The New York Attorney General’s office alleged in a press release issued Thursday that cryptocurrency exchange Bitfinex lost $850 million. Not only did they lose a huge amount of money, it subsequently used funds from affiliated stablecoin operator Tether to discreetly cover the loss.

NYAG Letitia James stated in the press release that she obtained a court order against iFinex Inc., operator of both Bitfinex and Tether, for violating New York law and defrauding New York residents.

According to James, her department determined from their investigation that iFinex had “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.”

Bitfinex sent $850 million of customer and corporate funds to Crypto Capital Corp., per the statement.  Funds from Tether’s reserve were used to cover the shortfall, though neither the loss nor Tether’s fund movements were disclosed to customers.

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

Come October 2018, Bitfinex issued a statement, in which it stated that withdrawal was moving “without the slightest interference” but that “processing complications” led to the suspension of fiat deposits.

However, according to the AG’s office, that statement was false. “Documents provided to OAG by Respondents show that during this time, Bitfinex was having severe problems processing client withdrawals,” the affirmation stated.

CoinDesk reports that representatives for Bitfinex and Tether explained to the AG’s office that a Bitfinex official was told that the reason the $851 million couldn’t be accessed was because Portuguese, Polish and American government officials had “seized” the funds.

Bitfinex, according to the document, didn’t believe this explanation. “Based on statements made by counsel for Respondents to AG attorneys… Respondents do not believe Crypto Capital’s representations that the funds have been seized,” the affirmation states.

Bitfinex issued the following statement Late Thursday:

“Earlier today, the New York Attorney General’s office released an order it obtained – without notice or a hearing – in an attempt to compel Bitfinex and Tether to provide certain documents and seeking certain injunctive relief.

The New York Attorney General’s court filings 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 our rights 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.

Bitfinex and Tether have been fully cooperative with the New York Attorney General’s office, as both companies are with all regulators. The New York Attorney General’s office should focus its efforts on trying to aid and support our recovery efforts.

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. Bitfinex and Tether will vigorously challenge this, and any and all other actions, by the New York Attorney General’s office.”

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