New York’s Attorney General (AG) Letitia James has filed an order to the state Supreme Court, saying that major cryptocurrency exchange Bitfinex and stablecoin Tether engaged in a cover-up after losing about USD 850 million of client and corporate funds. (Updated on 03:46 UTC: a new section (Bitfinex claims it will fight back) has been added, a new paragraph at the end of the first section has been added, first paragraph changed.)
James’ court order specifically names both Bitfinex and Tether, as well as the exchange’s operator, the Hong Kong-based iFinex.
The AG’s office claims that Bitfinex “gave itself access to up to USD 900 million of Tether’s cash reserves,” and “no longer has access to over USD 850 million dollars of co-mingled client and corporate funds that it handed over, without any written contract or assurance” to Crypto Capital, a company based in Panama.
Per an official AG release, James stated, “Our investigation has determined that [Bitfinex has] engaged in a cover-up to hide the apparent loss of USD 850 million dollars of co-mingled client and corporate funds.”
Tether’s operators have claimed the token is backed by cash reserves, and originally pegged it 1:1 with the USD. Until recently, Tether operators stated that each token was backed by USD 1, but earlier this year changed this to include loans made to affiliated companies.
The AG has been looking into a number of leading exchanges with offices in New York since April last year – examining issues as diverse as trading volume figures, security protocols and insider trading.
James and her team have alleged the operator has “treated Tether’s cash reserves as Bitfinex’s corporate slush fund,” and is “hiding” Bitfinex’s “massive, undisclosed losses and inability to handle customer withdrawals.”
However, the AG’s office does not want to prevent legitimate trading on Bitfinex and asks the court to grant a preliminary injunction to “preserve the status quo” pending completion of the investigation, and "avoid continuing and future harm to New York investors."
Bitfinex claims it will fight back
Meanwhile, Bitfinex responded by saying that the New York Attorney General’s court filings were written in "bad faith and are riddled with false assertions, including as to a purported USD 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," the exchange said, adding that "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," it said.
As reported in September 2018, then-New York’s attorney general Barbara D. Underwood blasted cryptocurrency exchanges, such as Binance, Kraken and Gate.io, saying that exchanges lack procedures to ensure “the fairness, integrity, and security” of the platforms.
Meanwhile, Cryptocurrency prices have also been falling rapidly on many exchanges, leading some Twitter users to speculate that some traders may have become aware of the news hours before it broke.
Bitcoin price chart:
Source: Coinpaprika.com, 04:33 UTC
Now that fat finger drop makes sense…
— UZI (@LilUziVertcoin) April 25, 2019
Others claimed that the price “dip” may well prove to be a blessing in disguise.
We’re at a point now where neither Bitfinex nor Tether are integral to Crypto. I’m buying this dip!
— Ran NeuNer (@cryptomanran) April 25, 2019
Last year, Cryptonews.com reported that customers encountered issues withdrawing fiat from Bitfinex, during which time Reddit users claimed that the exchange was using Crypto Capital to conduct its fiat withdrawal operations.