Tag: fraud

Raphael Nicolle and the Founding of Bitfinex

~ Bennett Tomlin ~ 1 Comment

Raphael Nicolle is the founder of Bitfinex. Before that he had an interesting path.

By day a helpdesk technician, during his free time Raphael became active under the account ‘unclescrooge‘ on BitcoinTalk. From this account he makes some interesting posts, including occasional climate change denialism, saying he would invest in illegal businesses, and at least one joke about underage prostitution to make bitcoin. First he got into pyramid schemes, schemes that were not legally registered, and then he got really into pyramid schemes, and then he started defending a pyramid scheme scammer (repeatedly), and then he lost all the bitcoins he gave that scammer.

Shortly after this, Raphael decides he will start his own OTC desk and his own lending program. People will lend him Bitcoin and he will guarantee them a 2% return per week. To make this money he said he would be performing arbitrage, which he described as ‘buy low and sell high’. (Astute readers will note that this at best an extraordinarily simplified definition of what arbitrage is.) This program appears to not have taken off, perhaps due to questions from other forum members about his advocacy for pyramid schemes in the past. The text of the post was later deleted.

After this Bitfinex launched! (Though Raphy could be found still trying to do what look like OTC trades.) Bitfinex was a brand new ‘Meta-Exchange’ that would allow people to trade at either Mt. Gox or at Bitstamp through the BitFinex interface. They also had their own exchange that was based on stolen Bitcoinica code. Bitcoinica was an exchange that was rife with security issues that had recently shut down. The unique feature for Bitfinex that made it attractive (besides the ability to aggregate liquidity across multiple exchanges) was the fact that they had margin and lending integrated into the platform. However, the fact that it was built on stolen code with a multitude of issues in the early months. However, eventually they started to even out. However, there were still some interesting posts including at one point Raphael even made sure to point out that his exchange was a bucket shop. (This was a fact that Vitalik Buterin had warned about in Bitcoin Magazine.)

Raphael gradually took a less and less public role in Bitfinex until (according to his LinkedIn) left his role as CTO the same month that the Bitfinex hot wallet was hacked. He is now interested in anti-aging and looking for an executive producer (he should get in touch with the chairman of Deltec).

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My Appearance on The Blockchain Debate podcast with Larry Cermak and Patrick McKenzie

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You can find it here.

I had a ton of fun recording this podcast, however, due to time constraints I was not able to get to all my notes on whether or not Tether acts in good faith. I would like to summarize a few of the things I was not able to get to here:

  1. Bitfinex has used the bank accounts of friends and family of Bitfinex in order to service withdrawals.
  2. The firm who provided Tether’s last attestation is no longer operational, and Freeh, one of the lawyer behind it UPDATE: is no longer a lawyer is no longer practicing law, but may still be licensed.
  3. Tether advertised no KYC swaps between Bitcoin and Tether.
  4. Tether held tens of millions of dollars in the bank account of their General Counsel.
  5. The founder of Bitfinex was promoting ponzis right up until he announced Bitfinex.
  6. The founder of Bitfinex once described his own exchange as a bucket shop.

There are many more, but I just wanted to give you a taste of some of the stuff we ran out of time to get to.

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Predictions and Outcomes

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At one point I tried to learn about a token called Kimchi. That token no longer has any volume or value to speak of.

I decided to summarize some facts about the failed crypto entrepreneur Jacob Kostecki. Today, the class action lawsuit against him has entered default judgement.

I wrote about a deeply exploitive scam called The Billion Coins. Unfortunately, that coin is still active and is still taking advantage of people. They have tried to rebrand to make themselves look more official, but are still the same group of scum.

I once wrote about a worthless token called slidebits. Now the creator himself removed the blockchain from his app.

I wrote an article presenting a bearish case for a token when I was applying to a crypto hedge fund. That token has a market cap 1/10 of it’s all time high. Though I must admit, it has not seemed to be affected by any of the issues I pointed out. Sometimes things just break your way.

I wrote an article taking an in-depth look at the Basis Protocol. In that article I suggested both that part of the system could be a security. Basis shut down to avoid securities scrutiny.

