Bitfinex Accused of Impropriety and Unsecured Lending by ‘myself’

Way back in 2013 when Bitfinex was a much newer cryptocurrency exchange one of their key early team members left, and while leaving accused Bitfinex of impropriety.

Who was ‘myself’?

‘myself’ according to his own accounts was one of the first people brought on to help Raphael Nicolle maintain the exchange, and was at one point offered 50% ownership, though he turned it down, opting instead for a share of the profits. The contracts themselves will be mentioned in this piece, but primarily for what the surrounding negotiations reveal about characters who are still present. Much of the contractual dispute boiled down to poorly written contracts, poorly understood agreements, and Bitfinex desperately needing to restructure in order to remain a going concern.

Raphael refers to him as Ianov FARSACIU (archive) in a response to his posts.

What was alleged?

Quite a bit was alleged, of varying degrees of importance. This article will not be exhaustive, so I highly recommend clicking through to the source materials and examining them fully yourself.

First, and briefly let’s take a look at the alleged contract (archive):

-----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

I agree with the following terms of the contract
09/nov/2012

myself


- -----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

07-11-2012:
'raphael' is the owner of the GPG Key with the fingerprint:
480E 1658 E97D 4C02 B084  268E A5E9 EDB9 1863 6AD7

'myself' is the owner of the GPG Key with the fingerprint:
8D81 F188 60D8 23D6 C5B4 9DCA 0D67 251C C6DA F00E

This contract has the following purpose:
- - -myself can give any proposal/advices to modify and enhance the website www.bitfinex.com
- - -myself is granted an access to the data exposing the financial situation of the website www.bitfinex.com. He can access these data any time he wants
- - -myself will receive a financial compensation of 10% of the profits of the previously mentionned website, every month
- - -should financial results be negative, myself won't pay nor receive anything for these negative months
- - -raphael has the right to ignore any of these proposals 
- - -raphael has the right to change any of these proposals 
- - -myself has no say in the expenses made by raphael to hire additional persons and/or modify the previously mentionned website
- - -the contract remains open to future negotiation of details
- -----BEGIN PGP SIGNATURE-----
Version: GnuPG v1.4.12 (GNU/Linux)
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=k+Gi
- -----END PGP SIGNATURE-----
-----BEGIN PGP SIGNATURE-----
Version: GnuPG v2.0.17 (MingW32)

iEYEARECAAYFAlCdI2EACgkQDWclHMba8A7awgCgh8hdG6EgqL316BDFZ0RiO+2r
S6MAn3gY7zXqaClxSurEYf/o5fZSZEfo
=l4y+
-----END PGP SIGNATURE-----

I am not a lawyer, and I’m pretty sure no one involved in the creation of this contract was either.

When Bitfinex ended up restructuring, Raphael appears to have taken it as an opportunity to terminate the agreement with ‘myself’.

You refused to discuss our losses while now Bitfinex is not

          just me and all associates reached an agreement, like you did

          not propose to lift 1 btc when I reimbursed 150+ btc to our

          users since the start of Bitfinex (yes i know, as in the

          contract, but a contract doesn’t prevent you to participate).

          Now I exposed you some alternatives because I don’t wanted

          this contract anymore, and this is up to you.

https://bitcointalk.org/index.php?topic=224745.msg2363069#msg2363069 (archive)

‘myself’ also chose to reveal an email (archive) they had previously sent to Raphael which seems to contain some shocking information about Bitfinex.

Date: Mon, 06 May 2013 12:54:48 +0200
From: myself <myselfbtc@gmail.com>
User-Agent: Mozilla/5.0 (Windows NT 6.1; WOW64; rv:17.0) Gecko/20130328 Thunderbird/17.0.5
MIME-Version: 1.0
To: Raphael Nicolle <raphbot@gmail.com>
Subject: Preliminary observations on Bitfinex.com losses
X-Enigmail-Version: 1.5.1
Content-Type: multipart/signed; micalg=pgp-sha1;
 protocol="application/pgp-signature";
 boundary="----enig2UPIQJQEUWHSNNWFCLEOH"

This is an OpenPGP/MIME signed message (RFC 4880 and 3156)
------enig2UPIQJQEUWHSNNWFCLEOH
Content-Type: text/plain; charset=ISO-8859-1
Content-Transfer-Encoding: quoted-printable


Preliminary observations on Bitfinex.com losses.

