The New York Attorney General has accused Bitfinex of collusion with stablecoin operator Tether to cover up a loss of $850 million.
This week, AG Letitia James announced that her office had obtained a court order halting Bitfinex and Tether from further violations of New York law, regarding ongoing activities that are believed to have defrauded cryptocurrency investors.
“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 commingled 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.”
Bitfinex is a cryptocurrency exchange that is owned and operated by iFinex Inc. Registered in the British Virgin Islands and with headquarters in Hong Kong, and is listed by CoinMarketCap as having market cap of over $1.7 billion at the time of writing.
Tether is a cryptocurrency that is apparently pegged to the US dollar. Tether and Bitfinex are closely linked, sharing some of the same management and shareholders.
According to documents filed in the Manhattan Supreme Court, the exchange platform had given $850 million dollars of client and corporate funds to a company in Panama called “Crypto Capital Corp”. The papers allege that there was no evidence of written contracts or assurances.
The AG also claims that Bitfinex did not disclose this loss to investors and stakeholders, but instead engaged in a number of conflicted transactions with Tether. Apparently, Tether gave Bitfinex around $900 million of its own cash reserves to cover up the loss and plug the gap.
James PR stated: “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,”
Bitfinex responded to the news by stating that the court documents were in “bad faith and are riddled with false assertions”, adding that the money was not lost but was rather being “safeguarded”.
“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,” a Bitfinex spokesperson explained.