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There's always two sides to every story.

And last week's news of the New York Department of Financial Services denial of Bittrex's request for a BitLicense provides the latest example. As part of its rejection, the NYDFS put out a letter outlining the short-comings of the Washington-based exchange. At first glance it's brutal, noting that the exchange let North Koreans and Iranians onto the platform and cleared accounts with fake names like Elvis and Donald Duck.

There's more than what meets the NYDFS' eye, according to John Roth, the chief compliance and ethics officer at Bittrex.

"The frustration you hear in my voice is from the fact that we have no idea where this is coming from," the former inspector general for the U.S. Department of Homeland Security told The Block in an interview last week.

In a 30 minute conversation, Roth outlined the firm's defense.

Most striking, in my opinion, was the fact that the NYDFS would have agreed to Bittrex's BitLicense three months ago, according to Roth. Then, NYDFS outlined terms that would have required Bittrex to clear the trading of all future token listings through the agency, even in jurisdictions outside of New York. Bittrex thought those terms were unfair and declined to sign the deal, according to Roth. "I actually think it is fine for NY to decide what residents in NY can or cannot trade, but restricting what we could list outside of NY is pretty troubling and surrenders strategic business control of Bittrex," Roth said.

That raises an interesting question? What changed between three months ago and last week. Roth said that's a question for NYDFS to answer. One source said that the NYDFS was pissed Bittrex didn't respond to their terms and retaliated in a heated letter.

Even bitcoin skeptic David Silver agreed that such a deal could have existed. "From a 10,000 foot perspective I believe NYDFS offered them that deal," he said in a phone interview.

Still, what about those fake names? And the traders from North Korea and Iran — two sanctioned countries? Roth clarified that those fake name accounts were never allowed to trade or conduct any sort of financial transactions.

"What you can do, and I invite you to do this, is put some dumb shit name on Bittrex ... that's going to create a record in Bittrex but you can't do anything with it," Roth said.

Another source, a former chief compliance officer at a major broker-dealer, said it was significant that Bittrex was still in the process of automating its transaction monitoring process. "They had a long time to do this," the person said.

"They're manually monitoring the deposits that come in to review the source to make sure the bitcoin didn't come from child trafficking," the source said. "Chainalysis does this type of analysis and it costs a lot but you have to do it."

As for those North Korean traders, Roth denied ever such traders existed. In a response letter to NYDFS, the firm outlined how it noticed the Iran traders on the site, closed their accounts, and reported it.

Still, as Silver noted, both parties could be right here, based on their own interpretation of the data.

"I've dealt with multiple exchanges in litigation who unfortunately have been unable to read their own data," Silver said. "So it would not surprise if both parties are right and wrong on this."

Roth was hit personally in the NYDFS letter. There's even an entire section devoted to his incompetence, dubbed "Lack of Qualification of Effectiveness of the Compliance Officer."

Roth wasn't afraid to hit back at the NYDFS during our phone call. "They sent four people who didn't know anything about blockchain," he said referring to NYDFS team. "They took people who didn't know what an out bound crypto address, had the impression it was maybe an email address."







This post first appeared in Frank Chaparro’s weekly column “Mad Crypto,” which is sent to Genesis subscribers’ inbox every Monday morning.