This Escrow Agreement shall be governed by, and construed in accordance with, the laws of New York State, without regard to the principles of conflict of laws thereof. Any disputes which cannot be resolved amicably, will be finally decided by arbitration in accordance with UNCITRAL Rules, by a single arbitrator, sitting in New York, NY, U.S.A., and shall be enforceable in any court of competent jurisdiction.
"Benthos entered into two interrelated agreements for the purchase of Bitcoin from a third party, with Etra acting as escrow agent for the transaction.
The first contract (the 'Bitcoin Agreement'), was between Benthos, as Buyer, and a non-party [to the SDNY litigation] entity known as Valkyrie Group LLC ('Valkyrie'), as Seller, for the purchase of 10,000 Bitcoin. The first tranche of the transaction was to be for $5,000,000.00 worth of Bitcoin. The Seller's principals were a father-and-son team named Hugh and Brandon Austin, who held themselves out to be brokers capable of locating third parties willing to sell quantities of Bitcoin.
The Bitcoin Agreement, cross-referenced to an accompanying Escrow Agreement, provided that within 24 business hours after execution, Benthos was to send $5 million to Etra's IOLA account. Etra's fee for serving as Escrow Agent was one percent of any funds deposited in escrow -specifically, $50,000.00. Under the Escrow Agreement, if Benthos had not received its Bitcoin within 15 business days of the release of funds from the Escrow Account, Hugh Austin or Valhalla Venture Group, LLC (an affiliate of the Seller) would return the $5,000,000.00 to Benthos.1
On August 6, 2018, Benthos wired $5,000,000.00 to Etra's IOLA account. On August 7, 2018, Etra wired $3,000,000.00 to an unknown account, purportedly for the purpose of obtaining Bitcoin.2 Shortly thereafter, Respondent Tracy Evans informed Benthos that the Bitcoin could not be obtained without releasing an additional $2,850,000.00, in addition to the first $3,000,000.00 that had already been released.3 Benthos declined to send the additional $850,000.00.
On August 24, 2018, Etra wired an additional $1,600,000.00 from the IOLA account to another unknown account. On August 28, 2018, Benthos demanded the return of its $5,000,000.00.4
On August 31, 2018, Benthos demanded that Etra provide him with all details concerning the release of the escrow funds, all communications between himself and all parties involved in the Bitcoin Agreement, and information about the storage facility and Dmitri. According to Benthos, Etra failed to provide any useful information or documentation. On October 12, 2018, Benthos terminated the Escrow Agreement and again demanded the return of Benthos' funds.
Dear Attorney Aaron Etra:
Pursuant to transaction codes CDKTEBPA073118XXX AND CDKTEBPA073118SUB, please transfer a total of $3,000,000.00 [three million dollars] of the $5,000,000.00 (five million dollars) of funds you have received in your attorney IOLA account to the banking coordinates listed below, for the benefit of my colleagues who are responsible, under my direction, for the first initial asset management steps called for in said agreements
16.1 On the signing of this Agreement and the Escrow Agreement annexed hereto as ANNEX A (the "Escrow Agreement") by both Parties [Valkyrie/Seller and Benthos/Buyer], they agree to and are contractually obligated to follow and adhere to the terms and conditions of this Agreement and the procedures set forth below and in the Escrow Agreement.
16.2 This is an exchange of 10,000 BTC (the "Product") to be transferred from Party One [Seller] to Party Two [Buyer] for a cash consideration in USD, at the market price per BTC as fixed below minus Party One's total discount of Gross:6% Net:4% to Party Two. This 10,000 BTC represents a contract that could be completed in as short a time as will be agreed to by Party One and Party Two after the initial tranche of $5,000,000 worth of BTC.
16.3 The Parties agree there is a consultant/facilitator fee of 2% as stated in 16.2 above of 4%.to be paid through this Agreement by the Escrow Agent as per Annex C. Further, both parties agree that this is the only consultant fee to be paid through this Agreement, and the Parties hereby indemnify each other and the Escrow Agent, and agree to hold them free of and fully harmless from any claims, costs and expenses relating to or raised by any other persons or parties.
16.4 In summary, under clause 16.2, Party Two will pay to Party One [in USD] the sum calculated by multiplying the number of BTCs by the value of the BTCs according to the Market Price as specified hereunder, MINUS the Buyer's discount of four percent (Gross: 6% Net: 4%).
