This NYU student owns a $6 million crypto mine. His secret is known.

Jerry Yu has the characteristics 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 CEO 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, has also – quite unintentionally – become an example of how Chinese nationals can transfer money from China to the United States without attracting the attention of authorities in either country .

The Texas facility, a large computer center, was not purchased with dollars. Instead, it was purchased with cryptocurrency, which offers anonymity, with the transaction going through an offshore exchange, meaning no one could know the origin of the funding.

Such secrecy allows Chinese investors to bypass the U.S. banking system and its attendant scrutiny from federal regulators, while bypassing China’s restrictions on money leaving China. In a more traditional transaction, a bank receiving the money would know where the money came from and would be required by law to report any suspicious activity to the U.S. Treasury Department.

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 Texas Panhandle town of Channing. population 281where contractors say they have not been paid in full for their work at his mine there.

A wave of lawsuits over this work has unleashed documents revealing transactions not normally made public, as Chinese investors have flooded into the United States and spent hundreds of millions of dollars to build or operate crypto mines after the Chinese government had banned such operations. in 2021.

The mines are a way for Chinese investors to generate cryptocurrency, mainly Bitcoin, which they can cash on exchanges for US dollars. Built on an open field, the Channing Mine consists of several dozen buildings designed to house 6,000 specialized computers that can work day and night to guess the correct set of numbers that will yield new Bitcoins, which are currently worth more than $40,000 each being worthy. Such sites could pose a strain on the country’s power grid, The New York Times has reported, and their Chinese ownership has led to national security scrutiny.

In one of the lawsuits involving Mr Yu – who is a Chinese national living in the US – Texas-based Crypton Mining Solutions claims that investors in the Channing mine are “not just Chinese citizens, but citizens in highly political and influential business positions.”

The lawsuit provides no conclusive evidence of those ties, and the trail of public money ends with Binance, a cryptocurrency exchange. By using a cryptocurrency called Tether and routing it through Binance’s offshore exchange, Mr. Yu impossible to determine the source of the money. At the time of the transaction, Binance’s offshore operations did not comply with US banking regulations The United States Government.

Last month, Binance pleaded guilty to violating anti-money laundering regulations and agreed to pay more than $4.3 billion in fines and forfeitures. The core of the federal case was Binance’s non-compliance with laws such as the Bank Secrecy Act requiring lenders to verify customers’ identities and flag 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 it was not paid for services at the mine, were “baseless and baseless.”

“BitRush owes 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 Ludder, is a judge, the city’s volunteer fire chief and a husband to the county police department. deputy sheriff. Mr Ludder, who oversaw electrical and plumbing work for Crypton, said contractors were only paid when they protested by staging work stoppages. An electrician, Panhandle Line Service, is also locked in one suit and countersuit with BitRush overpayment.

Documents shared with The Times by David Huang, a lawyer for Crypton, reveal how BitRush planned to buy the Texas site: The seller, Outlaw Mining, would receive $6.33 million worth of Tether. Using Tether, whose price is set at $1, offered the anonymity of other cryptocurrencies without the price volatility of some of them. The purchase agreement stated a wallet address – a 42-character alphanumeric string – where the money would go.

Records show $5,077,000 was owed at closing, and publicly available transaction records show the wallet, registered with a crypto brokerage firm called FalconX, accepted $5,077,146 in Tether around this time last year. According to the documents, $500,000 in Tether had already been paid as a down payment, while the remaining $750,000 would follow – also payable in Tether – after BitRush took possession of the equipment, supplies and materials at the site.

However, the source of the money has not been publicly recorded and is only known to Binance, the exchange that handled 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 source of the funds,” Purvi Maniar, the company’s deputy general counsel, said in a statement. “This illustrates why it is becoming increasingly important that centralized intermediaries in crypto are regulated.”

It’s a problem recognized by groups that analyze the 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 person who sent them to that exchange without a legal process,” such as a court order, said Madeleine Kennedy, a spokeswoman for Chainalysis, a company that tracks crypto transactions.

Jessica Jung, a spokeswoman for Binance, said crypto wallets from three Binance accounts sent the Tether payments and that they all belonged to foreigners who were not US residents. “Binance.com does not have or serve US customers,” she wrote in an email, adding that the site has “rigorous” procedures in place to verify customer identities.

Paying with Tether is widespread in the Bitcoin mining industry. A miner in Arkansas said he used Tether to buy millions of dollars worth of specialized computers from a Chinese company. Another miner in Wyoming said he did the same. One of the benefits of these transactions can be the avoidance of 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 largest was an investor IMO companiesa China-focused venture capital firm based in San Mateo, California. Another shareholder was identified in the document as “Lao Yu,” which translates as “Old Yu.”

The two people who filed the mortgage documents for Mr. Yu in Manhattan, Yu Hao and Sun Xiaoying, match the names of a married couple in China who own shares in companies worth more than $100 million, according to data on Wire screen, a company that provides Chinese business intelligence. A person named Sun Xiaoying is also listed as a BitRush director.

Mr. Clarkson, Mr. Yu’s lawyer, would not confirm the identities of the BitRush 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 arrangement with BitRush because he was bound by a non-disclosure agreement.

“Jerry is a student in the US with a very wealthy family as I was told,” Mr. Parks later said in a text message. “I do not know of any of his investors or relationships with foreign entities.”

Alain Delaqueriere research contributed.