another 300 million USDT, bringing the total value of all outstanding USDTs to more than $2.52 billion. On May 18, 2018, Tether issued another 250 million USDT.
229. The release of the USDT ultimately led to public doubts about the legality of Tether and Bitfinex. In mid-2018, Bitfinex's deteriorating liquidity crisis and increasing evidence that Bitfinex and Tether manipulate bitcoin prices have led to increasing pressure on Bitfinex and Tether to prove their legitimacy.
230. Two weeks after the publication of the Griffin article, on June 25, 2018, Tether issued $250 million. A Bloomberg reporter's bank report showed that on July 6, 20 and 24, Tether sent $250 million to Bitfinex, and Bitfinex sent 250 million USDT to the Tether treasury wallet. Just after some strong evidence of Tether issuing unsecured USDTs and manipulating bitcoin prices, the above account situation was just disclosed and used as evidence of the true existence of Tether's cash reserves.
On October 15, 23,018, when the fact that Bitfinex was unable to deliver, the more obvious it was, the large-scale sell-off caused the USDT price to fall to $0.85.
On October 23, 232.2018, the US Department of Justice publicly seized three US accounts held by HSBC at Reginald Fowler and/or Global Trading Solutions LLC. Crypto Capital Corporation funds.
233. The next day, Tether “abolished” the 500 million USDT from the Tether treasury wallet, allowing these USDTs to withdraw from circulation, exempting the $500 million support obligation.
234. Tether abolished the 500 million USDT because its US dollar reserves were increasingly being questioned and it needed to provide evidence that he had sufficient reserves to support all outstanding USDTs. But Tether doesn't have that much reserve, and its solution is to get the 500 million USDT out of circulation to reduce his cash reserve needs to match the bank bill figures.
235. One week later, on November 1, 2018, Tether published a letter allegedly from Deltec Bank (there is no identifiable signature on it), which stated that the “investment portfolio value” of the Tether account was US$1,831,322,828. If this is true, it is enough to cover the current total reduction in circulation.
236. The Deltec Bank is located in the Bahamas, a jurisdiction that has fundamental flaws in anti-money laundering control. In fact, four days after Tether announced a partnership with Deltec Bank, there was a public report saying that “in order to combat corruption related to the Nicolas maduroer regime, the authorities took some steps to seal up Deltec. Bank and trust company and assets on the bank account of Ansbacher (Bahamas)."
H. Investigation by the Attorney General of New York
On April 25, 23, 1972, the Office of the Attorney General of New York submitted an ex parte application under the Martin Act and was allowed to submit specific documents to Evidence by Bitfinex and Tether, as well as a preliminary injunction restricting them from “taking any behavioral visits, loans. , extending credit, guarantees, pledges or other similar transfers or requests between Bitfine and Tether to preserve the status quo and protect the interests of the Tether Holders and Bitfinex customers in New York."
238. The litigation file alleged that the Bitfinex trading platform allowed New York residents to buy and sell cryptocurrencies and “explained that Bitfinex would hand over $850 million to the Panamanian company Crypto Capital without any written agreement and guarantee, and will never take it again. Out".
239. The litigation document also stated that even though Tether knew that Crypto Capital’s funds could not be withdrawn,
On August 19, 24, 1019, Judge Cohen dismissed the jurisdictional objection of Bitfinex and Tether and rejected his request to terminate the investigation initiated by the New York prosecutor on May 16, 2019. (James v. iFinex Inc., No. 450545/2019). Bitfinex and Tether appealed and filed a pending appeal (iFinex Inc. v. James, No. 2019-03341). On September 24, 2019, the court issued an order to keep the evidence.
Class action
242. The plaintiff filed this lawsuit on behalf of the court and, on the other hand, represented the following group in accordance with Article 23(a) and (b) of the Federal Rules of Civil Procedure:
Natural persons who hold or trade cryptocurrencies, including but not limited to USDT, Bitcoin and Bitcoin derivatives, in the United States of America and its territories at any time from 6 October 2014 to the present (the class action period) or Legal entity. (the "collective")
243. The group does not include the following persons: Any Defendant, Defendant and its staff, directors, management directors, officers, employees, subsidiaries or affiliates that have an arbitration clause with Bitfinex or Tether on their website. In addition, the trial judge and clerk, spouse, and relatives of the judges within three generations of the case and their spouses.