Because of  our former agreement I'm protected by any loses generated in
bitfinex.com, I request that our former agreement has to be respected.
All this problem concerning the losses I think that is a strategy to get
rid of me "simply", without me you wouldn't have had the the same amount
of clients "we both have access to google analytics and we can see the
traffic generated through chatzy, where I talk to lots of traders and
they've been attracted to use our platform, besides that all the
information and promotion I did and do on the forums" and the platform
it wouldn't be the same and probably it couldn't be existing any longer,
because it was a bucket shop.

Regarding the losses there are a few key points that you should
understand, even though I'm not forced to be participant on the losses.
1. The losses are not settled every month the losses are settled at the
end of the fiscal year.
2. To know the exact amount of losses is required an external and
neutral audit for all the bitfinex accounts.
3. Besides that is required an audit for the entire bitfinex platform,
the platform tempered/adjusted twice, first with mister Tang and was
credited from him 150.000 USD, that he didn't deposit in his account,
the second time when mister Devasini was credited one million dollars,
money that he didn't have deposited in his account. Because of this I
cannot be sure if the current losses are real or not.
4. You are the only operator of the bitfinex platform and you let the
platform to lose money on purpose, you have been notified concerning
problems with the MTGOX platform, these losses are not generated by
mistake or by incompetence, you knowing it and let this happen and you
didn't want to stop it.

Because of all these points and the reasons exposed above my trust level
is extremely low and any decision regarding my financial interest in
Bitfinex. will be made after consulting other people.


--=20
Bye



------enig2UPIQJQEUWHSNNWFCLEOH
Content-Type: application/pgp-signature; name="signature.asc"
Content-Description: OpenPGP digital signature
Content-Disposition: attachment; filename="signature.asc"

-----BEGIN PGP SIGNATURE-----
Version: GnuPG v2.0.17 (MingW32)
Comment: Using GnuPG with Thunderbird - http://www.enigmail.net/
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=eYdV
-----END PGP SIGNATURE-----

------enig2UPIQJQEUWHSNNWFCLEOH--

There are several important things to pull out from the above. First, he claims that the platform was altered twice. Once to credit a ‘Mr. Tang’ with $150k and once to credit Giancarlo Devasini with $1 million.

Raphael’s response (archive) to ‘myself’ on the forum also hints at some other issues.

Ianov FARSACIU,

Let me recapitulate the whole story:

We agreed on a contract, where you would be giving advices to me, in exchange for 10% of profit. You would not participate in the decisions, nor in the losses. This is a consulting contract with remuneration based on performances.

And so for months, I paid 150+ btc to cover bugs to users, paid thousands of euros for incorporation,... You didn't put a dime, fair enough, it was the contract. You acted as an advisor/consultant.

Now come other associates which I gladly invited to the team. They don't want a crypto-anarchist project, they want a serious team, they don't want a joke of a contract, they want legal papers. They came in April, a month during which we lost quite some money with the Big Crash. So at the end of the month, we agreed to cover all losses, if we were to be associates. You refused it, and stated that you only want to share profit and will never take any losses. By doing this you confirmed that you want a consulting contract, not be an associate. So we proposed you, and multiples times since then, to tell us what you were looking in term of remuneration for a consulting collaboration. You never answer to this. You just came yesterday asking us 5000 BTC so you can leave the team. After which I cut you access to the read-only part of the admin side of Bitfinex (what would you expect?).

there was never money put in that was not going to be paid. If our associates which you met, and you now how wealthy they are, weren't there, there would be no more Bitfinex. They allow us to pass a hard time of 5 figures losses, and now be strong as we are.