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A List of Funds/Companies who Fundraised Through Havelock Investments

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NOTE: THIS MAY BE UPDATED OR CHANGED AS I DEVELOP A BETTER PICTURE OF OWNERSHIP OF THESE COMPANIES, UPDATES WILL BE LABELED AS SUCH.

Havelock Investments was an early platform in the cryptocurrency space that allowed for a variety of companies to fundraise.

Havelock Investments was purchased by the Panama Fund, S.A. in 2013. The CEO was Daniel Tsai. (archive)

ASICMINER – Asicminer was described as a leader in the bitcoin mining space. Creating mining equipment and running their own mining farm. You can find details about it here. (Archive)

HAVELOCK INVESTMENTS MINING FUND – Havelock Investments Mining Fund was Havelock’s fund investing in Bitcoin mining.

KORB AND CO. INVESTMENTS MINING FUND – This is another fund that was meant for purchasing Bitcoin mining rigs. You can find the most recent copy of their website here.

SATOSHI DICE – Satoshi Dice was a game started by Eric Voorhees (archive). Satoshi Dice was a gambling service where you could send a Bitcoin transaction to a specified address and could potentially receive significantly more in response. Eric Voorhees was charged with offering unregistered securities for these sales of ownership in SatoshiDICE and FeedZeBirds. (archive)

VIRTEX – CAVirtEx was an early Canadian Bitcoin Exchange. Stuart Hoegner (archive), the General Counsel for Bitfinex and Tether, was the lead attorney when Coinsetter acquired CAVirtEx.

CRYPTO CAPITAL CORP – Crypto Capital Corp is a payment processor, infamously used by Bitfinex, and with the principals under US indictment. Crypto Capital claimed that a significant portion of their assets are being held in Poland, Bitfinex’s lawyers claim to not believe this.

LABCOIN – Labcoin was a company that claimed to be working on Bitcoin ASIC mining technology.

SANDSTORM – Sandstorm was an ‘investment fund’ which claimed to use the Bitcoins invested in it to make more money. It appears to have likely been an unsustainable high yield investment. You can find public copies of their ‘financials’ here. (archive)

THE MINISTRY OF GAMES – This was a company that ostensibly was focused on game development and publishing.

XBOND – XBond was issued by ThickAsThieves and was intended to be a perpetual fixed yield bond paid by the Bitcoin holdings of ThickAsThieves. (archive)

CASINOBITCO.IN – CasinoBitco.in [public files can be found here (
1. Prospectus (archive)

2. PR Release (archive)

3. Bitcoin Gaming Market Analysis (archive)

4. 2nd Press Release (archive))] was a Bitcoin casino that later rebranded to Monster Byte.

[1. Q3 2017 Financials (archive)

2. Q4 2017 Financials (archive)

3. Q1 2018 Financials (archive)

4. Q2 2018 Financials (archive)

5. Q3 2018 Financials (archive)] They now do white label cryptocurrency casinos. They are linked to Nessie (formerly at nessie.io (archive), now redirecting to crypto.eu) and MoneyPot (archive from when MonsterByte owned it) (domain now sold). I think it is valuable to remember that Stuart Hoegner (archive), the General Counsel for Bitfinex and Tether, is a “lead attorney to major bitcoin and altcoin poker brands”. It is unknown whether or not BitcoinRush/CasinoBitco.in/Monster Byte is among them.

COGNITIVE MINING – The listing on Havelock is not available. It appears to have been a way to invest in Bitcoin mining based on their archived site.

DEALCO.IN – The listing on Havelock is not available. The page (archive) currently directs to what seems to be LocalBitcoins but includes a feature where you talk to the person first.

NEO & BEE – The listing on Havelock is not available. You can see it on the right panel on various archives of Havelock. It appears to have ended due to misappropriation of funds. (archive)

MINTSPARE – The listing on Havelock is not available. Mintspare (archive) seems to be a way for people to trade in electronics for Bitcoin.

PetaMine CryptX – The listing on Havelock is not available. This appears to be another mining fund. They eventually shut down. (archive)

RENTAL STARTER – This was an investment into a real estate fund that was investing in Ohio but was operated by Full Power Asia Investment LTD.

