The New York Attorney General’s office has alleged that crypto exchange Bitfinex lost $850 million and subsequently used funds from affiliated stablecoin operator Tether to secretly cover the shortfall.
According to a press release issued Thursday, NYAG Letitia James announced 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.
James said that an investigation by her department determined that iFinex “engaged in a cover-up to hide the apparent loss of $850 million of co-mingled client and corporate funds,” adding:
“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.”
According to the statement, Bitfinex sent $850 million of customer and corporate funds to Crypto Capital Corp., a payment processor that is said to be holding funds from other exchanges as well, such as QuadrigaCX. Funds from Tether’s reserve were used to make up the shortfall, but neither the loss nor Tether’s fund movements were disclosed to customers.
So far, $700 million is alleged to have been transferred.
According to a filing attributed to assistant Attorney General Brian Whitehurts, the probe began sometime in 2018 and appeared to have been driven because, despite claims to the contrary, “OAG has reason to believe that Bitfinex still allows New York-based individual investors to deposit, trade, and withdraw virtual currencies. and engage in other transactions. on the Bitfinex trading platform.”
Under the court order, iFinex directors, officers, principals, agents, employees, contractors, assignees or any other affiliated individuals are to cease accessing, loaning or making any other claim to the dollar reserves held by Tether.
Similarly, iFinex-affiliated individuals are ordered to not tamper with any documentation, including records, which outline these actions.
The action comes months after the AG’s office published the results of its crypto exchange inquiry, focusing on a group that included Bitfinex.
The focus on Tether reserves is a notable one, given the long scrutiny directed toward the firm and its USDT stablecoin. Critics alleged that the token, with its more than $2 billion market cap, was not actually backed by sufficient funds as claimed by its operators. The failure to obtain a proper audit as previously pledged further inflamed those suspicions, and in March, Tether revealed that the reserves backing USDT may not be entirely composed of fiat currency.
NY Attorney General Letitia James image via Shutterstock
The full court NY AG court order can be found below:
2019.04.24_signed_order by CoinDesk on Scribd