New York Attorney General Requests Bitfinex To Release Documents Of Tether Deal

News | May 6, 2019 By:

Letitia James, Attorney General of the state of New York, has filed a memorandum of law requesting production of documents concerning an alleged deal made between crypto exchange Bitfinex and Tether.

Last month, the New York Attorney General accused Hong Kong-based iFinex Inc., which operates Bitfinex and owns Tether, of co-mingling funds from Tether with exchange monies to disguise $850 million in missing funds. James alleged that because Bitfinex was unable to access the missing funds, it arranged for a loan from Tether, which has long faced regulatory scrutiny for allegedly not having enough reserves to back its stated circulation.

In its response, Bitfinex said the funds haven’t gone missing at all. The exchange claimed that the money was deposited with a Panamanian-company called Crypto Capital and then, through no fault of Bitfinex’s, seized by government authorities in the US, Poland, and Portugal.

The NYAG’s memorandum of law, which was filed on May 3, calls for more transparency and claims that Bitfinex has indeed broken the law in regards to the Martin Act, a New York anti-fraud law widely considered to be the most severe blue sky law in the country.

“In order to fill the gap, executives at Bitfinex, who also own and operate Tether, took hundreds of millions of dollars from Tether’s cash reserves, and used the cash to prop up the Bitfinex trading platform,” the document said. “First, in November 2018, Bitfinex executives transferred $625 million out of Tether’s legitimate bank account, and put it into Bitfinex’s legitimate bank account. In return, Bitfinex “credited” $625 million to Tether’s accounts with Crypto Capital. That “credit” was illusory, though, since Bitfinex knew at the time that Crypto Capital was refusing or unable to process withdrawals or return funds. In effect, in November 2018, Respondents fraudulently shifted most or all of Bitfinex’s risk of loss of several hundred million dollars onto Tether’s balance sheet, but continued to represent to the market that tethers were fully “backed” by U.S. dollars sitting safely in a bank account. They were not.”

According to the document, respondents fraudulently misstated or omitted material information to traders on the Bitfinex platform, holders of Tether, and the wider virtual currency market by failing to disclose to clients that they had lost approximately $850 million of co-mingled client and corporate funds to Crypto Capital in mid-to-late 2018.

The NYAG’s memorandum of law has ordered Bitfinex to provide documental proof of its financial transactions with Tether, details of loans, its dealings with Crypto Capital partner and the the missing funds.

“The OAG’s investigation focused on, among other things, the manner and timing of issuances of tether, the nature of the relationship between Bitfinex and Tether, Respondents’ representations to investors regarding the cash reserves backing Tethers, the facts and circumstances of Bitfinex’s undisclosed transfer of Tether’s cash reserves in 2018, Bitfinex’s ability to process client withdrawal requests (amid its self-admitted liquidity problems), and the manner in which Respondents’ senior executives are compensated,” the document said.