SEEDCOIN FUND – This listing on Havelock is not available. Seedcoin (archive) was a crypto incubator out of Hong Kong. GoCoin the Brock Pierce cofounded company was incubated here.

BIG TREND CAPITAL INVESTMENT – The listing on Havelock is not available. It is unclear what they did.

ALCHEMINER – Alcheminer was a company that created ASIC mining hardware.

SEVENTH CONTINENT – Seventh Continent was trying to create a bitcoin denominated marketplace. Their website is still live here. (archive) They were in part funded by the Lifeboat Foundation’s Bitcoin Endowment. Stuart Hoegner (archive), the General Counsel for Tether and Bitfinex was a member of the Lifeboat Foundation. (Archive of a cache of his bio on the page)

A-ADS.COM – This company was a bitcoin online advertising network that claimed to not gather private information. They seem to still be open. (archive)

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An Introduction to the Tether/Bitfinex Controversy

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Bitfinex is one of the historically largest Bitcoin exchanges and Tether is by far the largest stablecoin. Each potentially has significant influence over the industry on their own, and their interconnectedness makes this more of a concern. However, since both were founded years ago and many of the events have happened and been in revealed in bits and spurts it can be difficult to understand their place in the cryptocurrency environment. This will hopefully serve as a basic introductory document that will then prompt further research.

Continue reading “An Introduction to the Tether/Bitfinex Controversy” →

Analysis of the New York Supreme Court Remittitur in the Tether and Bitfinex New York Attorney General Cases

~ Bennett Tomlin ~ 1 Comment

UPDATE: This was refiled presumably as part of the formal movement from the Supreme Court back to trial and the actual decision came down in July. Thank you to Rob Stevens for reminding me of this fact.

Document

There was finally a new development in the long delayed Digfinex/iFinex/Bitfinex/Tether NYAG case. The New York State Supreme Court heard the appeal from Bitfinex and unanimously decided to send them back to trial, dismissed their motion to dismiss, and reaffirmed that they need to supply the ordered documents.

I will review the document below.

The judges lay out initially that this appeal was absolutely meaningless from the start, and nonetheless take the time to lay out why each of Bitfinex’s arguments are invalid.

They begin (as shall I) with Tether’s argument that it is neither a security or a commodity and as such these activities surrounding Tether are not covered under the Martin Act. The judge strongly disagrees.

The first point laid out here is explaining that Bitfinex did not appeal correctly to challenge the NYAG jurisdiction, and instead in effect were trying to appeal the right of the Supreme Court to hear an application for this type of order.

The second point follows along with this one to emphasize that they did not appeal the order they appear to have a problem with.

The third point, is laying out even if they had handled this appeal correctly Tether would still be found to be covered under the Martin Act.

After settling the issue of whether Tether was neither a commodity a security they addressed the argument by Bitfinex that the New York Supreme Court lacked personal jurisdiction. In this argument Bitfinex tried to claim that there was insufficient link between their activity in New York and the alleged fraud. The judge did not find this argument convincing at all.

The first point that the judge emphasizes is that a single transaction is sufficient for their to be jurisdiction. They further affirm that since the investigation now centers around a fraud perpetrated by deceit about backing that it would affect the New York traders/Tether holders.

The judge then conveniently reviews for us some of the many ways that Bitfinex/Tether are tied to New York. Namely: they had traders in New York, they had traders in New York even after allegedly banning traders from New York, they had an executive working in New York (Phil Potter), the New York based executive they had specifically collaborated with other businesses who were based in New York, and finally that they hired multiple other firms in New York.

Even after thoroughly pointing out that Tether was deeply linked to New York, the judge elected to continue and point out that generally as long as there is sufficient evidence of some connection they will allow for an order like discovery to go forward in order to determine the extent to which a connection exists.

The final argument that Bitfinex has trotted out several times is that they were not served properly. The judge clearly points out that this is a ridiculous claim, and that Bitfinex’s counsel who had been working with the New York Attorney General during the investigation was served by hand, email, and overnight delivery.

In conclusion, this case has been moved from the appellate court back to trial, Bitfinex and Tether must hand over the documents requested, and they are now in an extraordinarily difficult position.

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