For the Buyer to determine the BTC price on any particular day for the purposes of this contract, PARTY TWO [Buyer] will use the price reported on BLOCKCHAIN.INFO at 9:00 AM New York time upon confirmation of Buyers funds being sent to Escrow.
1. Within the next 24 business hours after Party One and Party Two and Escrow Agent have signed this Agreement and the Escrow Agreement, Party Two will send to the ESCROW AGENT named in the ESCROW AGREEMENT by wire transfer in USD an amount totaling the price of $5,000,000 worth of BTCs post-discount (corresponding to a pre-discount value of $5,208,333.33), minus the discount given to the Buyer of Net 4%, in this case totaling $5,000,000. Upon completion of the wire transfer by Party Two, Party One and the ESCROW AGENT will be sent a copy of the documentation confirming transmission of the wire.
2. On notice from the Escrow Agent to Party One that the requisite sum has been received from Party Two and credited to the Escrow account, before the intended transaction date and time, Party One will arrange for undertaking the delivery of the requisite amount of Party One's BTCs to the wallet address of Party Two (as specified in ANNEX B), at 9:00AM New York time or immediately upon such notice from the Escrow Agent, whichever is later. The Seller may pull out an amount of money from escrow in order to secure the BTC from its BTC-backed instrument.
3. After the time required for all six confirmations in the Bitcoin blockchain network the quantity of which minimizes any risk to the integrity of the BTCs for Party Two, which is usually completed within a period of 16 hours, the requisite BTCs are to be delivered to the respective Wallet(s) as provided for herein (ANNEX B for Party Two), thereupon completing the $5,000,000 worth of BTC transaction and deeming all escrowed funds from Party Two for this transaction duly earned and to be then fully released by the Escrow Agent to Party One.
"[T]he Agreement calls for an escrow to be established to hold the sum to be transferred to the Escrow Agent pursuant to the relevant provisions of the Agreement, thus representing the funds which serve to secure the process and procedures for the purchase of the Product (the "Deposit" or "Deposited Funds"), and for the Escrow Agent to follow the instructions given by the Seller on the disbursement of the Deposit, only if such instructions relate to pulling money to secure the BTC for the Buyer from the Seller's BTC-backed instrument. The Buyer's funds shall not be used for any other purpose than to secure the BTC for the Buyer; (Cl. Ex. 2, second Whereas clause, page 9).
"Seller and Buyer understand and agree that the funds of Deposit made and held by the Escrow Agent will be called upon by the Seller from the Escrow Agent by instructions and are needed to secure the BTC for the Buyer from the Seller's BTC-backed instrument, and the funds shall not be used for any other purpose, and that without such application the Product cannot be obtained for the benefit of the Buyer; (Cl. Ex. 2, fourth Whereas clause, page 9).
"Upon receipt of confirmation of funds received by the Escrow Agent, Seller will give further instructions to the Escrow Agent for the application of the Deposit funds as provided for in the Agreement, with the understanding that such instructions must relate to pulling out money in order to secure the BTC from its BTC-backed instrument" (Cl. Ex. 2, page 11, with the quoted language underlined in the Escrow Agreement).
"The Parties expressly and fully agree and irrevocably consent to the right of the Escrow Agent to follow the sole instructions of the Seller, provided the Seller is doing so with the intention of securing the BTC for the Buyer from its BTC-backed [instrument], and that these instructions are with respect to the application of the funds representing the Deposit once received from the Buyer, and transferred as provided for in the Agreement and herein" (Cl. Ex. 2, second bullet point on page 12).
"If the Escrow Agent is reasonably uncertain as to its duties or rights hereunder or shall receive instructions, claims or demands from any of the Parties hereto or to the Agreement with respect to the Escrowed Deposit, which, in the opinion of its legal counsel, conflict with any provisions of the Agreement or this Escrow Agreement, the Escrow Agent shall promptly send a written request to each affected Party for clarification of such uncertainty or conflict. The Escrow Agent may refrain from taking any action (other than to hold the Deposit in accordance with the terms and conditions hereof) until such uncertainty or conflict shall have been eliminated in the reasonable opinion of the Escrow Agent, shall have been directed otherwise in writing by all affected parties or by a final order or judgment of a court of competent jurisdiction, whichever occurs first" (Cl. Ex. 2, first bullet point on page 13).
