Bitfinex Cries Fraud as Crypto Capital Executive Indicted by US

Over the past week, news broke detailing that Oz Yosef, an executive of the mysterious firm Crypto Capital, has been indicted by the United States for conspiracy to commit bank fraud and conspiracy to operate an unlicensed money transfer service.

Crypto Capital is a Panama-based firm that the U.S. Department of Justice claims provided shadow banking services to several cryptocurrency exchanges, including Bitfinex, Binance, Cex.io, Coinapult and QuadrigaCX.On Oct. 25, Stuart Hoegner, general counsel to Bitfinex, issued a statement responding to Lee's arrest asserting that Bitfinex was the victim of fraud perpetrated by Crypto Capital.

Relations deteriorate between Bitfinex and Crypto CapitalCrypto Capital's partnership with Bitfinex has garnered significant scrutiny in recent months, with the exchange claiming that the liquidity issues had been triggered by an inability to access $880 million worth of its funds that were being held by Crypto Capital.

Bitfinex claims that its partnership with Crypto Capital began to deteriorate in April of last year, following reports indicating that Polish authorities had seized roughly $350 million from an account belonging to Crypto Capital subsidiary Crypto Sp. z. oo.

Bitfinex subpoenas Crypto Capital representativeIn the subpoena, Bitfinex alleged that TCA Bancorp provided banking services to Crypto Capital, asserting that the firm had "Used one or more accounts held at TCA Bancorp to facilitate the transfer of funds."

Bitfinex depended on Crypto Capital amid banking difficultiesBitfinex's affiliation with Crypto Capital became the subject of scrutiny in 2017, with the exchange directing its customers to deposit funds to accounts held by Crypto Capital subsidiaries following the Wells Fargo termination of banking services to Bitfinex via its Taiwanese partners in March 2017.Stuart Hoegner, general counsel for Bitfinex and Tether, stated that the exchange expanded the number of accounts held with Crypto Capital throughout 2017 and 2018, as the platform became increasingly reliant on Crypto Capital for the processing of fiat services.

Crypto Capital accounts seized in April 2018In April 2018, Polish authorities seized $371 million from an account held by Crypto Sp. z. oo.

Crypto Capital accounts that had been operated on behalf of the now-defunct website Backpage were also seized in a sex-trafficing bust by authorities in April 2018.Crypto Capital rebrands to Global Trade SolutionsAfter partnering with ING, Bitfinex recommenced directing customers to deposit fiat using accounts held by Crypto Capital subsidiaries, including the Swiss-based Global Trade Solutions via Portuguese bank Caixa Geral de Depositos in February 2018.By the third quarter of 2018, accounts held by Global Trade Solutions were used to facilitate fiat transactions for Bitfinex via multiple U.S. banks, including Citibank, HSBC and Enterprise Bank & Trust.

Tensions rise between Bitfinex and Crypto CapitalIn chat logs documenting communications between Bitfinex executive "Merlin" and Crypto Capital's "Oz" that were provided to the New York State Office of the Attorney General for its investigations, Bitfinex appears to have desperately sought to access its funds held by Crypto Capital from August 2018 onward.

On Oct. 15, 2018, Merlin pleaded with Crypto Capital to provide Bitfinex with funds, warning that "Too many withdrawals" were "Waiting for a long time," and that a failure to respond "Could be extremely dangerous for the entire crypto community," adding, "BTC could tank to below 1k if we don't act quickly."