Bitfinex and Tether Caught In Possible Cover-Up, BTC Holds.

Bitcoin exchange Bitfinex and Tether were ordered to cease all operations by New York Attorney General. Bitfinex allegedly mismanaged over $900 million.


ew York Attorney General Letitia James officially obtains a court order to request iFinex Inc, the operator of bitcoin exchange Bitfinex and Tether, to cease all operations in the state of New York.

The order comes after the Attorney General’s office found that Bitfinex allegedly handed over $850 million in co-mingled client and corporate fund to Crypto Capital Corp, a company based in Panama.

It is said the funds from the Panamanian firm were never received by Bitfinex and resulted in a loss shy of $1 billion dollars.

The Attorney General’s office also alleged Bitfinex gave itself access to Tether’s treasury and mismanaged $900 million of the stablecoin’s cash reserves to cover-up the $850 million-dollar loss.

“Our investigation has determined that the operators of Bitfinex trading platform, who also control Tether virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds,”

Said New York Attorney General James.

Image by Ronile from Pixabay
“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 probe began in 2018, according to a filing from assistant Attorney General Brian Whitehurst and was 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.”

Worth noting, Bitfinex’s services technically are not entirely available in New York State. Unlike strictly regulated stablecoins such as Circle’s USDC, Tether does not issue public audits.

This leads to investors being unaware of what the potential receivables could be and the dealings of Tether. Tether would have had to disclose the alleged $900 million dollars of transactions in a public audit.

The reason Attorney General James is calling this a cover-up, is the fact that Bitfinex did not disclose the loss of $850 million to its investors when the money was sent to Crypto Capital Corp but was not received back and the decision to use Tether to balance the books.

Under the court order, the directors, officers, principals, agents, employees, contractors, assignees, or any affiliated individuals of iFinex are to cease accessing, loaning or making any future claim to the dollar reserves held by Tether.

IFinex-affiliated persons are additionally ordered to not tamper with any documentation, including, records, which outline these actions. Tether has long had scrutiny directed at itself and its stablecoin, USDT.

It is alleged that the token, with its more than $2 billion market cap, is not backed by the funds claimed by its operators. Tether also failed to obtain a proper audit as promised, which only increased suspicions.

Image by WorldSpectrum from Pixabay

In March of 2019, Tether updated its terms, suggesting that it was no longer backed by Fiat currency alone.

In February 2019, the terms on Tether’s site read, “Every Tether is always backed 1-to-1, by traditional currency held in our reserves. So, 1 USDT is always equivalent to 1 USD.”

However, in March 2019 the new terms read:

“Every Tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”)."

Tether and Bitfinex were reportedly subpoenaed by the U.S Commodity Futures Trading Commission in December 2017 although it was not stated why at the time.

Both companies were one of the subjects of a June 2018 study, researches at the University of Texas at Austin, published a study that suggests price manipulation of BTC using USDT. Documents provided to the Office of the Attorney General suggest months of financial troubles lead up to this point.

According to Coindesk, an affirmation from Whitehurst:

“Documents provided to OAG demonstrate that by mid-2018, Bitfinex was having extreme difficulty honoring its clients’ requests to withdraw money from the trading platform, because Crypto Capital, which held all or almost all of Bitfinex’s funds, refused to process customer withdrawal request and refused or was unable to return any funds to Bitfinex.”

While no conclusion could be drawn as to why the difficulty persisted, Bitfinex communications director Kasper Rasmussen told Coindesk in 2018:

“There is a multitude of factors which could contribute to a delayed fiat transaction (deposit or withdrawal), many of which outside the realm of our control. I can’t comment on the size of this backlog, but it represents a minority relative to the number of daily processed transactions at Bitfinex.”
Image by Pete Linforth from Pixabay

Recently, on March 29, 2019, Bitfinex and Tether initiated a $625 million-dollar transaction that was credited to Tether’s account. Additionally, Bitfinex arranged to create a $900 million-dollar line of credit (LOC). The sub billion-dollar LOC was also not disclosed to investors, according to the affirmation.

The case continues to develop as Bitfinex vehemently denies the allegations, in a statement on April 25, Bitfinex said:

“The New York Attorney General’s court filling 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 out right 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.”

Despite this alleged sub billion dollar cover-up and Tether’s $2-billion-dollar cryptocurrency, possibly being tied to funds much less than that, on April 28, days later: BTC is trading for $5,146 USD, and has not taken a predicted dive in value.

Brandon Stewart

I am a risk manager and journalist. I write about business, technology, health, and whatever new thing happens in the world of crypto.