NY AG: Bitfinex Used Tether Reserves to Hide $850 Million Loss

Fredrick Soto
April 29, 2019

Tether is a so-called "stablecoin" cryptocurrency tied to the USA dollar issued by Bitfinex that allows traders to enter and exit trades and conduct arbitrage quickly without having to cash out into local, real-world currencies.

On Thursday, the New York Attorney General's (NYAG) office published a press release, in which it was stated that Bitfinex and Tether were in violation of New York law through participation in activities that "may have defrauded" local cryptocurrency investors.

A court order issued by New York's legal chief requires the operators of Bitfinex and Tether Limited to cease further losses of its USA dollar reserves. "We will continue to stand-up for investors", explained James, "and seek justice on their behalf when misled or cheated by any of these companies." .

Crypto Capital has 'not' been named as a defendant in the Bitfinex case yet it seems that Crypto Capital actually has access to or had last access to the deposit worth $850 million. 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.

After the drama around Tether and Bitfinex, Greed and Crypto Fear indices now indicate strong fear among the crypto traders. The AG, therefore, wants the court to instruct Tether and Bitfinex to carry on trading in order not to harm their client's prospects. In order to fill the gap, executives of Bitfinex and Tether engaged in a series of conflicted corporate transactions whereby Bitfinex gave itself access to up to $900 million of Tether's cash reserves, which Tether for years repeatedly told investors fully backed the tether virtual currency "1-to-1". That position is contradicted by the attorney general's suit, which said Bitfinex attorneys "do not believe Crypto Capital's representations that the funds have been seized". The New York investigation could put a stop to the recent rally, according to Stephen Innes, head of trading at SPI Asset Management.

The filing accuses the executives of the exchange of violating ny law through their involvement in activities that may have defrauded crypto investors in the state.

The company also said the $850 million wasn't lost by Crypto Capital but had been "seized and safeguarded", and it was working to reclaim the funds.

According to reports, The New York Attorney General's office is looking into iFinex. Why?

The company added that both Bitfinex and Tether are "financially strong", and that it would challenge the order by NY. The Attorney General of New York City accused the Exchange of having lost the funds.

State officials focused on the "loan" made by Tether to Bitfinex to cover the Crypto Capital loss.

The problem is, there is a substantial divergence between the price of BTC/USD on most cryptocurrency exchanges and BitFinex.

The New York AG's office also alleges that, "Bitfinex has already taken at least $700 million from Tether's reserves".

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