244. If further investigation and/or evidence discovery indicates that the collective definition should be narrowed, expanded or otherwise adjusted, the plaintiff reserves the right to amend the definition.
245. There are so many class members that it is not practical for all members to sue together. The plaintiff does not know the exact number of class members in this fashion, but believes that tens of thousands of class members can be identified through blockchain ledger information. They may be aware of this pending litigation by receiving a general notice of class action by email.
246. The conduct of the accused is generally applicable to the group, so the final injunctive relief should apply to the group as a whole.
247. For all class members, the common problem of law and facts is more important than individual issues.
248. The plaintiff’s appeal is also a typical appeal that other members will also raise. The defendant’s actions were directed at and affected all members in a similar manner, and they were all harmed by the defendant’s actions.
249. The plaintiff will continue to fully and appropriately protect the interests of the class members. The plaintiff hired lawyers with experience and ability in class actions and cryptocurrency litigation. The plaintiff had no conflict of interest with the class members.
250. In the case of a fair and effective ruling, class actions are the best current practice, as it is impractical for all members to file a lawsuit. At the same time, the separate action of the class members will bring a heavy burden to the court and will result in different judgments in the same case. On the other hand, class actions will save a lot of time, effort and expense, and will ensure a consistent decision for people in similar situations without sacrificing procedural fairness or other undesirable outcomes. In addition, the interests of class members in litigation and control of the litigation process are on paper. The group has a high degree of cohesion and it is unobjectionable to sue through the representative. Finally, because the damage suffered by individual members of the class may be relatively small, the cost and burden of separate litigation (too high) makes it impossible for class members to receive relief.
251. The plaintiff believes that there will be no difficulty in managing the lawsuit as a class action.
252. Therefore, the plaintiff requested the court to treat the action as a class action in accordance with Article 23(a) and (b) of the Federal Rules of Civil Procedure. The plaintiff will act as a class action representative, Roche Friedman Lawyer (Roche Freedman LLP) as the chief collective adviser, according to Article 23(c)(2) of the Federal Civil Procedure Rules, this class action is sent to potential class members in a reasonable manner.
Case 06
The first case consists of: market manipulation
According to the Commodity Exchange Act ("CEA") (for Digfinex, defendant Bitfinex, defendant Tether and natural person defendant)
253. The plaintiff will not repeat the above paragraphs 1 to 252.
254. Bitcoin, Bitcoin derivatives including Bitcoin futures contracts, and other cryptocurrencies defined as commodities in accordance with Section 1(a) of Title 7 of the United States Code.
255.Digfinex, defendant Bitfinex, defendant Tether and the natural person defendant related to the above-mentioned subject, deliberately implemented the illegal and artificial pricing of derivatives and other cryptocurrencies that caused bitcoin, bitcoin futures contracts, etc., in violation of the goods. Trading Law.
256. As mentioned above, DigFinex, the defendant Bitfinex, the defendant Tether and the relevant natural person defendants, individually or collectively, have the ability and indeed implemented artificial pricing.
257. According to Section 6(c)(1) and Section 22 of the Commodity Exchange Act, Section 7 and Section 25 of Title 7 of the United States Code, any person, directly or indirectly, used, employed or Any attempt to use or employ, in any future swap contract or cross-state merchandise sales agreement, or in a futures contract involving the delivery or delivery of the relevant rules, any manipulation or deception design or means will be considered illegal behavior. It also violates the relevant provisions of the US Commodity Futures Trading Commission (CFTC) that should be announced within one year after the entry into force of the Dodd-Frank Act.
