Published Oct 9, 2020 at 8:00 am (Updated Oct 9, 2020 at 8:19 am)
The sister company of a cryptocurrency exchange licensed to operate in Bermuda is facing charges of taking part in a multibillion-dollar fraud in the United States.
Bittrex Global (Bermuda) was given a Class F Digital Assets Business Act licence by the Bermuda Monetary Authority and the company’s executives were on island this month to hire staff.
The news came after David Burt, the Premier, said last week: “Attracting Bittrex Global to Bermuda is a significant achievement.
“As one of the leading global exchanges, Bittrex Global’s choice of Bermuda for expanding their global operations is a testament to the attractiveness of Bermuda’s approach.”
But a related firm, called Bittrex Inc, is caught up in a class action complaint in a federal court in New York.
A report on the Offshore Alert website said the complaint alleged that crypto buyers around the world were swindled out of billions of dollars in an unprecedented “criminal” price-manipulation scheme.
Bittrex Inc, said in legal papers to be registered in Delaware and based in Seattle, is among 16 defendants named in the consolidated class action complaint filed at the federal court in Manhattan on June 3.
An initial complaint was filed at the end of 2019.
The amended complaint said: “Defendants have executed a sophisticated scheme to fraudulently inflate the price of crypto commodities, a class of cryptoassets that includes bitcoin.
“Defendants’ scheme was wildly effective, causing the price of these crypto commodities to spike far above their legitimate value in the largest bubble in human history, and ultimately resulting in billions of dollars of damage to innocent crypto commodity purchasers.”
The complaint added: “The crypto commodity market that defendants manipulated was new and complex and defendants’ misconduct is staggering in its scope and audacity.
“Keeping their identities secret, defendants made massive, carefully timed purchases of crypto commodities to signal to the market that there was enormous demand and thus cause the price of those commodities to spike.
“There was no such demand. The assets defendants used to make these purchases were essentially counterfeit.
“These purchases were made with defendants’ own fraudulently issued cryptoasset called ‘Tether’ or ‘USDT’, a ‘stablecoin’, so called because it is purportedly pegged to and backed by US dollars held in reserve.”
But the complaint alleged Tether had no US dollar backing and it hid the fact by “selling” newly issued USDT to Bitfinex, a crypto-exchange that was secretly owned and operated by the same individuals who owned and operated Tether.
The complaint said: “With the willing assistance of Bittrex Inc and Poloniex LLC, two other crypto-exchanges, Bitfinex and Tether used fraudulently issued USDT to make strategically timed, massive purchases of crypto commodities just when the price of those commodities was falling.
“Believing the lie that one USDT equalled one US dollar, the market interpreted these massive purchases as reflecting meaningful consumer demand for crypto commodities, which prevented the prices of those crypto commodities from falling further.
“ … Defendants’ manipulative purchases caused prices to skyrocket.”
Bittrex said on its website that it is the “premier US-based blockchain platform, providing lightning-fast trade execution, dependable digital wallets and industry-leading security practices”.
The company listed cybersecurity engineer Bill Shihara, who founded the company in 2014 along with Richie Lai and Rami Kawach, as its CEO.
Parent company Bittrex Global lists Tom Albright as its CEO and Stephen Stonberg as chief operating officer and chief financial officer on its website.
Mr Albright, from Washington State, and Mr Stonberg, from Liechtenstein, are the directors of Bittrex Global (Bermuda), in paperwork filed with the Registrar of Companies.
Both have been in Bermuda hiring for three compliance jobs, according to an online post by Denis Pitcher, the chief fintech adviser to the Premier.
Mr Stonberg was pictured elbow bumping Mr Burt when the BMA licence was announced.
Mr Albright said at the time: “The entire crypto industry is about looking forward.
“Working with the Bermuda Government and the BMA to be part of another regulatory community that keeps innovating is extremely exciting and is an important step in increasing crypto’s penetration at all levels of the financial industry.”
A spokesman for Bittrex Global said last night: “For obvious reasons, Bittrex Global can’t comment on an ongoing court case.
“I can confirm that Bittrex Global and Bittrex Inc are two separate legal entities.
“We would also add that responsibility lies with investors to research the quality of the projects represented by digital assets on the Bittrex Global exchange.
“Bittrex Global adheres to the highest levels of compliance laid out by EU law — its HQ is in Vaduz, Liechtenstein — as well as Bermudian law.”
A spokesman for the BMA added: “As is the case for all entities, the BMA considers all information available, both public and private, prior to issuing a licence.
“Further, the BMA operates a stringent supervision and enforcement process to ensure that entities remain in compliance with the regulatory requirements throughout the licence period.”
Mr Burt did not respond to a request for comment yesterday.
But Denis Pitcher, the Government’s chief fintech adviser, said: “The class action against the US Bittrex entity represents a civil matter raised by private citizens, not a criminal one.
“It is not appropriate for the Government to speculate on matters of foreign companies or to pass judgment about who we will and won’t do business with based upon speculation. Doing so would most certainly damage our reputation.”
He added: “It is essential that the Government remains impartial to the very process that we have established. Bittrex Global Bermuda Ltd has been vetted by the BMA as fit to do business.
“Should that situation change, the BMA will take appropriate action and determine whether the continuation of permission to do business should change.”
Mr Pitcher added that no evidence had been led in court and no criminal charges.
He said: “It is curious that so many are keen to paint the digital asset industry with a special brush that all parties are assumed guilty without due process.
“It is also curious that Government is asked to interfere and refuse to do business based upon hearsay and not facts.”
Mr Pitcher added: “Certainly there have been some hiccups along the way in establishing the new fintech industry.
“However, it is very clear that the correct path forwards is to rely upon the foundation that we have built in putting forth a clear regulatory framework that is governed by the BMA who remains impartial in operation to the Government.”