A United States district judge has approved the government’s motion for order authorizing alternative notification procedures in the case of the funds recovered from Ilya Lichtenstein and Heather Morgan from the Bitfinex hack. 

This approval will allow the US to post a notification about the case on the Department of Justice’s (DoJ) large cases website “out of an abundance” of caution so that individuals who could potentially raise claims have an opportunity to do so.

However, the US government also notes that it “is not aware of any person who qualifies as a victim… beyond perhaps Bitfinex.”

Read more: Bitfinex hacker Razzlekhan was job hunting at Bitcoin 2024

The Bitfinex Hack Haircut

This case centers around funds recovered from Lichtenstein and Morgan after they pleaded guilty to laundering the proceeds of the 2016 hack.

The hack is one of the largest thefts of bitcoins ever, and in response, Bitfinex haircut many customer accounts, replacing the funds in their accounts with a special BFX token representing the losses.

The consent order specifically claims that Bitfinex represented to the US government that “iFinex Inc. allocated the losses from the hack across all customer accounts. This resulted in an approximately 36% reduction in account value across all accounts.”

However, this appears not to be the full truth. Zane Tackett, a former Bitfinex executive, has previously acknowledged on X (formerly Twitter) that Coinbase did not receive the same haircut as other accounts on the platform.

This comment from Tackett confirmed earlier reporting from Nathaniel Popper. 

Protos reached out to Bitfinex for comment on this apparent discrepancy, but it did not respond before publication. 

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Christopher Harborne, a shareholder in both Bitfinex and Tether’s parent company and a prominent right-wing backer, paid for Nigel Farage to visit Donald Trump following the failed assassination attempt against the former president. 

That’s according to the UK Parliament’s latest register of interest filings, which details the financial interests of its politicians. It revealed that Farage’s trip to the US on July 17 cost £32,000 (~$41,500) and was funded by Harborne. 

As reported by The Guardian, the trip was arranged for Farage “to support a friend who was almost killed and to represent Clacton on the world stage.” However, judging by the lack of photos of Trump and Farage together, it seems likely that the newly-elected member of Parliament (MP) never actually got to meet the 2024 presidential hopeful. 

Farage has also been criticized by users on X (formerly Twitter) for the little time he has spent in his constituency.

Harborne’s crypto ties and big right-wing bets

Harborne has previously donated to other ring-wing figureheads, giving £1.2 million ($1.55 million) to disgraced former Prime Minister Boris Johnson, and £15 million ($18.3 million) to the UK’s Conservative Party, the Brexit Party, and Nigel Farage’s own Reform UK.

He is also a shareholder in Tether’s parent company Digfinex and his son, William Harborne, is the founder of Rhino.fi, formerly Ethfinex, which is a Tether sister firm that was spun out of Bitfinex. 

In early 2019, Harborne was issued over $70 million USDT under his alternative Thai name, Chakrit Sakunkrit. This year he sued the Wall Street Journal for defamation over its article, ‘Crypto Companies Behind Tether Used Falsified Documents and Shell Companies to Get Bank Accounts.’

Read more: Nigel Farage milkshake’d while touring with shady crypto ally

Filings also detail that George Cottrell, Farage’s aid and a convicted criminal who was caught agreeing to launder drug funds, funded Farage’s £9,250 trip to the National Conservatism Conference in Brussels in April. 

Farage was also revealed to have made almost £1.2 million a year from the right-wing broadcaster GB News, seemingly making him the highest-paid MP in the UK. 

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In 2016, Heather Morgan, a.k.a ‘Razzlekhan’ hacked Bitfinex and stole over 120,000 bitcoin. Morgan and her husband Ilya Lichtenstein subsequently pleaded guilty to money laundering conspiracies related to the theft, and to conspiring to defraud the United States.

Despite these two federal crimes and a loss that exceeded $4 billion by 2022, a judge has allowed Razzlekhan to remain out of prison. In fact, she attended this year’s Bitcoin 2024 conference in Nashville.

