Tuesday, March 5

Student Kept $6 Million Crypto Mine Secret

Jerry Yu exhibits the characteristics of what the Chinese call a second-generation rich man. He studied at a preparatory school in Connecticut. He lives in a Manhattan apartment that was sold to him by Jeffrey R. Immelt, former CEO of General Electric, for $8 million. And he is the majority owner of a Bitcoin mine in Texas, acquired for more than $6 million last year.

Yu, a 23-year-old student at New York University, has also unwittingly become a case study in how Chinese citizens can transfer money from China to the United States without attracting attention authorities of both countries.

The Texan site, a large IT center, was not purchased with dollars but with cryptocurrencies, which offer anonymity, and the transaction took place via an offshore exchange, so no one knows the origin of the funding.

This secrecy allows Chinese investors to avoid the U.S. banking system and oversight from federal regulators, as well as Chinese restrictions on money flowing out of that country. In a more traditional transaction, a bank receiving the funds would know where they came from and would be required by law to report any suspicious activity to the U.S. Treasury Department.

None of this would have been known if Yu’s company, BitRush Inc., also known as BytesRush, had not run into trouble in the small town of 281 inhabitants of Channing, located in the area known as the Texas Handle, where contractors claim they were not paid in full for work they did at the Yu Mine.

A flood of lawsuits over this work has revealed documents showing transactions that are not usually made public, as Chinese investors have flooded the United States with spending hundreds of millions of dollars to build or operate crypto mines, after the Chinese government banned these operations in 2021.

Mining is a way for Chinese investors to generate cryptocurrencies, primarily Bitcoin, which they can exchange for US dollars on exchanges. The Channing Mine, built in an open field, consists of several dozen buildings designed to house 6,000 specialized computers that can be active day and night trying to guess the correct sequence of numbers that generate new bitcoins, currently worth more than $40,000 each. . These sites can be a burden on the country’s power grid, The New York Times reported, and their Chinese owners have drawn national security attention.

In one of the lawsuits involving Yu – a Chinese national residing in the United States – Texas-based Crypton Mining Solutions alleges that investors in the Channing mine “are not just Chinese citizens, but citizens with political positions”. very influential business people.

The lawsuit offers no conclusive evidence of these ties, and the trail of public money leads to Binance, a cryptocurrency exchange. By using a cryptocurrency called Tether and sending it through the offshore exchange Binance, Yu’s investors made it impossible to know the origin of the funds. At the time of the transaction, Binance’s offshore operations did not comply with US banking regulations, according to the United States government.

Jerry Yu, majority owner of Texas Bitcoin mine

Last month, Binance pleaded guilty to violating anti-money laundering rules and agreed to pay more than $4.3 billion in fines and forfeitures. At the center of the federal case was the infringe Binance laws such as the Bank Secrecy Act, which requires lenders to verify customer identities and report suspicious money transfers.

Yu referred questions to Gavin Clarkson, an attorney for BitRush, who said in an email that the company “complies with all required federal, state and local laws and regulations, including banking laws and regulations.” Clarkson said Crypton’s claims, including its non-payment for services to the mine, were “baseless and baseless”.

“We owe BitRush money, not the other way around,” he said. In a lawsuit against Crypton, BitRush alleges “gross negligence” and seeks $750,000 in damages.

In Channing, BitRush’s arrival last year generated a lot of attention, and some residents got jobs building the mine, built next to an electrical substation.

One of them, Brent Loudder, is a judge, chief of the local volunteer fire department and husband of the deputy sheriff County. Loudder, who oversaw electrical and plumbing work for Crypton, said contractors were not paid until they protested by staging work stoppages. An electrical contractor, Panhandle Line Service, is also involved in a claim and counterclaim with BitRush for payment issues.

Documents shared by Crypton lawyer David Huang with the New York Times reveal how BitRush planned to buy the Texas site: The seller, Outlaw Mining, was to receive $6.33 million in tether. Using tether, priced at $1, offers the anonymity of other cryptocurrencies without the price volatility of some. In the purchase contract, there was a wallet address —a 42-character alphanumeric sequence—to which the funds would arrive.

The records specify that 5,077,000 dollars will be presented to the public and the records of transactions available to the public must be on the card, registered with a number of cryptocurrency correction companies from FalconX, accepted 5,077,146 dollars in tether with this authorization cha Last year. The documents indicated that $500,000 in tether had already been paid as a deposit and that the remaining $750,000 was expected to arrive – also to be paid in tether – after BitRush took possession of the equipment, supplies and materials on the site.

However, the source of the funds was not publicly recorded and is only known to Binance, the exchange that processed the transaction. The agreement never specified exactly who would make the payment, and Clarkson noted that BitRush itself never sent or received money through Binance.

FalconX “had no visibility into the origin of the funds,” Purvi Maniar, the company’s deputy general counsel, said in a statement. “This illustrates why it is increasingly vital that centralized intermediaries in the cryptocurrency industry are regulated.”

It’s a problem recognized by groups that analyze blockchain, a digital ledger that records cryptocurrency transfers. “Once funds are sent to a centralized service on the blockchain, they can no longer be traced back to the person who sent them to that exchange without legal process,” such as a court order, explained the holder. word from Chainalysis, Madeleine Kennedy. which tracks crypto transactions.

Binance spokesperson Jessica Jung said the crypto wallets of three Binance accounts sent the tether payments and all belonged to foreign nationals who were not U.S. residents. “Binance.com does not have or serve U.S. customers,” Jung wrote in an email, adding that the site implements “rigorous” procedures to verify customer identities.

Paying with tether is a very common practice in the Bitcoin mining industry. An Arkansas miner said he used tether to buy millions of dollars worth of specialized computers made by a Chinese company. Another Wyoming miner said he did the same thing. One benefit of such transactions can be avoiding sales and capital gains taxes.

A document shared by Huang identified some of BitRush’s shareholders at the time of Channing’s purchase. After Yu, the largest shareholder was an investor from OMI Companies, a China-focused venture capital firm based in San Mateo, California. Another shareholder was identified in the document as “Lao Yu”, which can be translated as “Old Yu”.

The two people who signed the mortgage documents for Yu’s Manhattan apartment, Yu Hao and Sun Xiaoying, match the names of a Chinese couple who own stakes in companies valued at more than $100 million, according to archives. WireScreen, a company that provides Chinese business information. A person named Sun Xiaoying is also listed as an administrator of BitRush.

Clarkson, Yu’s lawyer, would not confirm the identity of BitRush’s shareholders or Yu’s possible relationship with any of them.

Outlaw Mining founder Josey Parks mentioned in a phone call that he could not comment on his financial deal with BitRush because it was subject to a confidentiality agreement.

“Jerry is an American student with a very wealthy family, from what I’ve been told,” Parks later commented in a text message. “I don’t know any of their investors or their relationships with foreign entities.”

Alain Delaquérière collaborated in the investigation.

Michael Forsythe He is a reporter for the investigative team. He was previously a correspondent in Hong Kong, where he covered the intersection of money and politics in China. He also worked at Bloomberg News and is a U.S. Navy veteran. More from Michael Forsythe

Gabriel JX Dance is the Associate Research Editor. His reporting focuses on the connection between online privacy and security and has led to congressional inquiries and criminal investigations. More from Gabriel JX Dance