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The New York attorney general's office claimed that the Bitfinex cryptography center had lost $ 850 million and then used the funds of the affiliated telefax operator, Tether, to secretly cover the shortfall.
According to a press release on Thursday, NYAG Letitia James announced that she had obtained a court order against iFinex Inc., which operates both Bitfinex and Tether, ordering them to stop violating the New York law and to defraud his residents.
James said that an investigation by his department had revealed that "iFinex" had been engaged in a camouflage operation to conceal the apparent loss of $ 850 million in client and corporate funds. co-mixed enterprises ", adding:
"New York State has led the way by requiring virtual money businesses to operate in accordance with the law. And we will continue to defend investors and seek justice on their behalf when they are misled or deceived by any of these companies. "
According to the statement, Bitfinex has sent $ 850 million of client and corporate funds to Crypto Capital Corp., a payment processor purporting to hold funds from other exchanges, such as QuadrigaCX. The Tether Reserve funds were used to make up the shortfall, but neither the loss nor the cash flow of Tether was disclosed to the clients.
Up to now, 700 million dollars would have been transferred.
According to a file attributed to Deputy Attorney General Brian Whitehurst, the investigation would have started in 2018 and appears to have been motivated by the fact that, despite claims to the contrary, "the OAG has reason to believe that Bitfinex still allows individual investors based in New York to deposit, exchange and withdraw virtual currencies. and engage in other transactions. on the Bitfinex trading platform. "
Under the court order, directors, officers, agents, agents, employees, contractors, assignees or any other related person must cease to access Tether dollars resources, to lend them or to assert their rights.
Similarly, people affiliated with iFinex should not tamper with any documents, including records, describing these actions.
The record indicates in particular that the AG's office does not seek to prevent legitimate transactions on Bitfinex or Tether redemptions; on the contrary, the office is asking the court to grant a preliminary injunction to "preserve the status quo" pending the completion of the investigation.
This action comes a few months after the GA's office released the results of its investigation on encryption exchange, focusing on a group including Bitfinex.
The attention to Tether reserves is remarkable, given the lengthy review of the company and its stable US dollar. Critics have claimed that the chip, with its market capitalization of more than $ 2 billion, was actually not supported by sufficient funds as its operators claim. The inability to obtain an appropriate audit, as previously promised, further exacerbated these suspicions and, in March, Tether revealed that the reserves on which the USDT is based may not be entirely composed of Fiat money.
AG document describes months of turbulence
According to a statement attributed to New York Attorney General Brian Whitehurst, discussions between the Attorney General's Office and representatives of Bitfinex and Tether go back to November. The document states that the law firms Morgan, Lewis & Bockius LLP of New York and Steptoe & Johnson LLP of Washington, D.C. jointly represented the two companies.
The statement describes in detail the growing banking problems of Bitfinex and its efforts to maintain the services, including a now close relationship with the Puerto Rico-based company called Noble Bank, which ended in October 2019. Bitfinex and Tether & # 39; s ended their relationship with Noble due to inability to process a large volume of wire transfers as well as low interest rates, corporate lawyers told the Attorney General's office.
Tether later established a banking relationship with Deltec in the Bahamas, as CoinDesk announced in November.
According to the Attorney General's Office, the impossibility of accessing the $ 850 million of customer / business funds charged to the Crypto Capital payment processor would have affected Bitfinex's ability to process withdrawal requests. CoinDesk has already detailed these issues, with some customers complaining of long response times and delays in receiving their money.
"The documents provided to the OAG testify to this in mid-2018. Bifinex was having a hard time honoring its customers' requests to withdraw their money from the trading platform because Crypto Capital, which owned all or almost all of Bitfinex's funds, refused to process customer withdrawal requests and refused or could not return any Bitfinex, "says the statement.
In mid-October 2018, Bitfinex issued a statement stating that withdrawals were moving "without the slightest interference", but that "treatment complications" had resulted in the suspension of fiat filings. This is despite the fact that some customers were still complaining about the slow withdrawals.
According to the Office of the Attorney General, this claim was false. "The documents provided to the BVG by the respondents show that, during this period, Bitfinex was experiencing serious problems in processing withdrawals from customers," says the statement.
