Jerry Yu has the attributes of what the Chinese call second-generation rich. He has a high school education in Connecticut. He lives in a Manhattan condo purchased for $8 million from Jeffrey R. Immelt, former CEO of General Electric. And he is the majority owner of a Bitcoin mine in Texas, acquired last year for more than $6 million.
Yu, a 23-year-old student at New York University, has also unwittingly become a case study in how Chinese citizens can move money from China to the United States without drawing the attention of authorities in either country. Both countries.
The Texas facility, a large computing center, was not purchased with dollars. Instead, it was purchased with cryptocurrencies, which offer anonymity, and the transaction is carried out through an offshore exchange, preventing anyone from knowing the origin of the funding.
This secrecy allows Chinese investors to avoid the US banking system and the resulting oversight by federal regulators, as well as circumvent Chinese restrictions on money leaving China. In a more traditional transaction, the 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.
None of this would have been known if Mr. Yu's company, BitRush Inc., also known as BytesRush, had not run into trouble in the small town of Channing, in the Texas Panhandle. population 281where contractors say they were not fully paid for their work at their mine there.
An avalanche of lawsuits over the work has rocked loose documents bringing to light transactions not normally made public as Chinese investors have flooded the United States, spending hundreds of millions of dollars to build or operate cryptocurrencies, after the Chinese government banned such operations. in 2021.
The mines are 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 operate day and night trying to guess the correct sequence of numbers that generate new Bitcoins, which are currently worth more than $40,000 each. . These sites can place a burden on the country's power grid, The New York Times reported, and its Chinese ownership has elaborate national security scrutiny.
In one of the lawsuits involving Mr. Yu, who is a Chinese citizen and U.S. resident, Texas-based Crypton Mining Solutions alleges that investors in the Channing mine “are not just Chinese citizens, but citizens in highly political and influential business positions.”
The lawsuit offers no conclusive evidence of those links, and the public money trail ends at Binance, a cryptocurrency exchange. By using a cryptocurrency called Tether and routing it through the Binance offshore exchange, Mr. 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 rules, according to the United States Government.
Last month, Binance pleaded guilty of violating anti-money laundering regulations and agreeing to pay more than $4.3 billion in fines and forfeitures. At the center of the federal case was the Binance case. breach with laws like the Bank Secrecy Act, which requires lenders to verify customer identities and detect suspicious money transfers.
Yu referred questions to Gavin Clarkson, BitRush's attorney, who said in an email that the company “complies with all required federal, state, and local laws and regulations, including banking laws and regulations.” He said claims made by Crypton, including that it was not paid for services at the mine, were “baseless and baseless.”
“BitRush is owed 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, the arrival of BitRush last year attracted a lot of attention and some residents got jobs building the mine, which was built next to an electrical substation.
One of them, Brent Loudder, is a judge, city volunteer fire chief and county police husband. deputy sheriff. Loudder, who oversaw Crypton's electrical and plumbing work, said contractors were not paid until they protested by holding work stoppages. An electrical contractor, Panhandle Line Service, is also locked in. claim and counterclaim with BitRush on payment.
Documents shared with The Times by David Huang, a Crypton lawyer, reveal how BitRush planned to buy the Texas site: the seller, Outlaw Mining, would receive $6.33 million in Tether. Using Tether, which is priced at $1, offered the anonymity of other cryptocurrencies without the price volatility of some of them. The purchase agreement listed a wallet address – a 42-character alphanumeric sequence – where the funds would go.
The records specified that $5,077,000 was owed at closing, and publicly available transaction records show that the wallet, registered to a cryptocurrency brokerage company called FalconX, accepted $5,077,146 in Tether at that time of year. past. The documents said that $500,000 had already been paid in Tether as a deposit, and that the remaining $750,000 would come (also paid in Tether) after BitRush took possession of the equipment, supplies and materials at the site.
However, the source of the funds was not publicly recorded and is known only to Binance, the exchange that handled the transaction. The agreement never specified exactly who would make the payment, and Clarkson said BitRush 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 crypto brokers 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 individual who sent them to that exchange without a legal process,” such as a court order, said Chainalysis spokesperson Madeleine Kennedy. , a company. which tracks crypto transactions.
Binance spokesperson Jessica Jung said crypto wallets from 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 any US customers,” she wrote in an email, adding that the site implements “rigorous” procedures to verify customer identities.
Paying with Tether is widespread 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 miner in Wyoming said he did the same thing. One of the benefits of such transactions may 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 Mr. Yu, the largest investor was an investor from IMO Companiesa China-focused venture capital firm 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 Mr. Yu's Manhattan apartment, Yu Hao and Sun Xiaoying, match the names of a married couple in China who own stakes in companies worth more than $100 million, according to records. of Wire mesh, a company that provides Chinese business intelligence. A person named Sun Xiaoying is also listed as a director of BitRush.
Mr. Clarkson, Mr. Yu's lawyer, did not confirm the identities of BitRush's shareholders or Mr. Yu's possible relationship with any of them.
Outlaw Mining founder Josey Parks said in a phone call that he could not comment on his financial agreement with BitRush because he was bound by a confidentiality agreement.
“From what I'm told, Jerry is a college student in America with a very wealthy family,” Parks later said in a text message. “I don't know any of his investors or any relationship with foreign entities.”
Alain Delaquérière contributed to the research.
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