Now Ianov, I'm sorry we have come to this. I'm sorry you refused to discuss at all, I'm sorry you were paranoid from day 1, just to end up creating some thread on a forum to do what? You know, and I believe everyone knows, that I am really open to discussion. I mean fuck it's been a month since I asked you to state the kind of contract you want with us, and explained you that you are not, and never acted as, an associate. I believe this is a reasonable time to discuss things.

Now as I said, we are not a crypto-anarchist project but a real team with a project in the real world for the future, and we are doing things as a company do. That means that if you push us to do something, we won't create a thread on a forum. I hope the message is clear.

I don't want to read anymore that we steal your forum licence (this is wrong, we bought everything back to VBulletin and third parties, and it's a shame as we could have bought it from you if you were only open to discussion), I don't want to read that we credit money that doesn't exist, I don't want to read this kind of false accusations.

MPOE-R you still don't get how Bitfinex matches user position with real funds of lenders and doesn't act as a bucket shop, and it's a shame from you.

For everyone, sorry to have this dirty laundry in public. If you feel uneasy and want to withdraw your funds from Bitfinex, please do. 

Best regards
Raphael
Bitfinex team

So let’s focus in on the most important parts here which are going to be the restructuring and the ‘fake money’ being credited.

‘myself provided this email (archive) as evidence of this unsecured lending of funds:

From - Wed Apr 03 15:37:44 2013
X-Mozilla-Status: 0001
X-Mozilla-Status2: 00800000
X-Mozilla-Keys:                                                                                 
Message-ID: <515C309F.6010303@gmail.com>
Date: Wed, 03 Apr 2013 15:37:35 +0200
From: myself <myselfbtc@gmail.com>
User-Agent: Mozilla/5.0 (Windows NT 6.1; WOW64; rv:17.0) Gecko/20130307 Thunderbird/17.0.4
MIME-Version: 1.0
To: Raphael Nicolle <admin@bitfinex.com>
Subject: Re: Tang Insurance
References: <CAG4Gv-LRZc0_GxXCpT2syafiK9mfZXw8zG5-3PsVUE3i97NZmA@mail.gmail.com> <CAOHBavDPn1LZ-MxzWdBvvoQ3Xa2enMMWnsrQ+QznSAv1ZrtU5g@mail.gmail.com> <CAG4Gv-JSZoHFqGLLS2y3DcUwJK5Ztojdbu4BKjex_a_DczscoQ@mail.gmail.com> <CAOHBavCaWSP+SKCkhEzaG3tnWPGfGQ-2-HLVmU2Qh0YT3FeLWg@mail.gmail.com> <CAG4Gv-+orhKNCjWQ1qQfngTOo17k3d157gLJaEYroaURGjqepA@mail.gmail.com> <CAOHBavAsp33=3a2WPgd5hd3WHBrWphS6Ab3_tgtOWhbcQ1KZ-w@mail.gmail.com> <CAG4Gv-KyR33m+Y1cytoTwWvsk4wkYMSKK6j1XqJhu5zC09AUmg@mail.gmail.com> <CAG4Gv-KtYimE6OOzF0y5=7EUK2ZV+XVWb1tV5QVKz2r59Hxv2w@mail.gmail.com> <CAOHBavBLOguibb9FdDVxwG1j90oaxZBWSJdBW0rFZQnfxsQ=+w@mail.gmail.com> <CAG4Gv-+LYmYjsucs921T2b=nERY+giwNRQr3G1PCc+jLj9xM0w@mail.gmail.com> <CAOHBavCVWgXO73oP_N_Jho2sGZMaJpzBbiRyKC=RXNXjFtN7Ow@mail.gmail.com> <CAG4Gv-LSdpfKmodHa-6gtYtjSA+84YkWMx+zLR_pgVRgP5jqXQ@mail.gmail.com> <CAG4Gv-J-Hj+Bqq-pZ_qo=E25BN5e72v7ykwxd8pnbEGvafgMkw@mail.gmail.com>
In-Reply-To: <CAG4Gv-J-Hj+Bqq-pZ_qo=E25BN5e72v7ykwxd8pnbEGvafgMkw@mail.gmail.com>
X-Enigmail-Version: 1.5.1
Content-Type: multipart/signed; micalg=pgp-sha1;
 protocol="application/pgp-signature";
 boundary="----enig2BWHFDPSIAQTGRPRLCSTE"

