Regulators are discovering more and more irregularities in the world of cryptocurrencies. On one hand you had a company like FTX that ran a legal business but played fast and loose with customer assets as it tried to deal with the financial stresses of the crypto winter and the sequential collapse of multiple other crypto businesses. Now we are seeing individuals whose sole intent in the crypto world was to engage in criminal activity. A recent article in Bloomberg shows the cost of crypto crimes for those thus inclined.
What Is the Crypto Crime in This Instance?
The individual involved, Reginald Fowler, is a businessman from Arizona who was a part owner of the Minnesota Vikings professional football team from 2005 to 2014. It would appear that the prosecutors have the goods on him because he pleaded guilty to helping crypto exchanges avoid money-laundering rules. Specifically he started a business called Global Trading Solutions LLC and worked with Crypto Capital which, in turn, let crypto exchanges turn in their crypto assets for cash. What Fowler did that got him in trouble was to open accounts with several banks in the USA and telling the banks that the money he deposited was for money from real estate investment transactions.
The Cost of a Crypto Crime
Prosecutors are asking the judge to make Fowler give back $740 million in profits and spend seven years in prison. The counts to which Fowler pleaded guilty included wire fraud, conspiracy to operate an unlicensed money transmitting business, and bank fraud. What prosecutors are saying to back up their request for a $740 million fine and seven years in prison is that Fowler helped Crypto Capital act as a shadow bank which let crypto users to break the law and avoid the consequences and that he played a critical role in this criminal enterprise.
Crypto Gone Bad Versus Crypto As Just One More Fraudulent Scheme
As we noted, there have been crypto businesses that believed crypto would go up forever and thus leveraged their capital with the expectation of huge profits. When crypto winter went on and on some of these folks engaged in questionable and sometimes clearly illegal activity in their attempts to keep their businesses afloat. In this case of bank fraud and money laundering activity, we seem to have someone who saw an opportunity in crypto and took it without ever having had any interest in the crypto world or valid uses for cryptocurrencies.
It should be noted that in the Bloomberg article Fowler admitted to defrauding people in another business venture. The Alliance of American Football was an attempt to create a professional football league to compete with the NFL. It closed down after 8 weeks. According to prosecutors in that case, Fowler used illegally obtained funds in order to try to invest in the league. When that fell through the league did not have the money to pay employees and folded. While on parole for that offense Fowler is said to have spent a large portion of the money that was meant to go to the league at casinos.
Fowler is facing possibly a decade or more in prison for various illegal activities. Two associates in the Crypto Capital scheme, operators Oz and Ravid Yosef, are on the run.
Crypto Regulation and Crypto Crime
As FTX fell in a heap and Sam Bankman-Fried went on house arrest we asked, would regulation have prevented crypto fraud? For registered crypto businesses this could well be true. The problem with outright criminal enterprises is that they are lies from the beginning and often, at least initially, operate out of the sight of regulators. Fowler told various banks that he needed to open accounts to handle money related to real estate investments. Thus the banks had no reason to think about banking rules as relate to cryptocurrencies or money laundering.
Cost of Crypto Crimes – SlideShare Version