Some attendees spotted her and took selfies, she passed out stickers with her character logo, the Crocodile of Wall Street, and told attendees she was searching for work as a crypto consultant.

Jameson Lopp called her “a known social engineer who is likely to be working for the State” and pinned a warning to future crypto event organizers against granting her entrance.

Read more: Crypto rapper Razzlekhan seeks a job — her TikToks are here to help

Razzlekhan seeking new career opportunities

This wasn’t her first crypto conference appearance since admitting to two federal crimes that might have (but didn’t) earned her a maximum prison sentence of 10 years. Sources who spoke to Protos who asked not to be identified have seen her attending various crypto events in New York City.

In 2022, a judge released Razzlekhan from custody to house arrest on a $3 million bond. She posted her availability for work, claiming on August 23, 2022, that she was “not involved in any crypto project.”

Suspicions that she is a State asset stem from Lichtenstein’s admission to US authorities that he was the mastermind behind the Bitfinex hack. According to his admission, he informed his wife only after the initial hack that their theft was successful to the tune of over 120,000 bitcoin.

In any case, Razzlekhan is apparently free to attend crypto conferences, including this year’s largest event in Nashville. She’s also seemingly sticking with her infamous moniker, despite its ties to crime and an unsuccessful artistry career.

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Bitfinex, like Alameda Research, allegedly permitted special customers to trade with negative account balances, according to a second amended consolidated class action complaint in the Southern District of New York. 

However, before comparing the negative balance override features of Bitfinex and Alameda, it’s important to contextualize this allegation.

Details about Bitfinex’s negative balance override comes from a lawsuit alleging a scheme involving the use of tether (USDT) to persist a price premium of bitcoin (BTC) on Bitfinex. Specifically, a class of harmed investors residing in the US claim that Bitfinex and Tether executives fraudulently inflated the price of bitcoin and other crypto assets by billions of dollars on the Bitfinex exchange for two years.

Class members who bought bitcoin on Bitfinex at artificially inflated prices and later sold bitcoin at natural market prices “were injured by the amount of the difference,” according to their complaint. As a class, they are seeking “actual damages, treble damages, injunctive relief, interest, reasonable expenses, and attorneys’ fees.”

From 2017 to 2019, it’s widely known that the price of bitcoin was curiously and consistently higher on Bitfinex relative to other exchanges. The class action alleges that this price premium was purposeful, incentivizing the dissemination of USDT around the world.

Specifically, plaintiffs claim, “Defendants had motive to inflate cryptocommodity prices — it inflated the value of their cryptocommodity holding, encouraged more trades on their Bitfinex exchange, and promoted the widespread adoption of USDT as a dollar-pegged stablecoin.”

Negative balance override

Given this context, Bitfinex’s ability to grant special privileges to traders on its exchange makes more sense.

According to plaintiffs’ complaints, Tether and Bitfinex executives were orchestrating an elaborate scheme to advertise Bitfinex by persisting irrationally high prices of bitcoin on Bitfinex while simultaneously promoting the dissemination of USDT onto third-party exchanges.

To accomplish the discrete series of market incentives for these flows of funds, modifying a special Bitfinex account to allow negative balances might have been a necessary tool in executives’ toolkits.

If true, the feature would have been similar to the negative balance override feature granted to Alameda’s accounts on FTX. From July 2019 through its bankruptcy in November 2022, Alameda traders like Caroline Ellison enjoyed a unique privilege — software code ​​’allow_negative’ — granted to no other account holders.

Alameda availed itself of this privilege to the tune of billions of ‘negative’ dollars. Its losses, in addition to the money Alameda Research stole from customers, ultimately led to the collapse and bankruptcy of the entire FTX ecosystem.

Read more: US authorities charge Sam Bankman-Fried with ‘massive’ fraud

Plaintiffs in the New York class action lawsuit allege that Bitfinex similarly extended special override privileges to a special account that traded a lot of bitcoin and USDT.