258. The United States Commodity Futures Trading Commission promulgated section 180.1 of Title 17 of the Code of Federal Regulations in a timely manner:
Any person, directly or indirectly, in any future swap contract or cross-state merchandise sales agreement, or in a futures contract that is delivered in accordance with the relevant rules for the long-term, deliberate or negligent negligence, is illegal:
(1) use or employ, or attempt to use or hire, any manipulation of equipment, scams or tricks to commit fraud;
(2) Making or attempting to make any untrue or misleading statement of a material fact, or concealing the necessary material facts in order to make the statement untrue and misleading.
(3) any act, action or business that engages or attempts to engage in fraud or deception to any person;
(4) Deliberately or negligently arbitrarily, spreading or causing communication, attempting to spread or attempting to cause communication, false or misleading or inaccurate reports of crops, market information, market conditions, etc., by any means of communication, such as mail or interstate trade. .
(Regulation 180.1 (a))
259.Digfinex, defendant Bitfinex, defendant Tether and related natural person defendants violated rule 180.1(a), in addition to them, they spread the false information that USDT received 1:1 support from the US dollar reserve, using these USDTs without corresponding reserves. Buying bitcoin and maintaining false prices distorted market demand for USDT, Bitcoin and other cryptocurrencies by issuing unsupported USDTs to manipulate at least Bitfinex platform transactions. These illegal actions affect the balance between supply and demand, masking real prices and causing artificial pricing in the cryptocurrency market.
260. As a direct result of the illegal act of the defendant, the plaintiff and the class member suffered actual loss and damage due to artificial pricing. If the defendant did not commit the alleged illegal act, they would not suffer these losses. Plaintiffs and class members use Bitcoin, Bitcoin derivatives including Bitcoin futures contracts and other cryptocurrencies to trade at a person's price in a market manipulated by the defendant. This kind of behavior has caused harm to both the plaintiff and the group.
261. Therefore, the plaintiff requested the court to rule that the above-mentioned defendant violated the Commodity Exchange Law, that is, Section 1 of Title 7 of the United States Code, which harmed the interests of the plaintiff, and jointly or separately sentenced the defendant to bear the liability for damages to the plaintiff and returned it to the law. Income.
The second case consists of: agency responsibility
According to the Commodity Exchange Act
(For Digfinex, defendant Bitfinex, defendant Tether and natural person defendant)
262. The plaintiff will not repeat paragraphs 1 to 261 above.
263. Bitcoin, Bitcoin derivatives including Bitcoin futures contracts, and other cryptocurrencies may be defined as commodities under Section 7(a) of Title 7 of the United States Code.
264. According to Section 2(a) of the Commodity Exchange Act (1), Section 7(a)(1) of Title 7 of the United States Code, Digfinex, Defendant Bitfinex, Defendant Tether and Natural Person Defendant They are each responsible for the actions of their agents, representatives and/or other persons employed by them.
265. Plaintiffs and class members suffered losses in derivatives including Bitcoin, Bitcoin futures contracts and other cryptocurrencies due to alleged violations.
266. Therefore, the plaintiff requested the court to determine that the above-mentioned defendant violated the Commodity Exchange Law, that is, Section 1 of Title 7 of the United States Code, which harmed the interests of the plaintiff and jointly or separately sentenced the defendant to be liable for damages to the plaintiff.
The third case consists of: assistance and teaching
According to the Commodity Exchange Act (for Digfinex, defendant Bitfinex, defendant Tether, natural person defendant and defendant Crypto Capital)
267. The plaintiff will not repeat paragraphs 1 to 266 above.
268. Bitcoin, Bitcoin derivatives including Bitcoin futures contracts, and other cryptocurrencies may be defined as commodities under Section 7a of Title 7 of the United States Code.
269. The above-mentioned defendants all assisted, abetted, advised, induced and/or contributed to the violation of the US Commodity Act by other defendants. All parties are aware that other defendants manipulated the cryptocurrency price by discovering a reserve-free USDT and manipulating transactions, and substantially and deliberately helped the manipulation to cause artificial pricing, in violation of Section 22(a) of the Commodity Exchange Act ( 1), Section 25(a)(1) of Title 7 of the United States Code.
