24.10.2020

ICE Spent ‘Nearly $300M’ Helping Bakkt Acquire Loyalty Firm Bridge2

Bakkt announced it would acquire Bridge2 in February, while simultaneously raising a $300 million Series B funding round. The round closed last month, as did the acquisition. The terms of the deal were outlined in ICE’s quarterly filing with the U.S. Securities and Exchange Commission, also released Thursday.

Intercontinental Exchange, the parent company to Bakkt, spent close to $300 million helping the bitcoin warehouse acquire loyalty rewards provider Bridge2 Solutions, CEO Jeffrey Sprecher said Thursday.

The revelation came during a discussion of the financial strength of ICE, the parent company to several major trading venues, include the New York Stock Exchange.

Sprecher said during ICE’s Q1 earnings call the company had “opportunistically repurchased shares,” spending $300 million at $92 per share during the quarter while maintaining the company’s leverage, measured as the ratio of debt to earnings before interest, taxes, depreciation and amortization (EBIDTA).

“We also spent nearly $300 million helping Bakkt to acquire Bridge2 solutions,” Sprecher said. “Yet, our leverage was still at 2.3 times which is a complete testament to the strength of the cash flows of this business.”

It’s unclear whether the $300 million represents the total sum of the acquisition or how much came from Bakkt’s Series B funders, which include Microsoft’s M12, PayU, Boston Consulting Group, Goldfinch Partners, CMT Digital and Pantera Capital. The company did say in its February press release that some of the funds from the round would go toward the acquisition.

Aside from two references to Bridge2, Bakkt was not mentioned during the earnings call. No analysts asked any direct questions about the subsidiary, which has been facilitating trading of bitcoin futures and options contracts over the past several months.

Nor were there any questions about Mike Blandina, who stepped down as Bakkt’s CEO last week just four months after taking the reins. Blandina was succeeded on an interim basis by ICE’s vice president for M&A and integration, David Clifton. There has so far been no word a permanent replacement CEO.

The lack of questions comes in stark contrast to ICE’s last earnings call in February, when a number of analysts asked about ICE’s role with Bakkt. That call came right after ICE announced it was acquiring Bridge2, and Sprecher said at the time the move could open a potential $1 trillion market.

Bakkt is working on its consumer-focused app. The company has rolled out an integration with Starbucks, allowing some of the coffee chain’s app users to pay for caffeine using “Bakkt Cash.”

ICE’s New Intel Program Used in Every Homeland Security Crypto Investigation

Immigration and Customs Enforcement’s (ICE) recently disclosed “Cryptocurrency Intelligence Program” (CIP) is deployed in every crypto-facing Homeland Security Investigations (HSI) case, says the agent whose unit built the tool.

In an email statement, Al Giangregorio – unit chief at the HSI’s National Bulk Cash Smuggling Center (BCSC) – shed a little light on the mysterious intel program first mentioned in ICE’s recent FY 2021 budget proposal. Without explaining exactly what CIP is or how it works, he said it helps HSI agents whenever cryptocurrency is involved.

“The CIP supports any HSI investigation involving virtual currency or blockchain technology,” Giangregorio said. “The program has assisted diverse investigations, including those involving methamphetamine and MDMA dealers, human trafficking, elder fraud, darknet market drug vendors, child sexual exploitation sites and, of course, trafficking in opioids.”

CIP was established by the BSCS, a Vermont-based outpost of the sprawling homeland security apparatus that slowly rose in the wake of the Sept. 11, 2001, terrorist attacks. The 2001 PATRIOT act criminalized international cash smuggling; the financial crimes-focused BCSC helps ICE’s HSI agents track violators down.

Cryptocurrency was not an legitimate threat when BCSC incorporated in 2009. In the years since, though, crypto has grown into a more prominent criminal vehicle, prompting many federal law enforcement agencies to invest hundreds of thousands, even millions, of dollars into private-sector investigatory tools.

“Over time, the BCSC has recognized that transnational criminal organizations have evolved and diversified the way they transfer illicit proceeds,” he said.

The increasing shift to digital money also prompted HSI’s anti-cash smuggling experts to build the government the in-house program, according to Giangregorio.

“The BCSC established the CIP to adapt to changing methodologies and technology to target money laundering related to all types of criminal activity,” he added.

Taken in the context of ICE’s FY 2021 budget proposal, Giangregorio’s explanation gives something of a backstory to the otherwise unknown CIP.

The budget proposal described CIP as an unlicensed money services business identifier that crawls across illicit crypto-broker hotspots – peer-to-peer sites, darknet markets, classifieds – to gather intelligence.

It is not known publicly how much CIP cost to establish or run. However, a previous CoinDesk investigation found ICE was one of the largest spenders on blockchain forensic services in the federal government. According to public documents, the agency spent some $2.6 million on contracts with Chainalysis between 2017 and 2019.

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