Jerry Yu has the trappings of what the Chinese call the second generation rich. He boasts a Connecticut prep-school education. 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, which was acquired last year for more than $6 million.
Mr. Yu, a 23-year-old student at New York University, became — somewhat unintentionally — a case study in how Chinese nationals can move money from China to the United States without getting attention of the authorities in any country.
The Texas facility, a large computing center, was not purchased with dollars. Instead, it is purchased using cryptocurrency, which offers anonymity, with the transaction going through an offshore exchange, preventing anyone from knowing the source of the financing.
Such secrecy allows Chinese investors to avoid the US banking system, and the accompanying oversight by federal regulators, as well as circumvent Chinese restrictions on money leaving 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 US Treasury.
None of this would have been known if Mr. Yu’s company — BitRush Inc., also known as BytesRush — hadn’t run into trouble in the small Texas Panhandle town of Channing, population 281where contractors say they have not been fully paid for their work at his mine there.
A flurry of labor lawsuits have rocked loose documents that reveal transactions not usually made public as Chinese investors flock to the United States, spending hundreds of millions of dollars to build or operate coal mines. crypto, after the Chinese government banned such operations in 2021.
The mines are a way for Chinese investors to generate cryptocurrency, mainly Bitcoin, which they can cash in for US dollars at exchanges. Channing’s mine, built in an open field, consists of several dozen buildings designed to contain 6,000 specialized computers that can work day and night trying to guess the correct sequence of numbers that earn new Bitcoins , which currently cost more than $40,000 each. Such sites can put a burden on the country’s electrical 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 US resident — Texas-based Crypton Mining Solutions said the investors in the Channing mine were “not only Chinese citizens, but citizens in high political and influential business positions. ”
The suit offers inconclusive evidence of those relationships, and the public money trail ends at Binance, a cryptocurrency exchange. By using a cryptocurrency called Tether and routing it to Binance’s offshore exchange, Mr. Yu to know the source of the funds. At the time of the transaction, Binance’s offshore operations were not in compliance with American banking rules, according to US 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 center of the federal lawsuit is Binance failure to comply with laws including the Bank Secrecy Act, which obliges lenders to verify customers’ identities and flag suspicious money transfers.
Mr. referred Questions were directed 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.” He said the claims made by Crypton, including that it was not paid for mining services, are “baseless and without merit.”
“BitRush is in debt, not the other way around,” he said. In a lawsuit against Crypton, BitRush alleges “gross negligence” and is seeking $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, the town’s volunteer fire chief and the county’s husband. deputy sheriff. Mr. Loudder, who manages electrical and plumbing work for Crypton, said contractors were not paid until they protested by stopping work. An electrical contractor, Panhandle Line Service, is also locked in a suits and countersuits with BitRush over pay.
Documents shared with The Times by David Huang, a lawyer for Crypton, show how BitRush planned to buy the Texas site: The seller, Outlaw Mining, would receive $6.33 million in Tether. Using Tether, whose price is set at $1, offers the anonymity of other cryptocurrencies without changing the price of some of them. The purchase agreement is listed a wallet address — a 42-character alphanumeric sequence — where the funds will go.
The records indicate that $5,077,000 was due at closing, and publicly available transaction records show that the wallet, which is registered to a crypto brokerage firm called FalconX, received $5,077,146 in Tether last year. The documents said $500,000 in Tether had 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 site’s equipment, supplies and materials.
The source of the funds, however, is not publicly recorded and is known only to Binance, the exchange that handled the transaction. The agreement never specified exactly who would pay, and Mr. Clarkson said that BitRush itself did not send or receive any money through Binance.
FalconX “has no visibility into the source of the funds,” Purvi Maniar, deputy general counsel for the company, said in a statement. “This illustrates why it is especially important for centralized crypto intermediaries to be regulated.”
It’s an issue recognized by groups that scrutinize blockchain, a digital ledger that records cryptocurrency transfers. “Once funds are sent to a centralized blockchain service, they cannot be traced back to the individual who sent them to that exchange without legal process” as ordered by the court, said Madeleine Kennedy, a spokeswoman for Chainalysis, a company that tracks crypto transactions.
Jessica Jung, a Binance spokeswoman, said that crypto wallets from three Binance accounts sent Tether payments and all of them belonged to foreign nationals who were not US residents. “Binance.com does not have or serve any customers in the US,” he wrote in an email, adding that the site has deployed “rigorous” procedures to verify customers’ identities.
Payment with Tether is widespread in the Bitcoin mining industry. A miner in Arkansas says he used Tether to buy millions of dollars worth of special computers made by a Chinese company. Another miner in Wyoming said he did the same. One of the benefits of those transactions may be the avoidance of sales and capital gains taxes.
A document shared by Mr. Huang identified some of the shareholders in BitRush at the time of Channing’s purchase. After Mr. Yu, the largest was an investor from IMO Venturesa China-focused venture capital firm in San Mateo, Calif. 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 the apartment of Mr. Yu in Manhattan, Yu Hao and Sun Xiaoying, match the names of Chinese couples who own stakes in companies worth more than $100 million, according to records in 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 identities of BitRush’s shareholders or Mr. Yu’s possible relationship with any of them.
The founder of Outlaw Mining, Josey Parks, said in a phone call that he could not comment on his financial arrangements with BitRush because he was bound by a nondisclosure agreement.
“Jerry is a college student in the USA with a very rich family from what I’m told,” said Mr. Parks later in a text message. “I know nothing of any of his investors or ties to foreign entities.”
Alain Delaquerière contributed research.