270. Therefore, the plaintiff requested the court to determine that the above-mentioned defendant violated the Commodity Exchange Law, that is, Section 1 of Title 7 of the United States Code, which harmed the interests of the plaintiff and jointly or separately sentenced the defendant to be liable for damages to the plaintiff.
The fourth case consists of: unfair competition
According to the Sherman Act
(for the defendant Tether)
271. The plaintiff will not repeat paragraphs 1 to 270 above.
277. Tether's actions undermine competition, consumers and class members by reducing consumer choices and deceptively manipulating the prices of Bitcoin and other cryptocurrencies.
278. Plaintiffs and class members suffer direct and indirect economic losses as a result of Tether’s abuse of its market dominance.
279. Therefore, the plaintiff requested the court to rule and order that the plaintiff and the class members had anti-trust qualifications in accordance with Section 15 and Section 26 of the Clayton Antitrust Act; Tether violated Sherman’s The Trust Act, Section 15 of Title 15 of the United States Code; makes a joint or separate judgment in favour of the plaintiff and class members; the defendant pays the plaintiff and class members actual economic losses, triple damages and attorneys' fees.
The fifth case consists of: RICO
In accordance with the Anti-Organized Crime and Corruption Organization Act (RICO Act), Title 18, Section 1962(c) of the United States Code
(for all defendants)
280. The plaintiff will not repeat paragraphs 1 to 279 above.
281. The claim was directed against DigFinex, the defendant Bitfinex, the defendant Tether, the natural person defendant and the defendant Crypto Capital (collectively referred to as the “five defendants”).
282. The five defendants together constitute the “organization” defined in Section 18 of Section 1961 of the United States Code, a group of people who actually unite and engage in and influence interstate commerce.
283. Each of the five accused agreed and implemented an organized act to manipulate the cryptocurrency price to defraud the plaintiff through organized criminal acts.
284. For fraudulent purposes, the five accused have committed a number of related organized crimes consistent with the definition of Section 1961 (5) of Title 18 of the United States of America Code, including but not limited to:
a. Unlicensed operation of currency transfer business (United States Code, Title 18, Section 1960(b), paragraph (1)(A))
i. Engaged in cryptocurrency transfer business shall be the currency transfer service provider as defined in Section 1010.100(ff)(5) of the Code of Federal Regulations, and the “financial institution” as defined in Section 1010.100(t). .
Ii. Unauthorized money transfer business 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 currency transfer business within and outside the state, “there is no legal currency exchange permit”, in New York and other states, “this act can be based on state law. Recognized as a felony or misdemeanor." Section 1960(b)(1)(A) of Title 18 of the United States Code.
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 currency transfer business within and outside the state, “without a legal currency exchange permit”, in New York and other states, “this act may be based on state law. Recognized as a felony or misdemeanor." Section 1960(b)(1)(A) of Title 18 of the United States Code.
v. From the beginning to the present, Crypto Capital, Global Trade Solutions, and Reginald Fowler operate Crypto Capital's currency transfer business within and outside the state, “without a legal currency exchange license,” in New York and other states, "This act can be considered a felony or misdemeanor penalty under state law." Section 1960(b)(1)(A) of Title 18 of the United States Code.
b. Unlicensed operation of currency transfer business (United States Code, Title 18, Section 1960(b), paragraph (1)(B))
i. From the beginning of the class litigation period to the present, DigFinex, Bitfinex and natural person defendants operate Bitfinex for money transfer business and fail to comply with the requirements of the US Codex Section 3130 and the currency transfer business registration requirements under the rules. Section 1960(b)(1)(B) of Title 18 of the United States Code.
Ii. Although the five defendants registered BFXNA Inc. as a money service provider for the Financial Crimes Enforcement Network (FinCEN), they lied that their business was limited to Wyoming and that Bitfinex currency was conducted in the United States through a large number of unregistered entities and shell companies. Transfer business.
