What do Celsius Network, Paxful, Tether and Northern Data have in common?

The sinister intersection of Celsius Network, Paxful, and Tether is once again in the “cryptocrime” news.

Earlier this month, Celsius Litigation Administrator A civil lawsuit was filed The lawsuit targets former Celsius account holders who failed to repay funds they withdrew from the fraudulent digital asset “Yield” platform in the 90 days before Celsius collapsed.

Celsius operated a classic Ponzi scheme in which customers invested their digital assets in the company’s Earn program, which promised large profits that could not be obtained through traditional means. In reality, CEO Alex Masinsky used customer cash to purchase a personal vault of the company’s CEL tokens, while taking out large loans and occasionally paying “commissions” to Celsius customers with funds from new investors.

Celsius stopped customer withdrawals in June 2022 as the Ponzi scheme began to collapse. The following month, Celsius filed for bankruptcy protection, citing billions of dollars in unpaid debts. Mashinsky, who had been steadily increasing his profits before the collapse, was arrested on fraud charges in July of that year. Mashinsky’s trial is scheduled to begin in September.

Liquidators tasked with sorting out the company’s complicated balance sheet were quick to point out that numerous large withdrawals had occurred in the 90 days before the bankruptcy filing – and under US bankruptcy law, any payments made during that period can be clawed back for the benefit of creditors.

Mosin Megidji Celsius Litigation Administratorsaid last week that people who made withdrawals during that period “fulfilling their withdrawal requests rendered Celsius unable to fairly fulfill other withdrawals and thus unfairly benefited at the expense of other account holders.”

The lawsuit, filed last week, targets Celsius customers who had a “priority risk of withdrawal” exceeding $100,000 and “failed to settle their priority debts.” Celsius previously offered to settle these withdrawal customers at “favorable rates,” leading to “recoveries of approximately $100 million and the settlement of more than $500 million in priority debts through settlement agreements with more than 1,500 account holders.”

Megidji said the offer has now expired and the company intends to “recover the full amount of cryptocurrency transferred during the preference period under the Bankruptcy Code.” A full FAQ can be read here: here.

On social media, there are many Former Celsius customers served with legal notice From the litigation team: It’s clear that not everyone who exited before the bankruptcy filing had inside information that the Celsius criminal empire was in danger, but ignorance may be hard to prove.

Filled with regret

One of the early corporate casualties of the Celsius bankruptcy appears to have been Paxful, a digital wallet and peer-to-peer marketplace that shut down its services in April 2023.

Shortly before the outage, Paxful founder and CEO Ray Yousef statement Paxful apologized for the fact that clients of its Earn program “were unable to access” the funds that had been loaned to Celsius in pursuit of that elusive “yield.” Yousef promised to compensate clients “from our own pockets.”

Paxful resumed operations on its marketplace in May 2023, shortly after a public altercation between Yousef and co-founder Artur Sharbak, who was later ousted in February 2022 based on actions Sharbak had taken. Claimed His disagreement with Yousef was over (among other things) the legitimacy of “increasing expenditures to previously undisclosed entities which are depleting the company’s coffers at an alarming rate.”

July 8, 2024, Shabak Plead guilty He was charged with conspiring to fail to maintain an effective anti-money laundering (AML) program at Paxful, as required by the U.S. Bank Secrecy Act, a charge that carries a maximum sentence of five years in prison when Schaback is sentenced on November 5.

The settlement follows an investigation by the U.S. Department of Justice (DoJ), the Department of Homeland Security Investigations, and the Internal Revenue Service-Criminal Investigation Division.

The charges stem from his operation of Paxful from July 2015 to June 2019, during which Shabak allegedly “enabled Paxful to be used as a vehicle for money laundering, sanctions violations, fraud, romance fraud, extortion, prostitution, and other criminal activity.”

Paxful’s customers “negotiated and exchanged cryptocurrencies for a variety of items, including fiat currency, prepaid cards, and gift cards,” without providing sufficient “know your customer” (KYC) information to the site.

To make matters worse, Shabak “promoted Paxful as a platform that did not require KYC, presented false AML policies to third parties that he knew were not in fact implemented or enforced by Paxful, and failed to file a single suspicious activity report despite knowing that Paxful users were engaging in suspected criminal activity.”

If it’s Tuesday, there will be another Tether scandal.

One of the more interesting revelations from the Celsius bankruptcy proceedings was the involvement of Tether, the issuer of USDT, the world’s largest stablecoin by market cap. Tether holds 7.73% of Celsius, making it the company’s third-largest shareholder. What can I say… Tether sure knows how to pick their own.

