U.S. DOJ Moves to Detain Defendant in Crypto 'Shadow Banking' Case

U.S. prosecutors are seeking to detain Reginald Fowler until his trial for operating an unlicensed money transmission business which may have processed funds for the Bitfinex crypto exchange.

In a court filing Wednesday - which was shared online but is not yet available on the government's Public Access to Court Electronic Records system - first assistant U.S. Attorney Elizabeth Strange and assistant U.S. Attorney Gary Restaino detail concerns that Fowler may flee the country if he is not held in custody, citing his "Disregard" for the FBI's investigation last year.

Fowler was charged with bank fraud, conspiracy to commit bank fraud and conspiracy to operate an unlicensed money transmission service earlier this week by the U.S Attorney's Office for the Southern District of New York.

Alongside an associate, Tel Aviv-based Ravid Yosef, Fowler is alleged to have provided cryptocurrency exchanges with banking services illicitly and may be an operator of Crypto Capital, the payment processor at the heart of the Bitfinex/Tether scandal.

The U.S. Department of Justice's investigation may be one reason why Crypto Capital's funds were frozen, which in turn hampered Bitfinex's ability to process its customers' withdrawals.

The filing appears to confirm this, noting that "Recent public reporting, which is corroborated in part through interviews conducted in the course of this investigation, indicates that companies associated with defendant have failed to return $851 million to a client of defendant's shadow bank."

Fowler may have also been involved in other crimes, the filing said.

Roughly $14,000 in counterfeit bills - largely $100 bills - were recovered from Fowler's office, indicating that he may have been involved in producing counterfeit money.

Unless the prosecutors come to an agreement with Fowler with "a package of conditions," his appearance at a hearing cannot be "Reasonably assure[d]," and so he should be detained, Strange and Restaino wrote.

Fowler was arrested on April 30, and faces a maximum sentence of 30 years on the bank fraud charge.