Recent revelations from the New York Attorney General’s office that allege the Bitfinex Exchange lost $850 million and tried to cover it up using funds from affiliated stablecoin operator Tether to cover up the loss has rocked the crypto industry, driving the market downwards from its recent upward run.
Virtual currencies tracked by CoinMarketCap.com lost $10 billion of value within an hour of the attorney general’s statement and Tether slid 1.4 percent last week.
According to a press release issued last week New York Attorney General Letitia James stated that she had obtained a court order against iFinex Inc., which operates both Bitfinex and Tether, ordering them to cease violating New York law and defrauding New York residents.
“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of the co-mingled client and corporate funds,” said Attorney General James. “New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”
The court order requires that the operators of the companies immediately cease further dissipation of the U.S. dollar assets which back “tether” tokens while the Office’s investigation continues, and produce documents and information, including material called for by the Office’s previously-issued investigative subpoenas. The companies are also barred from destroying, deleting, or permitting others to delete, potentially relevant documents and communications, including documents and communications stored on any self-deleting or “ephemeral” computer applications.
In a rebuttal to the court order, Bitfinex retorted by stating the Attorney General’s office released an order it obtained – without notice or a hearing – in an attempt to compel Bitfinex and Tether to provide certain documents and seeking certain injunctive relief.
The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded. We are and have been actively working to exercise our rights and remedies and get those funds released. Sadly, the New York Attorney General’s office seems to be intent on undermining those efforts to the detriment of our customers.
Bitfinex and Tether have been fully cooperative with the New York Attorney General’s office, as both companies are with all regulators. The New York Attorney General’s office should focus its efforts on trying to aid and support our recovery efforts.
Both Bitfinex and Tether are financially strong – full stop. And both Bitfinex and Tether are committed to fighting this gross overreach by the New York Attorney General’s office against companies that are good corporate citizens and strong supporters of law enforcement. Bitfinex and Tether will vigorously challenge this, and any and all other actions, by the New York Attorney General’s office.
However, Attorney General Letitia James notes that the filings explain how Bitfinex no longer has access to over $850 million dollars of the co-mingled client and corporate funds that it handed over, without any written contract or assurance, to a Panamanian entity called “Crypto Capital Corp.,” a loss Bitfinex never disclosed to investors. In order to fill the gap, executives of Bitfinex and Tether engaged in a series of conflicted corporate transactions whereby Bitfinex gave itself access to up to $900 million of Tether’s cash reserves, which Tether for years repeatedly told investors fully backed the tether virtual currency “1-to-1.”
According to the filings, Bitfinex has already taken at least $700 million from Tether’s reserves. Those transactions – which also have not been disclosed to investors – treat Tether’s cash reserves as Bitfinex’s corporate slush fund, and are being used to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals. The Office’s filings further detail how the companies obfuscated the extent and timing of these corporate transactions during the Office’s investigation.
Amy Castor has the most complete timeline and history of Tether here.
- Huobi Charity Joins Rally with Blockchain Community in Global Fight Against COVID-19 - April 2, 2020
- Binance Officially Absorbs CoinMarketCap in $400 million deal - April 2, 2020
- RealT Tokenises and Sells USD One Million in Real Estate On Ethereum - March 30, 2020
- IOTA Teams Up with Eclipse Foundation to Work on Decentralised Marketplace and Identity Solutions to Help Fight Pandemic - March 30, 2020
- University of Malta Students Develop and Use Blockchain Voting Application - March 30, 2020
- Japan’s Nomura Securities and BOOSTRY Issue First Blockchain Digital Bond Offering - March 30, 2020
- Opera Rolls out Update and Expansion of its Cryptocurrency-Friendly Browser Blockchain Architecture - March 30, 2020
- Hong Kong Bank Partners with Aegis to Focus On Asset Digitalization Using Blockchain Technology - March 30, 2020
- European Union Looking to Blockchain Technology for Defense? - March 30, 2020
- Tech against Corona (COVID-19) – Dutch Enterprise Blockchain Company TYMLEZ Helps Dutch Government - March 29, 2020
- Microsoft Patents Human Activity Mining for Cryptocurrency Systems – Data Generated Based on Body Activity can be Proof-of-Work - March 27, 2020
- Binance Kicks Off $5 Million Coronavirus Relief Campaign and Donates USD $1 Million - March 27, 2020
- Medici Ventures Keiretsu Companies GrainChain and Symbiont Working Together to Expand Global Operations - March 27, 2020
- Blockchain-Fueled Entertainment Platform Ficto Launches Premium Interactive Streaming Network - March 27, 2020
- SettleMint – Belgian blockchain startup raises USD $2.09 Million for Expansion - March 27, 2020
- Exclusive Interview: Bitcoin and Cryptocurrency Leader Michael Terpin Sees Light in The Covid-19 Tunnel - March 26, 2020
- Blockchain Real Estate Project Smartlands Raising Funds on Equity Crowdfunding Platform Seedrs - March 26, 2020
- Cryptocurrency Exchange OKEx Greenlights DEA Trade Token Deapcoin For Its Jobtribe and PlayMining Games - March 26, 2020
- Microasset – The International Blockchain Monetary Reserve Announces $3.48 M In Reserve Funding, New Listing on BiKi Exchange - March 25, 2020
- Social Login – KyberSwap Integrates Torus to Offer Quick and Easy Ethereum Wallet Management - March 25, 2020
Also published on Medium.