According to the complaint, Bitfinex, like FTX, used other customers’ coins to facilitate credit. Moreover, Bitfinex allegedly “placed accounts that were allowed to trade on credit on ‘safe liquidation mode’ so that they would not be liquidated even when they incurred a negative balance.”

It’s possible that FTX’s ‘allow_negative’ software code had equal power to Bitfinex’s ‘safe liquidation mode.’

Bitfinex, Tether, and the presumption of innocence

Of course, these allegations are only complaints from investors who have lost money. No court in the Southern District of New York has issued a final ruling on this lawsuit.

Even though this lawsuit is merely a non-criminal complaint seeking money and injunctions, the US court system generally emphasizes the presumption of innocence.

The presumption of innocence is a basic requirement of fair trials. It forces jurors to assume defendants are innocent unless prosecutors prove beyond a reasonable doubt that defendants violated the law.

Because anyone may file a lawsuit containing any complaint, it’s irresponsible to assume any complaint is true merely because it appears in a court filing. It’s responsible to wait for rulings by a judge or jury before accepting any allegations as true.

Protos reached out to Bitfinex for comment but had not received a response prior to publication time.

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Edit 14:00 UTC, Jul 19: Edited headline for clarity to specify ‘crypto investors.’

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Investors in Bitfinex’s Hampton Hotel securities offering are reportedly entitled to a refund after its fundraiser failed to meet its $500,000 goal to build a hotel near El Salvador’s airport. 

Local news outlet El Salvador.com reported that the ‘Relevant Information Document’ on the HILSV token used in the public offering has a clause that allows investors to refund their investment should the fundraiser fail to hit its target. 

The document, published on May 13, says a refund is available if either, “the minimum amount (minimum amount necessary to carry out the project), which for this issue will be five hundred thousand US dollars ($500,000.00), is not reached at the end of the public offering or (ii) if the issuance of the digital assets is canceled.” 

The token has only reached $342,000 since its launch on May 13. That’s $158,000 shy of the minimum sum required by the June 11 deadline. It had hoped to reach a total of $6.25 million.

Read more: El Salvador leans on Bitfinex for daily bitcoin buy

However, the hotel might not be done for. The token’s issuer, Inversiones Laguardia, told Protos that the firm “already has commitments for the entire raise” and that its “goal with tokenization is to reach the largest number of retail investors possible.”

This is despite the HILSV document claiming $500,000 was the “minimum amount necessary to carry out the project” during this issuance.

The public securities offering was to help build the five-storey hotel which it was claimed would have 80 rooms, a pool, and a garden, among other amenities. It also offered investors free nights and even unlimited stays over a five-year bond term if at least $1 million was invested. 

The token was reported to be tradable with US dollars and USDT but the latter cannot be found on Bitfinex’s site or ‘Relevant Information Document.’

El Salvador.com wanted a comment from Inversiones Laguardia and visited its listed headquarters address only to find another company called Inglés Corporativo. Someone answering Inversiones Laguardia’s listed phone number also claimed it belonged to another company. 

According to the HILSV document, investors can get their refunds via the same channels through which they made their initial investment. 

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Crypto-friendly Evolve Bank and Trust has admitted that it has known about ‘unauthorized activity’ — specifically the theft of 33 terabytes of user data — for the past month despite only notifying end users about the breach last week.

The data leak, which has been attributed to infamous Russia-based ransomware group Lockbit, reportedly includes personal details belonging to Bitfinex users.

Evolve said on Monday that in late May, some of its systems stopped working properly due to ‘unauthorized activity’ that appears to stem from an employee accidentally clicking on a malicious link. 

The bank claims it stopped the attack ‘within days’ and hasn’t seen any more unauthorized activity since May 31. It also didn’t pay the ransom demand and says Lockbit mistakenly attributed the data to the Federal Reserve. 