Iii. From the beginning to the present, DigFinex, the defendant Tether and the natural person defendant operated Bitfinex to engage in currency transfer business, failing to “comply with the United States Code, Section 31, Section 5330 and the currency transfer business registration requirements under the rules of the chapter” Section 18 of the Code, Section 1960(b), paragraph (1)(B).
Iv. Although DigFinex, the defendant Tether and the natural person defendant registered Tether Limited as the financial services network of the Financial Crimes Enforcement Network (FinCEN), but they lied that their business was limited to Wyoming and that they were carried out in the United States through a large number of unregistered entities and shell companies. Tether's currency transfer business.
v. From the beginning to the present, Crypto Capital Corp., Global Trade Solutions and Reginald Fowler operate Crypto Capital in the currency transfer business and fail to comply with Section 5330 of Title 31 of the United States Code and The requirements for registration of currency transfer services under this section of the Rules are as follows: Section 18(b)(1)(B) of Title 18 of the United States Code.
c. Unlicensed operation of currency transfer business (United States Code, Title 18, Section 1960(b), paragraph (1)(C)).
i. From the beginning to the present, the five defendants operated Bitfinex, Tether and Crypto Capital to engage in “funds transfer or transportation” business. They knew that “the funds were from criminal activities or intended to support and help illegal activities”, violating the Section 1960(b)(1)(C) of Title 18 of the United States Code.
Ii. For example, although knowing that Crypto Capital's funds have been seized by law enforcement agencies, Devasini continues to instruct customers to use Crypto Capital to deposit funds.
d. Money laundering (United States Code, Title 18, Section 1956)
i. During the period of the case, the five defendants used and instructed the client to use the bank account opened by Crypto Capital to engage in US dollar transactions, with the intention of concealing or disguising the true nature, location, source, ownership or control of the funds, including:
1. Accounts under the name Crypto spz. oo opened in Spoldzielczy Bank, Poland, used around November 2017;
2. Accounts under the name of Global Trade Solutions, MOGW Energy Trade LDA, and Eligibility Criterion Unipessoal LDA, which were opened around February 2018;
3. Opened in the name of Global Trade Solutions Ltd., including accounts of HSBC Bank NA in New York around October 2018, corporate banking and trust companies in New Jersey in 2018, and New York in 2018. Citibank account.
Ii. During the period of 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 obscuring 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 in the ING bank for US dollar transactions, in order to conceal or cover up 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, the company was used as a shell company to open a bank account with Bank of Communications and conduct a US dollar transaction through a Citibank agent account in New York, with the intention of concealing or disguising the true nature, location, source, ownership, or control.
e. Bank fraud (US Code 18, Section 1344)
i. From 2015 to the present, the five defendants deliberately and attempted to implement a scam or trick to defraud US financial institutions through fraudulent and fraudulent camouflage, statements and promises to obtain money, funds, credit, assets, securities and other Other property held and controlled by US financial institutions.
Ii. The five defendants used the shell company described in paragraph 284(d) above to “use multiple entities to strip important information from the wire transfer order and provide false statements to mislead the bank's decision”. And the implementation of harm to US banks, so that they face actual or potential losses."
f. Currency operations originating from specific illegal activities (United States Code, Title 18, Section 1957) i. The five defendants also deliberately engage in monetary operations involving funds for specific illegal activities, ie, in violation of Title 18 of the United States Code. 1960, 1956, 1344, unlicensed money transfer business, money laundering and bank fraud activities.
g. Currency operations originating from specific illegal activities (United States Code, Title 18, Section 1957)
i. The five defendants also deliberately engaged in monetary business involving funds for specific illegal activities, that is, in violation of the United States Code, No. 1960, 1956, 1344, unlicensed money transfer business, money laundering and bank fraud activities.
[Translator's Note: The original repetition]
h. Telecommunications fraud (US Code 18, Section 1343)
i. The five defendants deliberately engaged in telecommunications fraud, through telecom transmission such as the Internet, made a large number of false statements, especially the USDT will be supported by the reserve of 1:1 US dollars, in violation of the United States Code, Section 18, 1343.