Funds held by Crypto Capital, say representatives
Representatives of Bitfinex and Tether told the Attorney General's office that a Bitfinex official had been informed that US $ 851 million was not accessible, that is, that Portuguese, Polish and US government officials had "seized " funds.
But Bitfinex, according to the document, did not believe this explanation.
"On the basis of the statements made by the defendants' lawyers to the lawyers of AG[LesdéfendeursnecroientpaslesaffirmationsdeCryptoCapitalselonlesquelleslesfondsontétésaisis"indiquel'affirmation[LesdéfendeursnecroientpaslesaffirmationsdeCryptoCapitalselonlesquelleslesfondsontétésaisis”indiquel'affirmation
As noted in the Auditor General's press release, the inability to access these funds has been preserved from customers, and today's news is the first time the loss has been publicly disclosed.
It is during this situation that Bitfinex and Tether began to discuss a way for Bitfinex to tap into funds held in reserve to support the USDT token.
"At a meeting in person held on February 21, 2019. the lawyer for Bittinex and Tether explained that, to offset the apparent loss of $ 851 million from Crypto Capital, Bitfinex and Tether were considering a deal. Bitfinex to tap into Tether's cash reserves as needed, "says the document, explaining:
"As described by the council. Bitfinex would take a "credit line" of $ 600 to $ 700 million on tied-back reserve funds. The lawyer did not suggest anything, if any. Tether or belt holders would benefit from this transaction. The lawyer also did not suggest that this transaction would be disclosed to the public. including investors trading on the Bitfinex platform or bondholders.
According to Whitehurst, questioned about a possible conflict of interest given the close ties between the companies (the two companies share managers and owners), the lawyer described the impending transaction as an unrelated transaction. dependency, without providing any justification as to how this might be the case.
According to the document, this information was a source of concern within the Attorney General's Office.
"The revelations made by the lawyer at the meeting on February 21 raised serious questions about the viability of Bitfinex, the possibility that Tether's cash reserves would be dissipated and irrecoverable, and if Bitfinex and Tether induced in mistake their clients (including both Bitfinex clients). belt holders) with respect to the issues described above, "said Whitehurst.
In the coming weeks, the Office of the Prosecutor will continue to seek information from Bitfinex and Tether, including data on Tether's emissions and documents supporting their claims for the $ 850 million loss.
"On March 4, 2019, Bitfinex and Tether's lawyers responded to the BVG's letter by sending an e-mail:" It is not possible to obtain this information by March 1 ". has not provided an alternative production date for OAG ", states the statement.
On March 29, after further discussions, the representatives revealed in a letter to the AG that the credit line had been closed and that "in November 2018, Tether had transferred $ 625 million held in his Deltec account. to Bitfinex's account at Deltec. Bitfinex, in turn, caused a total [of] An amount of $ 625 million will be transferred from Crypto Capital's Bitfinex account to Tether · s account at Crypto Capital, via a Crypto Capital ledger recording, crediting Tether · s' s account to $ 625 million. dollars and debiting the account of Bitfinex · s. The purpose of this exchange was to allow Bitfinex to resolve liquidity issues unrelated to the links. "
Subsequently, an agreement was reached to create a credit line of $ 900 million, with a term of three years and a 6.5% interest rate.
"As part of this transaction, the line of credit is secured by an issue charge of more than 60,000,000 iFinex Inc. shares held by DigFinex. that DigFinex agreed not to encumber otherwise. This transaction was closed on or about March 19, 19. The total amount assessed under the loan facility as of today is $ 700 million, "states the letter of the representatives, in which it concludes:
On March 27, 2013, Bitfinex and Tether launched a $ 625 million transaction previously credited to Tether's account at Crypto Capital. and transfer these funds to Bitfinex's account at Crypto Capital. This transaction was made because the previous exchange or the assets had been converted into a credit line secured by DigFinex shares. "
According to the statement, this line of credit – in addition to the $ 850 loss – has not been disclosed to investors.
"The respondents provided little relevant information about the facts and circumstances of the $ 625 million transfer and the subsequent" credit line "transaction," the report said.
Image of New York Attorney General Letitia James via Shutterstock
The order of the full court of NY AG is below:
2019.04.24_signed_order by CoinDesk on Scribd
Attorney General Brian Whitehurst's statement is presented below:
450545 2019 in the case of v in the case of CoinDesk PETITION 1 on Scribd
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