Despite this activity, as reported by Fintech Business Weekly (FBW) reporter Jason Mikula, “It appears [Evolve Bank] didn’t notify impacted fintechs (or end users) until the breach became public last week.”

Bitfinex accounts included in Evolve leak

The data stolen from Evolve Bank reportedly includes personally identifiable information (PII), such as names, addresses, social security and tax ID numbers, dates of birth, account balances, and email addresses. The data reportedly comes from 155,586 accounts linked to firms including Bitfinex, Nomad, and Copper Banking. 

An industry source told FBW, “I can’t think of a data breach with this much PII and consumer and commercial financial data…. that then is publicly available…. Ever.”

Read more: Crypto ransom group LockBit leaks stolen pharmacy staff data

Mikula has since received a cease and desist email from Evolve. He said, “If people misunderstood my posts to mean that I would share sensitive PII in my reporting, please know that was never my intent.”

One anonymous source claiming to be an exec impacted by the Evolve hack reportedly asked Mikula for the leaked files as they hadn’t “gotten confirmation from Evolve.”

Today’s announcement was updated from a June 26 version which omitted disclosure of May’s ‘unauthorized activity.’

Update July 2, 09:51 UTC: Changed the headline and body to clarify it was Copper Banking included in the leaked Lockbit documents. 

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A couple of weeks ago, a new securities offering was added to Bitfinex Securities, intended to raise money to build a Hampton hotel near an airport in El Salvador.

The offering hoped to raise $6.25 million in 30 days, however, over halfway through, only $342,000 has been raised, according to the Bitfinex Securities website.

This hotel offered unusual ‘benefits’ to investors, including offering free nights if you invested enough, and up to unlimited stays over the five-year bond term if you invested at least $1 million. 

Furthermore, the ‘Market Study Update’ issued by Horwath HTL and distributed alongside this offering submission suggests that the hotel is projected to make $2.7 million in total revenues. This is somewhat surprising as construction is yet to be completed, and the fundraising documents on Bitfinex Securities state that construction will take “less than 12 months,” leaving little time to hit that target.

Read more: Bitfinex Securities hasn’t seen a single trade in two months

Bitfinex Securities has struggled to convince anyone to regularly use the exchange. The blockstream mining note offered on the exchange hasn’t had a trade occur since November 13 last year. The Mikro Kapital offering sees slightly more activity, with sometimes up to eight trades occurring in a single day, though more typically it sees between zero and two trades.

Protos has reached out to Inversiones Laguardia to determine if it will be able to proceed with construction if this fundraise fails; after the publication of this piece Roberto from Inversiones Laguardia responded to claim that it “already have commitments for the entire raise” and claimed its “goal with tokenization is to reach the largest number of retail investors possible.”

Update 2024-06-03 13:40 UTC: Added comment from Inversiones Laguardia.

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Nayib Bukele, the self-described dictator of El Salvador, recently revealed the address where the country is storing the lion’s share of its Bitcoin holdings, 32ixEdVJWo3kmvJGMTZq5jAQVZZeuwnqzo. 

This address reveals that El Salvador has more bitcoin than they had previously stated, and provides further insight into the relationship between the nation of El Salvador and the crypto exchange Bitfinex. A detailed review of the approximately 5,693 bitcoins in the cold wallet showed that 4,560 of these were received from an address believed to be Bitfinex.

The address has also continued to receive Bukele’s previously announced daily bitcoin purchases, which also appear to be coming from Bitfinex.

Bitfinex clearly plays an important role in the Bitcoin efforts of El Salvador, and El Salvador seems to be important for the broader ambitions of Bitfinex. El Salvador was the second country that Bitfinex Securities launched in.

Tether is also an investor in the “Volcano Energy” project in El Salvador; an ambitious plan to build a Bitcoin mining center powered by geothermal and wind energy. 

