Did a sex-trafficking site spark the whole investigation into Crypto Capital, the mysterious Panamanian payment processor at the center of the Bitfinex scandal?
For more than a week, the denizens of cryptoland have been captivated by the Panama-based “bank” and the case of the missing $850 million.
As it turns out, however, Crypto Capital has a long and sordid history within the cryptocurrency industry, with ties to some of the biggest players in the game.
But beyond names like Binance and Kraken, it appears Crypto Capital’s client list also extended to the now defunct, half-billion-dollar escort-service website, Backpage, according to court documents obtained by Decrypt.
In March 2018, the U.S. Department of Justice charged seven individuals in connection with operating the “internet’s leading source of prostitution advertisements,” which earned more than $500 million across a 14-year run, according to the indictment. Apart from facilitating prostitution and money laundering, the website was also accused of hosting sex-trafficking ads featuring children.
In April 2018, Backpage CEO Carl Ferrer pleaded guilty to charges of conspiracy to facilitate prostitution and money laundering, and agreed to cooperate with law enforcement in the prosecution of Backpage cofounders Michael Lacey and James Larkin, which remains ongoing.
The original indictment accused the Backpage operators of using a number of services familiar to most crypto aficionados to launder their ill-gotten gains, including the newly infamous Crypto Capital:
“Backpage also furthered its money laundering efforts through the use of bitcoin processing companies. Over time, Backpage utilized companies such as Coinbase, GoCoin, Paxful, Kraken, and Crypto Capital to receive payments from customers and/or route money through the accounts of related companies.”
According to court documents, the government seized several financial accounts belonging to Backpage owners, including a number of accounts held with Crypto Capital, as well as Global Trading Solutions—one of the many other names under which Crypto Capital operates.
The dollar amounts within the accounts were minimal by comparison—totaling just over $500,000 across multiple accounts.
The timing of the seizures, however, is curious. According to the New York State Attorney General’s complaint against iFinex—the company that operates both crypto exchange Bitfinex and the stablecoin Tether—Bitfinex began having trouble accessing the allegedly “co-mingled client and corporate funds” held with Crypto Capital around the same time that the Backpage accounts were seized, April 2018.
“In communication logs produced to [Office of Attorney Genera] covering the period of April 2018 to early 2019, a senior Bitfinex executive (“Merlin”) repeatedly beseeched an individual at Crypto Capital (“Oz”) to return Bitfinex’s funds.”
At the same time, also April 2018, Polish authorities reportedly seized Crypto Capital accounts in connection with an investigation into the dealings of Colombian drug cartels.
It’s possible, then, that these seizures contributed to the difficulty Bitfinex allegedly experienced in retrieving its funds, which the NYSAG claims is what led the crypto exchange to “defraud” its customers by raiding Tether reserves to cover the loss. These probes may also be what led to further investigations into Crypto Capital-connected enterprises.
A spokesman for the DOJ declined Decrypt's request for comment as these are all ongoing investigations.
By far the biggest domino to fall in the Crypto Capital quandary occurred earlier this week, when the DOJ announced charges filed against Reginald Fowler and Ravid Yosef, who the government alleges ran a “shadow bank that processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges.”
Fowler, a former part-owner of the Minnestota Vikings and principal investor in the failed Alliance of American Football league, held a number of accounts with Crypto Capital shell company Global Trading Solutions, and federal authorities claim he maintains access to $345 million and have requested that he be detained while the investigation proceeds.
The Crypto Capital saga gets stranger every day, but if Fowler ends up being the thread that was keeping this whole thing from unraveling, Backpage might be what gave it the first tug.
Editor's note: An earlier version of this story reported that the Seychelles-based cryptocurrency exchange BitMex was also a previous client of Crypto Capital. Despite Crypto Capital having listed BitMex as a client, representatives for the crypto exchange deny the association and have provided the following statement: "BitMEX is not a client of Crypto Capital. We have never conducted any business with the platform."