• Designation as Escrow Agent; Acceptance of such Designation:
• Seller and Buyer hereby jointly agree to appoint and empower the Escrow Agent to assist them in meeting their contractual obligations set forth in the Agreement. The Escrow Agent accepts the appointment and shall be bound by the terms and conditions set forth in this Escrow Agreement. (Cl. Ex. 2, first and second bullet point on page 10).
Compensation of Escrow Agent and Escrow Agent.
• The non-refundable fee of the Escrow Agent (the "Escrow Fee") shall be fixed at One Percent (1%) of the Deposited Funds, payable in full to the Escrow Agent from and on receipt of the Deposit. The (1%) will not affect or change the discount given to Party Two from Party One as per Paragraph 16.2 of the Agreement, and, therefore, no additional funds need be sent by Party Two to the Escrow Agent. Should Seller fail to provide the Buyer with BTC, Buyer shall not be responsible for any payments to any Party. More specifically, an amount of USD equal to Buyer's payment into Escrow shall be returned by Party One to Buyer in the event of nonperformance from the Seller without any fee being removed therefrom by any Party. (Cl. Ex. 2, third and fourth bullet point on page 10).
• Termination of Escrow. This Escrow shall terminate upon the earliest to occur of:
1. Receipt by the Escrow Agent of written notice signed by either the Seller or Buyer expressly terminating such Escrow because the transaction could not be consummated and the Deposit funds need to be returned without the disbursement of any fee to the Escrow Agent from the Buyer. Any payments or fees owed to the Escrow Agent will be paid by Parties other than the Buyer, and the Buyer shall not be required to pay any such payments or fees. (Cl. Ex. 2, second bullet point on page 11).
• The Escrow Agent's Liability. In performing any of its duties hereunder, the Escrow Agent shall not incur any liability for any damages, losses or expenses whatsoever, except for its gross negligence or willful misconduct, and shall not incur any such liability with respect to any action taken or omitted in reasonable reliance upon any instrument, including without limitation any written notice, acknowledgment or instruction expressly provided for in this Escrow Agreement, not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein, which the Escrow Agent shall reasonably believe to be genuine, to have been signed or presented by a proper person or persons, and to conform with the provisions of this Escrow Agreement. (Cl. Ex. 2, bottom paragraph on page 11)
• The duties, responsibilities and obligations of the Escrow Agent hereunder shall be limited to those expressly set forth herein and no duties, responsibilities or obligations shall be inferred or implied. The Escrow Agent shall not be subject to, nor required to comply with, any other agreement between or among any or all of the parties hereto, including the Agreement, even though reference thereto may be made herein, or to comply with any direction or instruction (other than those contained herein or delivered in accordance with this Escrow Agreement) from any party hereto or any entity acting on its behalf. The Escrow Agent shall not be required to and shall not expend or risk any of his own funds or otherwise incur any financial liability in the performance of any of its duties hereunder. (Cl. Ex. 2, third bullet point on page 12).
• Underlying Disputes Concerning Escrow. Without limiting the generality of the foregoing, the Escrow Agent shall act, with respect to the Deposit received by the Escrow Agent, as a stakeholder only and shall not be liable for payment of any interest or any court cost in any action that may be brought to recover the Deposit held. (Cl. Ex. 2, second bullet point on page 13).
• Indemnity of the Escrow Agent. The parties herein agree to hold the Escrow Agent fully harmless and agree to indemnify the Escrow Agent from and against any loss, liability, expense (including but not limited to reasonable attorney's fees and expenses), claims, or demands arising out of or in connection with the transactions contemplated hereby, except for the Escrow Agent's and/or the Escrow Agent's gross negligence or willful misconduct. The foregoing indemnity shall survive the resignation or removal of the Escrow Agent pursuant hereto and the termination of the Agreement and this Escrow Agreement. (Cl. Ex. 2, fourth bullet point on page 13.
Dmitri enabled Tracy and me to speak with the transfer storage representative he named to discuss what might be done to enable the delivery of BTC from Dmitri's wallet to Brandon's wallet, notwithstanding the lack of available additional funds.
After some discussion, the gentleman said that he would use his best efforts to secure the delivery of BTC from Dmitri's wallet to Brandon's wallet within some 16-18 hours if funds currently held in escrow were wired today. Dmitri has instructed me to do so and I am writing to all persons concerned in the transaction to ensure, in advance, that all are alerted and that there is no objection from anyone to my doing so, even though this procedure and any instructions or other communication from anyone other than Dmitri is not required by the arrangements in place and because nobody has brought forward additional funds.
