Reginald Fowler, a 63-year-old former co-owner of the Minnesota Vikings, has been sentenced to six years in prison for operating as a “shadow bank” in the crypto sector. Over a 10-month period in 2018, Fowler was involved in more than $700 million in unregulated transactions. The sentence comes as part of a five-year-long case that was launched after his arrest in 2019 for alleged shadow banking. Fowler initially pleaded not guilty to all charges in 2020 but changed his plea to guilty in April 2022.
Shadow banking refers to non-bank entities that carry out banking-like activities, often illegally. Fowler established Global Trading Solutions (GTS) around February 2018, which worked with Crypto Capital and other crypto firms operating out of Israel. There, Fowler, GTS, and the crypto firms sidestepped a license by lying to banks to open accounts used to process crypto transactions. Fowler opened a dozen of these accounts to facilitate these crypto transactions without the banks’ knowledge and failed to disclose GTS’s relationship with the crypto firms. At no point were Fowler, GTS, nor any of the Crypto companies ever licensed as a money transmitting business in the United States, as required by federal law.
One of the crypto firms involved was iFinex Inc — the parent company of crypto exchange Bitfinex and stablecoin issuer Tether. In addition to Fowler’s prison sentence, he was ordered to forfeit $740 million and pay over $53 million in restitution to the Alliance of American Football (AAF). Williams said Fowler “victimized” the AAF by lying about his net worth to own a “substantial” stake in the league. Fowler’s string of lies enabled him to mislead and deceive several banks, thereby exposing the US financial system to serious risk.
In his recent statement, U.S. Attorney Damian Williams stated that his office is committed to prosecuting people who lie to banks and skirt the law while doing their business. Williams pointed out that Fowler operated outside the law, processing hundreds of millions of dollars of unregulated transactions on behalf of cryptocurrency exchanges as a shadow bank.
The term “shadow banking” evokes a sense of a complex, shady operation, but it is a common practice in the world of finance. Shadow banks include hedge funds, private equity funds, and other financial companies that operate outside the traditional banking system. They provide a variety of services, including asset management, lending, and brokering, all of which are outside regulatory oversight.
One of the biggest risks associated with shadow banking is that it operates outside regulatory oversight. Although there are some regulations that cover shadow banks, they are not as extensive as those that cover traditional banks. This means that shadow banks can operate with more significant risks to their investors and customers.
Cryptocurrencies, with their decentralized nature, have created more opportunities for shadow banking. The lack of regulations governing cryptocurrencies has made it easier for shadow banks to operate in the sector. However, as the case of Fowler shows, it also makes it easier for authorities to track and prosecute those who break the law. It is essential that regulatory authorities keep up with the fast-evolving crypto sector to prevent individuals from exploiting loopholes.
The case illustrates the need for tighter regulations around cryptocurrencies. It also shows the risks associated with cryptocurrencies. While cryptocurrencies offer many benefits, such as faster transaction speeds and lower costs, they also carry significant risks. As cryptocurrencies become more mainstream, it is imperative that regulatory authorities find ways to strike a balance between innovation and protection.
In conclusion, Fowler’s case is a testament to the risk and dangers that shadow banking poses to the banking system. While cryptocurrencies are innovative and offer many benefits, they also carry significant risks. Regulatory authorities must continue to keep a watchful eye on cryptocurrencies and shadow banking to prevent unscrupulous individuals from exploiting vulnerabilities in the system.
