Six-year BTCE money laundering scheme shut down.
On the afternoon of July 25th in Halkidiki, Greece, Alexander Vinnik was arrested by the FBI under suspicion of laundering a minimum of four billion dollars through BTC-E, one of our oldest cryptocurrency exchanges between 2011–2017. He was traced in part by being the primary beneficiary of Canton Business Corporation, the exchange managing shell company. The connections were made due to many withdrawals from the company to his personal account, creating a definable paper trail. Alex is currently accused of laundering profits from crimes ranging from drug trafficking, criminal syndicates, and proceeds from hacks named in government sourced documents.
It is common knowledge that BTCE was the black site of crypto, but that’s not where the story gets interesting.
If we step back a month before, Mark Karpeles , former CEO of Mt Gox was in court last month and was reportedly “aiding authorities with an ongoing investigation.” No big surprise here. It was a condition of his release. Fast forward to 7/26 4:00pm CST when Wiz Security released an article containing a chain analysis and nearly undeniable proof that Vinnik was at least the money laundering end of several exchange hacks, including Mt Gox, Bitcoinia, and Bitfloor.
All of this comes in the wake of a global effort to crack down on darknet markets.
To add to this. FinCen has weighed in and assessed a $110,003,314 penalty on BTCE based on a range of violations, including failure to comply with anti-money laundering regulation, recording keeping requirements, and failure to register as a Money Service Business (for US dollar).
Alex is assessed for a 12MM dollar fine as well for his role.
WizSec chain analysis — http://blog.wizsec.jp/2017/07/breaking-open-mtgox-1.html
(commentary begins here)
Some of you might be thinking at this point
“That seems simple. whys there was so much misinformation around this event?”
For us, this is where the real story begins — the media mess that propagated and enhanced FUD for a full trading day.
Three contributing factors can be summarized as:
1.) Media outlets carelessly published bad info and added to or corrected throughout the day.
2.) So-called trust-worthy individuals happily tweeted the misinformation, offering their own spin, clouding the details further.
3.) Full details were not unsealed until later in the day 7/26 by the US Government
Media can’t get their facts straight.
At 7:00am CST, when Reuters broke the story, there were several details wrong. The exchange named was Mt. GOX only, and Alexander Vinnik , whose name was spelled wrong , was accused of being a hacker.
Lesser news publications picked up the story from the wire, with the bad details, adding their own commentary and slung it out into the world.
At 9:30am CST, Reuters correct their misspelling of Alex’s name, removed the hacker accusation, and claimed “BTCE connection” in the title but nothing in the actual story. However, this could mean anything from “the guy had accounts at BTCE” to “the guy was the brainpower behind btce.” Other publications were quick to adjust their stories again with the unverified information, often clobbering the details more.
At 9:50am CST, Reuters makes a third change to the story, indicating “two sources.” One person of note (whom we won't name here) mentioned Reuters asked for confirmation that Vinnik was, the “Alex of btce” in question. He said he could not confirm, but they published the confirmation very quickly after the fact—roughly three minutes based on timestamp. CNBC is one notable outlet that picked it up.
Around 1:00pm CST, Bloomberg removed their hacker call out and added “admin at btce.” So once again, we have two conflicting but important details wrong. Does he work there, or is he “the man”? This detail is important if you are trying to determine if BTCE is the villain in this story or, more importantly, if you’re getting your funds back.
At 3:30pm CST , Wiz (cited above) released his report. Those who know Wiz know he's a reputable source. His article straightened out the hacker accusation in plain, unmistakable language, calling him solely a “money launderer.” However, in the same report , he muddies the water.(intentionally or not), stating that he had connections to BTCE. Not that he was the owner, admins, or any other past title applied. Fewer media picked up this article (because it wasn’t sensationalized), but a few still picked up and edited their own article.
If you had a Bloomberg terminal, what you witnessed was multiple stories similarly titled leapfrogging each other throughout the day, indicating changes had been made. It became comical by market close.
Crypto loves its drama.
At the time of this event, BTCE had been down for almost 48 hours for “unplanned maintenance” per their Twitter and IRC channel. The Twitter posts themselves indicated in not so many words a datacenter or connectivity disruption.
(This could have been believable at face value if they had simply given slightly more detail. ie a network trunk was cut)
The talking heads started six hours into the issue with the no-basis theories. Everything from not solvent to exit scam. Unfortunately, some of these people’s commentary is viewed as fact by some, resulting in a charged situation before the real news even began.
This overdramatic narrative was only compounded when a large store of funds moved from one wallet to a couple. Again, everything from exit scam, to laundering, to dumping the market was called. This went viral for $btc and #bitcoin for about four hours until Charlie Lee confirmed it was ‘most likely’ from Coinbase’s cold storage.
Commentary as fact
To make matters worse, whole articles are published based on people’s Twitter commentary or Reddit replies. Fact or not. When we approached one editor at Bloomberg about this rising trend, they told us exactly “we treat most article categories as commentary, fact-checking is secondary” .. Wait a minute, this is Bloomberg! the pay thousands per month trade data and news tool. How is it even remotely ok to not fact thing before putting them on a wire at that cost point?
Remember when they found Satoshi Nakamoto …
In closing, we encourage everyone to be critical of the news they read in this space. If “China bans Bitcoin” taught us anything, it’s that source, details, and media outlets are very important things to weigh when judging content validity. Seemingly legit media can be bought cheaply, the source can be faked, details can be skewed to fit an author’s narrative.
Thanks for reading
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BTC — 1AbRKiVkbffFAxpJcCHsNAgMB33EWmEiUJ