How the collapse of a football league is tied to crypto’s biggest banking scandal

The Alliance of American Football, an eight-team professional football league, collapsed last month due to financial duress, just eight weeks into its inaugural season. The AAF’s chairman, Tom Dundon—also owner of the NHL’s Carolina Hurricanes—suspended operations, cancelling the last two games of the regular season and the playoffs.

As the league imploded, AAF players were left scrambling for flights home and were kicked out of hotel rooms. Some still must cover medical expenses from injuries suffered during the season.

While fledgling professional football leagues are nothing new—they’ve risen and fallen for decades—the AAF’s demise is linked to something far bigger. Lost among the ashes of the AAF was the league’s original investor, a man named Reggie Fowler (above left). If his name sounds familiar to NFL fans, it’s because Fowler was once a minority owner of the Minnesota Vikings. Fowler’s history, though, probably should have served as a warning to the AAF.

In 2005, Fowler sought majority ownership of the Vikings, but he was dogged by accusations that he lied on his resume. And ultimately, he never came up with the $150 million, or 30%, required to become majority owner of the NFL team. A 2005 ESPN article also revealed a laundry list of concerns about Fowler’s prior business dealings.

It’s not clear whether the AAF’s CEO, Charlie Ebersol, knew that Fowler had been sued dozens of times—or that he was oddly secretive about his net worth—but the league accepted Fowler as its original, lead investor. According to Action Network, Fowler committed $170 million to the league, but he only followed through with $28 million in December. Relying on Fowler may have proved the AAF’s undoing.

“Our expenses fell almost exactly in line, within a couple of million dollars, of our original business plan,” Ebersol told CBS. “Our surprise was in financing. Which, again, I cannot emphasize this enough: We had signed contracts—not just investors, but with banks, that were vetted by multiple parties. We had legally tendered documents to give us access to capital.”

The AAF’s financing was on shaky ground just one week into the season, likely because Fowler struggled to withdraw money from domestic and foreign bank accounts. Dundon intervened in February, extending a $250 million lifeline to the league. However, his plan to shape the AAF into a minor league for the NFL proved overzealous, and it’s rumored that Dundon pulled the plug because of lackluster prospects on TV rights.

To onlookers, the AAF was a disaster, but writing it off as another failed football venture would be overly simplistic. The AAF had a television deal and attracted support from MGM International Resorts, as well as Founders Fund, a VC firm run by Peter Thiel. Of course, the league faced hurdles, but this wasn’t a totally half-baked idea. Thousands of people came together—players, coaches, executives, vendors—and delivered a product for football fans, if only briefly.

Now, with the AAF in chapter 7 bankruptcy, what’s become of Fowler?

On Tuesday (April 30), Fowler was arrested in Arizona. In early April, the US Justice Department indicted him on charges of bank fraud and operating an unlicensed money transmitting business, as well as conspiracy to commit both. He allegedly opened dozens of bank accounts across the world under the pretense of using them for real estate investments. Fowler, 60, is accused of funneling hundreds of millions of dollars through a shadow bank “on behalf of numerous cryptocurrency exchanges” to process customer deposits and withdrawals. He’s further suspected of misappropriating funds for personal usage—ostensibly to invest in the AAF. If convicted, he faces up to 70 years in prison. Considering his access to international businesses and capital, the DOJ has deemed him a “significant flight risk.”

Bear with me for a moment.

Court filings explain that a company associated with Fowler has failed to return $851 million to a client of Fowler’s shadow bank.  That number is precisely how much money is missing from Bitfinex, one of the world’s most prominent cryptocurrency exchanges. So, it appears Fowler has been providing banking services to Bitfinex through his “shadow bank.” Cryptocurrency media also report that Fowler was linked at various points to other major exchanges, including QuadrigaCX, Kraken, Binance, and BitMEX.

Since Bitfinex lost access to its $851 million, it siphoned $700 million from an affiliate company called Tether, which creates digital tokens backed by equivalent US dollar reserves. Many analysts and traders in the crypto community have worried that Tether’s digital tokens could falter—or even become worthless—without the requisite cash reserves in the company’s bank accounts.

In fact, the New York Attorney General is investigating iFinex, Bitfinex, and Tether’s parent company for fraud because of duplicitous statements about the digital tokens’ backing. Assuming that the $851 million rightfully belongs to Bitfinex/Tether, owners of the digital tokens can (probably) breathe a small sigh of relief. Still, it’s not clear whether the funds will be recovered.

Already Fowler’s reneging on his commitment to the AAF seems to have contributed to the failure of the football league. And now, he’s accused of being at the center of an illegal, international banking syndicate. Whatever happens with his case, the heat is on for Bitfinex and Tether. These are critical infrastructure companies for the crypto ecosystem, and these last few weeks have revealed the tenuous nature of their banking relationships.