This is an OpenPGP/MIME signed message (RFC 4880 and 3156)
------enig2BWHFDPSIAQTGRPRLCSTE
Content-Type: multipart/alternative;
 boundary="------------030602020206000500000305"

This is a multi-part message in MIME format.
--------------030602020206000500000305
Content-Type: text/plain; charset=ISO-8859-1
Content-Transfer-Encoding: quoted-printable

On 03.04.2013 15:04, Raphael Nicolle wrote:
> Just a confirmation to answer your question "Myself": we lend MrTang
> the money to buy the forced executed. He will have a negative balance
> until he sells the bitcoins he has and/or repay the difference should
> the price go even lower.
>
i dont like that ....also why dont you lent me 150k lol

--------------030602020206000500000305
Content-Type: text/html; charset=ISO-8859-1
Content-Transfer-Encoding: quoted-printable

<html>
  <head>
    <meta content=3D"text/html; charset=3DISO-8859-1"
      http-equiv=3D"Content-Type">
  </head>
  <body text=3D"#000000" bgcolor=3D"#FFFFFF">
    <div class=3D"moz-cite-prefix">On 03.04.2013 15:04, Raphael Nicolle
      wrote:<br>
    </div>
    <blockquote
cite=3D"mid:CAG4Gv-J-Hj+Bqq-pZ_qo=3DE25BN5e72v7ykwxd8pnbEGvafgMkw@mail.gm=
ail.com"
      type=3D"cite">
      <meta http-equiv=3D"Context-Type" content=3D"text/html;
        charset=3DISO-8859-1">
      <div dir=3D"ltr">Just a confirmation to answer your question
        "Myself": we lend MrTang the money to buy the forced executed.
        He will have a negative balance until he sells the bitcoins he
        has and/or repay the difference should the price go even lower.</=
div>
      <br>
    </blockquote>
    i dont like that ....also why dont you lent me 150k lol<br>
  </body>
</html>

--------------030602020206000500000305--

------enig2BWHFDPSIAQTGRPRLCSTE
Content-Type: application/pgp-signature; name="signature.asc"
Content-Description: OpenPGP digital signature
Content-Disposition: attachment; filename="signature.asc"

-----BEGIN PGP SIGNATURE-----
Version: GnuPG v2.0.17 (MingW32)
Comment: Using GnuPG with Thunderbird - http://www.enigmail.net/
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=pcJe
-----END PGP SIGNATURE-----

------enig2BWHFDPSIAQTGRPRLCSTE--

This email chain appears to show a conversation between Raphael Nicolle and ‘myself’ approving the unsecured loan of $150k to a ‘Mr. Tang’.

He further elaborated (archive):

no is no like that and there was no incident 

1) they did not deposit 1 single USD on this accounts 
2) they got 150k and 1mil in balance given by R since he got convinced to do this 
3) all that money was customer money
4) with that money they get to buy all forced execution positions until all money got used and then sell when the market bounced 

He specifically claims that this ‘idea was G idea’ (archive) and that ‘i did not lie to the investors and at least one of them (G) did have 100% knowledge about all this since he was in the team’. Seeming to try to put the onus on Giancarlo.

He continues (archive), “I took my money out because mr tang did not deposit the 150k and no money was deposited until I lost my read only access this june if the money was deposited I was not notified and the deposited money did not show up on his market maker account this account did have a total usd in negative if the money was deposited via other account or other way I have no idea”

The original post from the Bitfinex community forums is lost, but a large and relevant section is quoted in BitcoinTalk (archive) and I will share that now so you can see how Bitfinex admits they gave a loan to this ‘Mr. Tang’, but try to claim they could use the value of his personal to help protect it.

