Bitfinex’s Founder Seemingly Tried to Start a Ponzi Scheme

Raphael Nicolle, the elusive founder and CEO of Bitfinex, “invested” in a number of Ponzi schemes in 2012 and loudly supported Trendon Shavers who was recently sentenced to 18 months in prison for running a “classic Ponzi scheme.”

We can further reveal that Raphael Nicolle, who, in 2012, claimed to be a 26-year-old living in Lyon, France, tried to start, what appears on its face to be, his own Ponzi scheme:

“[W]hen I need more coins than I have to fill an order, I will ask everyone that previously “registered” with me to lend me some btc. After 7 days, I will return all of it, principal + 2% interests [per week]…. Now the questions you might have: What could you do to make so much profit? Let just say that I do “arbitrage”: I buy low and sell high.”

Nothing has been heard from Bitfinex’s founder or any of the directors since the biggest exchange in USD volume suddenly announced the theft of $70 million worth of bitcoins. Moreover, it appears that some profiles are fully being deleted, with some other profiles, such as that of Giancarlo Devasini, Risk Manager at Bitfinex, seemingly lacking much if any information.

There are no known independent pictures or videos of Bitfinex’s CEO, and his current whereabouts are likewise unknown. Raphael Nichole or someone going by that name has however, been part of bitcoin since 2011, seemingly investing in numerous schemes that offer incredibly high returns, with the most prominent being Bitcoin Savings and Trust [BST] run by “pirate 40” aka Trendon Shavers. In vigorously defending the Ponzi scheme throughout, Raphael Nicole states at one point:

“[Trendon Shavers] dumped a lot on the market, probably to take USD profit and to lower the price of bitcoin. Now he will slowly buy back some coins to repay his lendors [sic].”
Just days before BST closed doors, Raphael Nicolle was responding to critics who were accusing the scheme of being a Ponzi by stating:

“Pirate’s turns growth in demand for bitcoins (ie USD flows to bitcoins) into bitcoins profit. That’s why he needs massive (at bitcoin scale) capital.”

Once the music stopped, Raphael Nicolle turned against the ponzi’s victims, blaming them for Shaver’s deception:

“3 hours of waiting and you scream ponzi. What a **** joke. So you’re pissed because Pirate ignore you, and you want to hurt him by starting a panick withdrawal. That’s so ridiculous and childish. How old are you again?”

He went further, and in an amazing statement that befuddles belief, demanded an apology:

“Now that Pirateat40 closed down his operatations [sic] thanks to all the fud that was going on and growing on the forum, I expect everyone that spreads this fud, accused and insulted Pirate and the people that supported him to apologize.”

Nicolle continued defending the scheme, encouraging other operations that on the surface appear to be clear ponzies, and even argued that BST’s collapse was actually good news:

“Pirate basically admitted he had to buy back 500 000 btc on the market. How more bullish can you be.”

When what appears to be another Ponzi scheme or scam was investigated by authorities, Raphael Nicolle turned against the investigators:

“I hate this[sic] fascit pigs, these parasites” and “Oh shut up fascist. I have no problem with ponzi talks and whinnings, but don’t drag the parasites that be into this, thanks.”

The “parasites” found Shavers to be guilty of running a Ponzi scheme and gave him a prison sentence as well as a fine of $40 million. At the time, however, it appears Raphael Nicolle was under the impression criminal law does not apply to bitcoin, and thus, seemingly, started thinking of his own operation:

“I just want to check if there were really 7000 btc deposited already. If they were, man I’m starting a ponz…. deposit offer right away. Can’t believe I bought my bitcoins.”

Followed be a serious Ponzi scheme suggestion we detailed at the start of the article.

What Happened at Bitfinex?

Little is known in regards to what exactly happened at Bitfinex four days after the shocking announcement. What is known is that approximately 120,000 bitcoins moved at the same time around mid-day on August the 2nd. There is no bitcoin address one can point to as the funds were withdrawn to thousands of addresses.

It is not at all clear how such “security breach” occurred. Bitfinex did not use cold wallets, but a 2 of 3 multi-sig scheme with BitGo. After speaking to BitGo, Emin Gün Sirer responded to our question on whether he could see how the 120,000 bitcoins could be withdrawn in one go considering the multisig as follows:

“I can’t see anything specifically because BFX [Bitfinex] has not made any of the addresses public, but they could not have been withdrawn in one go.

BFX stored its coins in an account per user. Each account was protected by 3 keys, and 2 out of 3 keys were sufficient to move the funds. 1 key for user, 1 key for BFX, and 1 key for BitGo.

BFX had a special API key that allowed it to instruct BitGo to provide a signature programmatically. So a compromise at BFX meant that the attacker had (1) the BFX keys, one for each BFX user, and (2) the BFX->BitGo API key, which allowed BFX (and the hacker) to instruct BitGo to sign the transaction. That enabled the attacker to turn a compromise at one location (BFX) into many withdrawals.

The big question is: how did the attacker get around the daily spending limits that would normally have been enforced by BitGo if everything had worked as intended?

It seems that BitGo’s systems worked as intended here. So currently, all fingers are pointing to some kind of operational mismanagement on the BFX side, where the attacker was either never subjected to the daily limits, or else he managed to lift them by himself.”

There were at least two major outages at Bitfinex that sent Bitcoin’s price down by $100 twice in early June 2016. No explanation whatever has been provided by Bitfinex to explain why these outages happened nor was there any published follow up investigation.

Nor is it clear if any investigation has been launched by authorities in Hong Kong or US. As profiles already are being deleted, such as bitfinex’s ceo old twitter, a quick reaction by authorities would be crucial in order to preserve evidence of the theft of $70 million.