Bitfinex Covered Losses with Tether Funds
According to an announcement that was published on April 25, the New York Attorney General’s Office has accused the cryptocurrency exchange Bitfinex of amassing $850 million in losses and then using funds from its affiliate stablecoin operator Tether to quietly cover up those losses.
Details of the Allegations
New York’s Attorney General Letitia James stated that her office had acquired a court filing in which it was alleged that iFinex Inc., the parent company of Bitfinex – Tether Ltd., as well as other affiliated entities had violated the state’s laws by carrying out activities that may have cheated cryptocurrency investors based out of New York.
James gave further details of the situation in her filing report. She stated that her office’s investigation had found out that the operators of Bitfinex, who also controlled the stablecoin Tether, had been hidden the loss $850 million of both corporate as well as individual clients’ funds.
The report further revealed that the neither the exchange nor Tether had revealed this loss to investors. It added that the executives of both companies had engaged in a series of dubious corporate transactions where Bitfinex was able access as much as $900 million of Tether’s funds, and then use them to hide its losses as well and the fact that it could not afford client withdrawals.
According to the James, Bitfinex had been unsuccessful at finding a bank that would work with it, and so entrusted over $1 billion of its clients’ – both corporate’s and individuals’ – to Crypto Capital Corp., a Panama-based firm. The reports stated that the crypto exchange was using that firm to wire funds to traders.
However, despite the massive amount of transactions going through Crypto Capital, Bitfinex never signed a contract with the company, and towards the latter half of 2018, the exchange and Tether’s executives began to suspect that the wire transfer company had either lost, stolen or run away with their money.
Due to this, Bitfinex and Tether lost close to $850 million, however, revealed none of this to their investors.
Actions Against Bitfinex and Tether
The court have issued orders to both Bitfinex as well as Tether to immediately stop the dissipation of US dollars backing the stablecoin and to submit documents and other information related to this investigation. The court also prohibited both companies from destroying any possible evidence related to this case.
Attorney General James is also looking for an injunction that will force both Bitfinex as well as Tether to continue trading so that investors’ interests are protected.