Ii. For example, although knowing that Crypto Capital is unable to process the transaction, Devasini instructed the client to use Crypto Capital, which violated Section 1343 of Title 18 of the United States Code.
285. Money laundering, bank fraud, currency business originating from specific illegal activities, telecommunications fraud and the above-mentioned unlicensed currency transfer business, under the RICO Act, in accordance with Section 18 of the United States Code, Section 1961 (5) Organized criminal behavior patterns.
286. The five defendants directly or indirectly deal with the organization of the organization through the above-mentioned organized crimes and activities, in violation of Section 1962(c) of Title 18 of the United States Code.
287. As a direct result of organized criminal offences by the five defendants and violation of Section 1962(c) of Title 18 of the United States Code, the five defendants were able to manipulate the price of the cryptocurrency and damage the plaintiff’s property.
288. Therefore, the plaintiff requested the court to make a judgment against the five accused, ordering the defendant to pay the plaintiff and the class members the actual economic losses, triple damages and legal fees.
Sixth case: fraud
(for the defendant Bitfinex and the defendant Tether)
289. The plaintiff will not repeat paragraphs 1 to 288.
290. Bitfinex and the defendant Tether repeatedly make major false statements or misleadly miss important facts, including the following examples:
a. On October 5, 2019, the Bitfinex website lied: "All Tether tokens are fully supported 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 lied: "Any rumor about our trade in Tether (USDT), its US dollar reserves, and the trade between Bitfinex and Tether is a rumor.
c. Until August 17, 2019, the Bitfinex website lied that “unpaid [USDT] is supported by traditional currency 1:1”, ie “1 USDT is always equal to 1 US dollar”.
d. On March 4, 2019, Tether's website lied that USDT was “linked to the US dollar 1:1” and “100% was supported by reserves”.
e. Until February 19, 2019, Tether's website lied that “each [USDT] is supported by 1:1 of our traditional currency. So, 1 USDT is always equal to $1.”
f. In a sworn statement on April 5, 2017, Ludovicus Jan van der Velde lied that Tether is a financial technology company that operates a platform. The platform is used to store, send, and trade a digital currency called tethers, which is fully supported by the dollar reserves stored by the customer. "[USDT] can redeem or redeem the corresponding US dollar", "Customers want to purchase through Tether (USDT) They must deposit an equal amount of dollars in their Tether account until they ask for a redemption of the US dollar…. In order for this system to work, customers rely on the ability of Bitfinex and Tether to cash."
g. On June 17, 2016, Tether published a white paper falsely stating that “every circulation (USDT) represents one dollar in our reserve (ie 1:1 ratio), which means that at any time, the total amount of USDT Both are equal to the total US dollar reserve, and the USDT "can be redeemed or redeemed for the corresponding legal currency according to the terms of service of Tether Co., Ltd., or equivalent to the value of the bitcoin according to the wishes of the customer. ”
h. At least until March 20, 2015, Tether's website lied, “Tether's currency is actually a mapping of dollars, euros, and yen on the blockchain.” The value of [USDT] is always related to the underlying asset. Maintain a 1:1 ratio. ”
i. At least until March 20, 2015, Tether's website falsely stated that USDT “100% is supported by the actual legal currency assets of our reserve account and is always maintained at a 1:1 ratio. For example: 1USDT=1 USD, and Conversion and transfer fees are almost zero, [USDT] can be exchanged for cash at any time."
j. On January 15, 2015, Bitfinex lied that “every [USDT] has a 1:1 support for the currency, which can be viewed and verified in real time on the Tether.to website and blockchain. Tether will be completely transparent and Audited and verified that it is 100% reserve at all times."
It is also fraudulent to use USDT without a corresponding reserve for k. Bitfinex, as this is a false statement of bitcoin price and market demand.
291. The defendant Bitfinex and the defendant Tether made the above statement by knowing the false or disregarding the truth.
292. The defendant Bitfinex and the defendant Tether never corrected these basic misrepresentations and continued to inform the plaintiff and the public that USDT received 1:1 reserve support.