6) After a few days we joined forces (end of March) the price started to raise a lot and it accelerated further to hit 266 on the 9th of April.
With the price grew our concern as we started to fear a crash.
At the beginning of April we therefore put in place an account, under the name of mr Tang ( the Hong Kong insurer mentioned above) in order to start providing insurance for the loans. This account would have the ability to have a liability toward Bitfinex for up to a previously and formally agreed amount.
But we were not quick enough to implement this.
We all recall what happened, make a long story short the price started to collapse and MtGox suspended trading.
As MtGox was our main (and only third party platform at that time, as Bitstamp didn't join in yet) liquidity provider, we were left with a bunch of leveraged positions that needed to be liquidated but couldn't as MtGox was down.
Me and Giancarlo spent long hours on the phone during that night (I will never forget it) and he was really helpful in the situation. He said he and the investors team were going to cover for any losses that this crash would have caused. He said we should not make lenders lose any money and that this move (taking this loss) would have paid back several times in the future.
But there was no time to physically transfer the funds required before Gox resumed operations, so I allowed mr. Tang ( the insurance shareholder I mentioned before whose real name is not mr. Tang by the way, we care about the privacy of our customers) to go 150k in red for a few hours.
All the losses originated that night went into his account and were promptly covered by the shareholders after that.
To put things straight this wasn't representing a risk for the company as Giancarlo gave me his personal word that these 150k would have been transferred the day after AND he personally had liquidity on his personal account in Bitfinex for way more than the above mentioned 150k and this was the collateral of Mr. Tang liabilities.
And so we did, after Gox resumed operations we liquidated the leveraged positions and ended up making a loss of "only" 50,000 usd.
None of our lenders lost one cent, and this was possible only because we had a strong financial backup.
I can't think of a lot of people that would have done the same in our shoes.
For clarity Mr. Tang later provided the funds that are now used to give insurance on the loans of our lenders.
Please notice that we have always been very clear and transparent about what happened during these days, as this announcement published the day after the big crash shows:

Besides this admission they did this, we actually also got confirmation in the CFTC settlement with Tether that Tether would often issue tethers against ‘anticipated wires’ as well.

Excerpt from CFTC settlement with Tether that says: Beginning in or before August 2018, Tether Reserves were held in non-fiat financial products and other less-liquid assets including commercial paper, and bank repurchase agreements. At various times during the Relevant Period, Respondents also considered anticipated receivables and anticipated wire transfers as assets for purposes of calculating the Tether Reserves.

This appears to be a regular thing for Bitfinex and Tether to do.

Conclusion

Bitfinex appears to admit to extending a loan to ‘Mr. Tang’ and we know from previous materials that Tether has previously issued tethers against anticipated wires.

I hope they have changed. I certainly hope that as we watch lenders collapse and exchanges shut off withdrawals that Bitfinex and Tether are no longer in a position where they would be extending unsecured loans in desperate market conditions.

If you would like to subscribe to my free weekly newsletter then please go here.

If you want the posts from this blog delivered to your inbox:

I also have a Discord server that you can join here.

Bonus Material

Email allegedly from Raphael Nicolle to 'myself' saying: 
Hi,
First of all I don't want you to have less than 20%, that's why I didn't say yes to giancarlo proposal of 17%.

I think of good repartition is 20% for Giancarlo, 20% for you, 5% for the Hong-Kong guy and the rest of us.  

The remainder of the image is redacted.

In this screenshot of an email (archive), ‘myself’ shares this negotiation over equity. Which might accidentally reveal that Giancarlo has 4* the equity of the CEO. It’s not entirely clear, but it’s provocative.

On August 3rd 2016, when Bitfinex was hacked, ‘myself’ returned (archive) to say: “karma is a bitch”.

Other Bitfinex and Tether Resources

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.