This email serves as notice that Benthos Master Fund, Ltd., represented by its CEO, Gerald Fong, is seeking funds in the amount of $5,000,000 USD, either in the form of Bitcoin or in the form of USD, from either Valkyrie Group, LLC, represented by its President, Brandon Austin, or Valhalla Venture Group, LLC, represented by its CEO, Hugh Austin, pursuant to the terms of the agreement signed by all three parties on August 4, 2018 with transaction code CDKTEBPA080218SUB.
Aaron Etra, the escrow attorney for the transaction, removed Benthos's funds from escrow on August 7, 2018, which means that 15 business days have now passed without delivery of Bitcoin to Benthos.
Gerald, after the discussion we had with Tracy, I received the communication from your lawyer and one from the new buyer...
I have asked Valkyrie for instructions regarding the request in the communication from you and your lawyer to send back the remaining escrowed funds, as, pursuant to your agreement with Valkyrie, instructions regarding such funds needs to come from Valkyrie."
4. Further directing respondent Aaron Etra to, within 48 hours:
a. Provide copies of all communications between and among any of himself, Valkyrie Group LLC, Valhalla Venture Group LLC, Brandon Austin, Hugh Austin, Tracy Evans, "Dmitri," and Ming Hoang Le, or any of their affiliates, representatives and/or agents, concerning the Bitcoin Agreement, the Escrow Agreement, and/or the funds deposited by Benthos into Etra's IOLA account.
"The primary amount owed by Etra to Benthos is the $4.6 million he improperly transferred out of escrow. Benthos is entitled to interest, at the New York State statutory rate of 9%, from October 12, 2018, when Benthos formally terminated the Escrow Agreement and demanded its money back in accordance with the contractual requirements.
[T]he fees incurred in pursuing and obtaining the information upon which this arbitration is built are compensable as damages proximately incurred by reason of that independent breach.... Benthos calculates those legal fees (omitting any claim for reimbursement of prior counsel’s legal fees), through December 4, 2018 - the date that Etra (belatedly) provided the last of the documents Judge Batts deemed sufficient to avert contempt of court - as $110,583.50.
Benthos is also entitled to interest on the $400,000 improperly withheld by Etra between October 12, 2018 and November 16, 2018 when he paid that over under "direct order" of Judge Batts.
Benthos is entitled to recover its costs of the arbitration, including reasonable legal fees. The administrative costs of the arbitration, including the arbitrator’s fees and the fees paid to the PCA and ICC, should be allocated, in the arbitrator’s discretion 100% to Etra given his breaches of contract and demonstrated lack of good faith.
Let me restate once again, as I have done since the start of attempts of Messers. Popofsky and Bromberg to initiate an arbitration proceeding against me with respect to a transaction involving their client Benthos Master Fund, Ltd. ("Benthos"):
1. I am not a party to the transaction;
2. No party to the transaction other than Benthos has been brought into the arbitration proceeding;
3. I have not consented to participate in the arbitration proceeding;
4. Consequentially, there is no jurisdiction for the arbitration proceeding;
5. Continuing any such arbitration proceeding is an abuse of due process and the rule of law;
6. Attempting to ensnare me in such a proceeding is only another and the latest attempt by Messers. Popofsky and Bromberg to harass and injure me financially, and not to resolve a dispute between their client and the parties to the transaction.
In addition, asking for a financial contribution to the expenses of such arbitration, calling for the payment of fees to an arbitrator, requiring anyone to incur legal fees and expenses on engaging counsel, calling for anyone to appear at a hearing and incurring any expense in connection with doing so, is a miscarriage of justice. For an attorney to propose such an arbitration or to participate as an arbitrator in such a proceeding, is clearly contrary to all precepts of professionalism and legal ethics.
1) Respondent is ordered to pay to the Claimant within 30 days of the date of the Final Award, damages in the amount of $4,710,583.50 plus $274,235.84 in accrued pre-award interest on the $4.6 million calculated at 4% simple interest per annum since October 12, 2018, i.e. a total of $4,984,819.34.
2) Respondent is further ordered to pay Claimant within 30 days of the date of this Final Award Claimant’s costs of arbitration incurred in the amount of $269,741.78.
3) Should Respondent fail to comply with the above orders set forth in points 1) and 2), starting on May 1, 2020, Respondent is ordered to pay Claimant additional post-award interest on the amount of $5,254,561.12 at 4% simple interest per annum.
4) All other claims are hereby denied.