Jerry Yu has the attributes of what the Chinese call the second-generation rich. He has a preparatory education in Connecticut. He lives in a Manhattan condominium purchased for $8 million from Jeffrey R. Immelt, the former chief executive of General Electric. And he is the majority owner of a Bitcoin mine in Texas, acquired last year for more than $6 million.
Mr. Yu, a 23-year-old student at New York University, has also become – quite unintentionally – a case study in how Chinese nationals can transfer money from China to the United States without attracting the attention of the authorities of either country.
The Texas facility, a large data center, was not purchased in dollars. It was purchased with cryptocurrency, which provides anonymity, and the transaction was routed through an offshore exchange, preventing anyone from knowing the origin of the funding.
Such secrecy allows Chinese investors to avoid the U.S. banking system and the oversight of federal regulators that comes with it, as well as circumvent Chinese restrictions on money flowing out of China. 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.
None of this would be known if Mr. Yu’s company — BitRush Inc., also known as BytesRush — had not encountered problems in the small town of Channing, in the Texas Panhandle. population 281where contractors claim they have not been fully paid for their work on his mine.
A wave of lawsuits over the work has unraveled documents that shed light on deals not normally made public, as Chinese investors have flocked to the United States, spending hundreds of millions of dollars to build or operate cryptocurrency mines, after the Chinese government banned such operations. in 2021.
Mining is a way for Chinese investors to generate cryptocurrencies, primarily Bitcoin, which they can exchange for U.S. dollars. The Channing Mine, built on an open field, consists of several dozen buildings designed to house 6,000 specialized computers that can run day and night to try to guess the correct sequence of numbers that yield new Bitcoins, currently worth more than $40,000 each. Such sites can pose a burden on the country’s power grid, the New York Times reported, and their Chinese ownership has drawn national security scrutiny.
In one of the lawsuits involving Mr. Yu — who is a Chinese national and U.S. resident — Texas-based Crypton Mining Solutions alleges that investors in the Channing mine “are not just Chinese citizens, but citizens occupying highly political and influential business positions.”
The lawsuit offers no conclusive evidence of these connections, and the trail of public money 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 source 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 to violating anti-money laundering regulations, agreeing to pay more than $4.3 billion in fines and forfeitures. At the heart of the federal case was Binance’s decision no respect with laws, including the Bank Secrecy Act, requiring lenders to verify the identity of customers and report suspicious money transfers.
Mr. Yu referred questions to Gavin Clarkson, a lawyer 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 “. He said Crypton’s claims, including that services rendered to the mine were not paid, 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 landed jobs building the mine, which was built next to an electrical substation.
One of them, Brent Loudder, is a judge, the city’s volunteer fire chief and the husband of the county’s wife. deputy sheriff. Mr Loudder, who oversaw electrical and plumbing work for Crypton, said contractors were only paid when they protested by staging work stoppages. An electrical contractor, Panhandle Line Service, is also locked in a suit and countersuit with BitRush payday.
Documents shared with the Times by Crypton lawyer David Huang reveal how BitRush planned to buy the Texas site: The seller, Outlaw Mining, would receive $6.33 million in Tether. Using Tether, priced at $1, offers the anonymity of other cryptocurrencies without the price volatility of some. The purchase contract mentioned 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 with a crypto brokerage called FalconX, accepted $5,077,146 in Tether at the close. same time last year. The documents indicate that $500,000 in Tether has already been paid as a deposit, with the remaining $750,000 to come – also to be paid in Tether – after BitRush takes 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 Mr. Clarkson said 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 crypto intermediaries are regulated.”
It’s a problem recognized by groups that analyze blockchain, a digital ledger that records cryptocurrency transfers. “Eleven funds are sent to a centralized service on the blockchain, they can no longer be traced back to the person who sent them to this exchange without legal process” such as a court order, said Madeleine Kennedy, representative of Chainalysis, a company. which tracks crypto transactions.
Binance representative Jessica Jung said that the crypto wallets of three Binance accounts sent the Tether payments and that they all belonged to foreign nationals who were not US residents. “Binance.com does not have or serve U.S. customers,” she wrote in an email, adding that the site deploys “rigorous” procedures to verify customer identities.
Paying with Tether is popular in the Bitcoin mining industry. An Arkansas miner said he used Tether to purchase specialized computers made by a Chinese company for millions of dollars. Another Wyoming miner said he did the same. One benefit of these transactions can be avoiding sales and capital gains taxes.
A document shared by Mr. Huang identified some of BitRush’s shareholders at the time of Channing’s purchase. After Mr. Yu, the most important was an investor of 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 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 dollars, according to the archives of the WireScreen, 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, would not confirm the identity of BitRush’s shareholders or Mr. Yu’s possible relationship to any of them.
Outlaw Mining founder Josey Parks said in a phone call that he could not comment on his financial deal with BitRush because he was bound by a nondisclosure agreement.
“Jerry is a student in the United States with a very wealthy family from what I have been told,” Mr Parks later said in a text message. “I don’t know any of his investors or any relationships with foreign entities.”
Alain Delaquérière contributed to the research.