293. The defendant Bitfinex and the defendant Tether intended to let the market and the plaintiff as a market participant rely on the false statements of these important facts.
294. The plaintiff reasonably relies on these false statements of material facts to purchase and sell cryptocurrency at the artificial price resulting from these material misrepresentations.
295. As a result of the actual and approximate results of the above acts, the plaintiff suffered an actual loss that required the court to determine.
296. The defendant Bitfinex and the defendant Tether made all of the above actions deliberately, deliberately, maliciously and unbearably.
297. Therefore, the plaintiff requested that the defendant Bitfinex and the defendant Tether compensate the plaintiff for the actual loss and make punitive damages.
Seventh Case: Violation of the New York State Fraudulent Trade Practices Act
According to Section 349 of the New York General Commercial Code
(for the defendant Bitfinex and the defendant Tether)
298. The plaintiff will not repeat paragraphs 1 to 297.
299. In the implementation of the above acts, the defendant Bitfinex and the defendant Tether performed unfair, deceptive, untrue or misleading behavior by missing or not revealing important facts, that is, USDT is not 1:1 supported by the US dollar reserve. The market demand they create is fraudulent.
300. The illegal, unfair and fraudulent business practices of the defendant Tether and the defendant Bitfinex pose a continuing threat to the plaintiff and the collective. Defendant Tether and defendant Bitfinex systematically deceived and unfairly traded the public and deliberately deceived the market.
301. The defendant Bitfinex and the defendant Tether deliberately and knowingly violated Section 349 of the General Business Code of New York, which has caused damage to the plaintiff and the group.
302. In addition, the fraudulent acts of the defendant Bitfinex and the defendant Tether were directed at consumers, with the aim of manipulating the cryptocurrency market, thereby transferring wealth from consumers to their own hands.
303. In accordance with Section 349 of the General Business Code of New York, the defendant Bitfinex and the defendant Tether should be forced to return their illegal income.
304. Pursuant to Section 349-h of the General Commercial Code of New York, the plaintiff has the right to receive all available damages, including triple damages, injunctive relief and attorneys’ fees.
The eighth case consists of : permanent injunctive relief (for the defendant Bitfinex and the defendant Tether)
305. The plaintiffs will not repeat paragraphs 1 to 304 and, if necessary, file this claim as an alternative.
306. Unless the defendant Tether and the defendant Bitfinex are permanently banned from issuing a USDT without a corresponding reserve, the USDT and Bitfinex exchanges are permanently prohibited from manipulating the bitcoin price, otherwise permanent and irreparable damage will result.
307. Therefore, the plaintiff sought permanent injunctive relief to prohibit such acts.
308. Therefore, the plaintiff requested the court to issue a permanent ban on the defendant Tether and the defendant Bitfinex in accordance with the law.
Lawyer Wang Gang: US law regards the ban as a “very legal remedy”, that is, a remedy that must be strictly based on the law. In the United States, bans generally include TRO / temporary restraining orders, preliminary injunctions, and permanent injunctions. A permanent injunction is a remedy that the court finds the defendant infringed after the case has been substantively tried and fully investigated the dispute. The remedy is given to the prevailing party when the judgment is made, which ensures that the defendant will never harm the plaintiff's interests forever.
Cost, interest, and attorney fees
309. Therefore, the plaintiff requested the court to support reasonable litigation costs, interest before and after the judgment, and reasonable attorneys’ fees.
jury
310. The plaintiff requested that the jury should hear all petitions.
October 6, 2019
Plaintiff's lawyer:
Kyle W. Roche (to be confirmed)
Joseph M. Delich
Roche Friedman Law Firm (ROCHE FREEDMAN LLP)
2nd Floor, 185 White Avenue, Brooklyn, NY
Kyle@rocheefreemdan. com
Jdelich@rochefreedman. Com
Ville (Devin) Freedman, interstate practice pending]
Roche Friedman Law Firm
Room 5500, South-South Biscayne Avenue, Miami, Florida
Vel @ rochefreedman. Com
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