A few months after Celsius collapsed, Tether made a “strategic investment” in Northern Data Group, a Germany-based company involved in everything from BTC-based mining operations to cloud storage and artificial intelligence (AI). Tether has since: Increase Northern Data shares Control is now 51%.

last week, Bloomberg Northern Data is reportedly considering a U.S. IPO for its Taiga Cloud and Ardent data center divisions in the first half of 2025. Reflecting the current AI hype cycle, the units could reportedly list in the $10 billion to $16 billion range. Peak Mining, which has six operations across Europe and North America, could be listed separately at a later date.

Northern Data warned that there was no guarantee any of its units would go ahead with an IPO, a warning that seems all the more prudent given the potential criminal allegations involved. Civil litigation It was submitted late last month by two former executives.

Northern Data US’s former CEO and president Joshua Porter and former CFO Garsen Khama claim they were wrongfully fired after raising legitimate concerns about Northern Data’s questionable activities to their superiors at the company’s global headquarters.

According to Porter, Northern Data “misrepresented the strength of its financial position to investors, regulators and business partners (it was on the verge of bankruptcy)… Equally troubling, Northern Data knowingly evaded taxes worth potentially tens of millions of dollars.”

The illegal conduct stems in part from Northern Data’s attempts to conceal revenues from its U.S. operations from U.S. taxation – a practice that Deloitte reportedly refused to give Northern Data an opinion approving.

Porter claims the tax avoidance strategy “came directly from Allush Thillainathan, founder and CEO of Northern Data AG,” and that he chose the strategy “in his own personal financial self-interest.” After suggesting to another senior executive that he raise these concerns with the board, Porter was fired in March 2023.

Second Opinion

Former CFO Kama echoed Porter’s allegations, saying Northern Data “misrepresented its financial position to potential auditors, tax advisers and investors” while the CEO and COO of the company’s global operations committed “accounting and securities fraud.”

Kama alleges that Northern Data “lied” about the company’s liquidity in conversations with KPMG auditors and further “misrepresented its financial situation (including potential bankruptcy) to current and prospective investors.”

Thillainathan allegedly ordered KPMG to find another auditor because they were “difficult to work with and unreasonable,” said he preferred an auditor who “would conduct the audit without asking any questions,” and threatened Kama if he did not comply with his orders.

Kama refused to cooperate and was fired in June 2023, the day before Northern Data’s extraordinary general meeting, which approved additional capital (by just 20% of shareholders) that would dilute the shares of existing shareholders.

While the period of suspected misconduct likely predates Tether’s involvement with Northern Data, Northern Data’s alleged disregard for proper third-party audits may be what attracted Tether in the first place. Despite promising for seven years to conduct independent audits of its fiat reserves, Tether continues to publish weak “certificates” detailing its financial situation for just one day each quarter.

Northern Data said in a statement that it was “no coincidence” that the “disgruntled” former executives filed the lawsuit just as the company was preparing for its IPO. Northern Data called their claims “clearly financially motivated and completely without merit.”

It’s clearly for financial gain and has absolutely no basis…

Tether has long been accused of being the detergent that keeps the “crypto” wash trading machine running, faking interest in tokens like BTC whenever retail investors seem to be starting to realize that BTC isn’t actually worth anything at all. Research points to suspicious trading on exchanges like Bitfinex, which is owned by Tether’s sister company iFinex, as a key part of this inflation scam.

Recently, a large amount of BTC has entered the market through the German government and the Mt. Gox liquidators, putting severe downward pressure on the fiat price of BTC. However, every time the drop becomes irreversible, this “dead cat” bounces back high enough to quell the temporary panic.

Bitfinex analysts block “Data from derivatives markets suggests BTC has hit a potential bottom,” and “Traders expect Bitcoin price to remain range bound and stabilize.” Do you hear me, everyone? There’s nothing to be scared of. Let’s move on.

X/Twitter personality RhoRider offered a slightly different take. I got it. “The day Germany started selling, Bitfinex launched the ‘$BTCUSDLongs’ TWAP. [time-weighted average price] The bots will do their best to absorb the selling.”

Lowrider Claimed “The Bitfinex/Tether criminal enterprise (“iFinex”) has bots constantly “buying” long $BTC with unlimited leverage, siphoning off roughly 1 $BTC every 3 minutes during a massive fake $ offering.”

RhoRider wasn’t done yet. Assert “Amount of money [Bitfinex is] The scam’s daily pump is slightly less than the average daily BTC/USD trading volume on US-based exchange Kraken: “roughly $50 million per day for several weeks. The amount of fake inorganic purchases to inflate the market amounts to billions of dollars.”

Asked when this manipulative scenario would “explode,” Lolider said: Said“It’s not going to explode unless the Tether guys are kicked out by the authorities… If that happens, it’s all over.”

It’s worth pointing out here that the Paxful co-founder’s guilty plea announced this week was based on activity that occurred between 2015 and 2019. The force of law may be long, but it moves a little slow. So just because its cold hand hasn’t tapped you on the shoulder yet doesn’t mean it never will.

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