Bitfinex sister firm Tether has other connections to the government of El Salvador, including hiring DMM Consulting, a lobbying firm led by an advisor to Bukele. 

These transactions further illustrate the intimate relationship between the Central American dictator and the two globe-spanning cryptocurrency companies.

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Christopher Harborne — who goes by the name Chakrit Sakunkrit in Thailand — is a Bitfinex shareholder, the number one supporter of Brexit, and is suing the Wall Street Journal (WSJ) for defamation.

The multimillionaire, who made his money from an aviation fuel company and a number of almost-too-brilliant crypto investments, is taking on the News Corp-owned WSJ over an article entitled ‘Crypto Companies Behind Tether Used Falsified Documents and Shell Companies to Get Bank Accounts.’

The article, which was only corrected a week ago, is nearly a year old and the lawsuit appears to be coming out of left field. The correction states:

“A previous version of this article included a section regarding Christopher Harborne and AML Global, which applied for an account at Signature Bank. The section has been removed to avoid any potential implication that AML’s attempt to open an account there was part of an effort by Tether, Bitfinex, or related companies to mislead banks, or that Harborne or AML withheld or falsified information during the application process.”

Read more: Bitfinex Securities hasn’t seen a single trade in two months

Defamation in Delaware

The original claims of the article seem to have largely revolved around Christopher Harborne, his alias Chakrit Sakunkrit, and another individual, Stephen Moore, who had reservations about Bitfinex’s banking arrangements. Apparently, the allegations made within the article were enough for Harborne to bring a suit against the WSJ a year later, post-correction.

The choice of venue for the lawsuit — Delaware — is slightly puzzling. The WSJ is headquartered in New York and it could be that Harborne is attempting to avoid the state’s well-known Anti-SLAPP (Strategic Lawsuit Against Public Participation) legislation.

This isn’t the first time Bitfinex or a Bitfinex shareholder has taken on a seemingly unbeatable opponent: in 2017 Bitfinex sued Wells Fargo in a desperate attempt to keep customer dollars flowing into and out of the exchange. The suit was dropped very shortly after.

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Bitfinex Securities launched in September 2021 in the Astana International Financial Centre in Kazakhstan to provide a venue for capital raises and secondary sales of registered securities.

Since that time, Bitfinex has continued to invest in this entity. In September 2022, it announced that it had “added a dedicated headcount to the team…designed internal audit procedures, and developed a pipeline of tokenised securities.”

Bitfinex Securities has also continued to seek out other licenses, noting on its website that it is also regulated in El Salvador, with the Bitfinex Securities El Salvador S.A. de C.V. entity being the first to receive a “Digital Asset Service Provider” license in El Salvador.

However, despite all this progress and a “pipeline of tokenised securities,” this platform has been slow to see meaningful adoption.

Currently, there are only three securities listed on the “Bitfinex Securities Official List,” and these are: 

• EXO: the security token associated with Exordium Limited, a video game company led by former Blockstream executive Samson Mow, working to develop a game called Infinite Fleet.
• BMN: The Blockstream Mining Note, a security meant to represent the bitcoin earned by deploying hashrate.
• ALT2611: A tokenized bond issued by Mikro Kapital made up of “risks connected to debt and equity of micro-financing companies, small financial institutions, leasing companies, banks or credit cooperatives.” 

However, none of these assets have seen significant trading volume on this platform.

Read more: Bitfinex plans $150M share buyback to ‘address scrutiny’

The EXO token seems to no longer be available for trading on Bitfinex Securities. Protos attempted to reach out to Exordium through the website linked on Bitfinex Securities, but that website’s contact form is broken. Protos sent over questions through the contact form on the Infinite Fleet website.

The BMN token has a volume of $5,440, with the last trade occurring on November 13th 2023. The ALT2612 token lists a volume of $0 and has no recorded trades.

There do not seem to be any other assets listed on Bitfinex Securities, and it appears that the platform has not seen a single trade in the last two months.

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