Jerry Yu has what the Chinese call a second-generation empire. He has a preschool education in Connecticut. He lives in a Manhattan condo that he bought 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 that he purchased last year for more than $6 million.
Mr. Yu, a 23-year-old student at New York University, has also, quite unintentionally, become a case study in how Chinese nationals can transfer money from China to the United States without drawing attention from authorities in either country to pull yourself.
The Texas facility, a large data center, was not purchased with dollars. Instead, it was purchased with cryptocurrency, which provides anonymity, with the transaction being processed through an offshore exchange so no one could know the origin of the funding.
Such secrecy allows Chinese investors to evade the U.S. banking system and the associated oversight of federal regulators, and to circumvent Chinese restrictions on money exports from China. In a more traditional transaction, a bank receiving the funds would know where they came from and would be legally required to report 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 — hadn't run into trouble in the small Texas Panhandle town of Channing, population 281, where contractors say they haven't been paid in full for their work his mine there.
A spate of lawsuits over the work has rocked loose documents that reveal transactions not normally made public, as Chinese investors have flocked to the United States and spent hundreds of millions of dollars building or operating crypto mines, after the Chinese government banned such operations in 2021.
The mines are a way for Chinese investors to generate cryptocurrencies, primarily Bitcoin, which they can exchange for U.S. dollars on exchanges. Built in an open field, the Channing Mine consists of several dozen buildings that house 6,000 specialized computers that work day and night trying to guess the correct sequence of numbers to earn new Bitcoins, which are currently worth more than $40,000 each. dollars are worth. Such sites can strain the country's power grid, The New York Times reported, and their Chinese ownership has drawn national security scrutiny.
In one of the lawsuits against Mr. Yu – who is a Chinese citizen and based 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 these connections and the trail of public funds ends at Binance, a cryptocurrency exchange. By using a cryptocurrency called Tether and routing it through Binance's offshore exchange, Mr. Yu's investors made it impossible to know the source of the funds. According to the US government, Binance's offshore activities did not comply with American banking regulations at the time of the transaction.
Jerry Yu, the majority owner of the Texas location.
Last month, Binance pleaded guilty to violating anti-money laundering regulations and agreed to pay more than $4.3 billion in fines and confiscations. The federal case centered on Binance's failure to comply with laws, including the Bank Secrecy Act, which requires 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 the company had not been paid for services at the mine, were “baseless and unfounded.”
“BitRush is owed money, not the other way around,” he said. In a lawsuit against Crypton, BitRush accuses it of “gross negligence” and is demanding $750,000 in damages.
In Channing, the arrival of BitRush last year attracted widespread attention, with some residents getting contracts to build 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 deputy sheriff. Mr. Loudder, who oversaw the electrical and plumbing work for Crypton, said contractors were not paid until they protested by stopping the work. An electrical contractor, Panhandle Line Service, is also involved in a lawsuit and countersuit with BitRush over payment.
Documents shared with The Times by David Huang, an attorney for Crypton, reveal how BitRush planned to purchase the Texas site: The seller, Outlaw Mining, would receive $6.33 million in Tether. Using Tether, priced at $1, offered the anonymity of other cryptocurrencies without the price volatility of some of them. The purchase agreement listed a wallet address – a 42-character alphanumeric sequence – to which the money should flow.
The records show that $5,077,000 was due at closing, and publicly available transaction records show that the wallet, registered to a crypto brokerage firm called FalconX, had $5,077,146 at this time last year. Dollars accepted in Tether. The documents state that $500,000 in Tether has already been paid as a deposit. The remaining $750,000 will also be paid in Tether after BitRush takes possession of the equipment, supplies and materials at the site.
However, the source of the funds has not been publicly disclosed and is only known to Binance, the exchange that processed the transaction. The agreement never specified who would make the payment, and Mr. Clarkson said BitRush itself never sent or received any money through Binance.
FalconX “had no insight into the origin of the funds,” Purvi Maniar, the company’s deputy general counsel, said in a statement. “This shows why it is becoming increasingly important for centralized intermediaries in the crypto space to be 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 central service on the blockchain, they cannot 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 spokesperson for Chainalysis, a company that tracks crypto transactions.
Jessica Jung, a spokeswoman for Binance, said that crypto wallets from three Binance accounts sent the Tether payments and that they all belonged to foreigners who are not U.S. residents. “Binance.com does not have or serve US customers,” she wrote in an email, adding that the site uses “strict” procedures to verify customers’ identities.
Paying with Tether is widely used in the Bitcoin mining industry. A miner in Arkansas said he used Tether to buy millions of dollars of specialized computers from a Chinese company. Another miner in Wyoming said he did the same thing. 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 the Channing purchase. After Mr. Yu, the largest investor was an investor in IMO Ventures, a China-focused venture capital firm 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 couple in China who own shares in companies worth more than $100 million, records show from WireScreen, 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 BitRush 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 arrangement with BitRush because he is bound by a nondisclosure agreement.
“Jerry is a college student in the United States with a very wealthy family, from what I’ve been told,” Mr. Parks later said in a text message. “I don’t know any of his investors or relationships with foreign companies.”
Alain Delaquérière contributed to the research.