bitfinex tether 18.5m york

By Jonathan Stempel

2 Min Read

NEW YORK (Reuters) – The owner of the Tether cryptocurrency and Bitfinex trading platform will pay an $18.5 million fine to settle charges it commingled client and corporate funds to cover up $850 million that went missing, New York Attorney General Letitia James said on Tuesday.

James said the civil settlement with Hong Kong-based iFinex Inc and related entities will also require them to halt trading activity with New Yorkers.

Bitfinex was accused of having sent the $850 million to Crypto Capital Corp, a payment processor believed to be in Panama, without telling clients, and after the funds went missing, draining at least $700 million from Tether’s reserves.

James said the diversion broke Tether’s public promise to investors that its currency had been backed one-to-one by U.S.

Last week, we sued to shut down Coinseed for its fraudulent conduct. This week, we’re taking action to end Bitfinex and Tether’s illegal activities in New York.

These legal actions send a clear message that we will stand up to corporate greed whether it comes out of a traditional bank, a virtual currency trading platform, or any other type of financial institution.”

A Stablecoin Without Stability – Tethers Weren’t Fully Backed At All Times

The OAG’s investigation found that, starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations.


This resolution makes clear that those trading virtual currencies in New York state who think they can avoid our laws cannot and will not. Last week, we sued to shut down Coinseed for its fraudulent conduct.
This week, we’re taking action to end Bitfinex and Tether’s illegal activities in New York. These legal actions send a clear message that we will stand up to corporate greed whether it comes out of a traditional bank, a virtual currency trading platform, or any other type of financial institution.”

A Stablecoin Without Stability – Tethers Weren’t Fully Backed At All Times

The OAG’s investigation found that, starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations.


Additionally, Tether must offer public disclosures, by category, of the assets backing tethers, including disclosure of any loans or receivables to or from affiliated entities. The companies will also provide greater transparency and mandatory reporting regarding the use of non-bank “payment processors” or other entities used to transmit client funds.

Finally, Bitfinex and Tether will be required to pay $18.5 million in penalties to the state of New York.

In September 2018, the OAG issued its Virtual Markets Integrity Initiative Report, which highlighted the “substantial potential for conflicts between the interests” of virtual currency trading platforms, insiders, and issuers.
Bitfinex was one of the trading platforms examined in the report.

This matter was handled by Senior Enforcement Counsel John D. Castiglione and Assistant Attorneys General Brian M.

In addition, these companies must submit regular reports to the OAG to ensure compliance with this prohibition.

Further, the companies must submit to mandatory reporting on core business functions. Specifically, both Bitfinex and Tether will need to report, on a quarterly basis, that they are properly segregating corporate and client accounts, including segregation of government-issued and virtual currency trading accounts by company executives, as well as submit to mandatory reporting regarding transfers of assets between and among Bitfinex and Tether entities.

Additionally, Tether must offer public disclosures, by category, of the assets backing tethers, including disclosure of any loans or receivables to or from affiliated entities.

It must also offer public disclosures of how its Tether is backed.

The statement also goes into detail surrounding the degree to which Tether is actually backed by fiat, exposing a scheme to mislead customers into believing that each Tether was indeed fully backed. According to the statement, e thcompany announced that it had verified that each Tether was fully backed by cash at a rate of 1:1.

The very next day after the announcement, Tether began moving the funds out of this account, immediately reverting to a state of affairs in which Tether was not backed without any indication that this was the case.

Of course, you wouldn’t think any of this if you were only going by Bitfinex’s statement on the outcome. In its statement, Bitfinex says:

“The Attorney General’s Office concluded, in essence, that we could have done better in publicly disclosing these events.

Crypto Capital Corp.” Bitfinex responded to pervasive public reports of liquidity problems by misleading the market and its own clients. On October 7, 2018, Bitfinex claimed to “not entirely understand the arguments that purport to show us insolvent,” when, for months, its executives had been pleading with Crypto Capital to return almost a billion dollars in assets.

On April 26, 2019 — after the OAG revealed in court documents that approximately $850 million had gone missing and that Bitfinex and Tether had been misleading their clients — the company issued a false statement that “we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded.” The reality, however, was that Bitfinex did not, in fact, know the whereabouts of all of the customer funds held by Crypto Capital, and so had no such assurance to make.

In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’

On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether.

In brief:

  • The NY Attorney General’s office has settled with Bitfinex and Tether
  • Bitfinex and Tether will cease all operations in New York
  • They will also pay an $18.5 million fine alongside other requirements to increase transparency

The New York Attorney General’s office has reached an $18.5 million settlement with Bitfinex and Tether for alleged illegal activities in the state of NY. According to the official announcement, New York’s Attorney General, Letitia James, also ordered Bitfinex and Tether to cease all operations in the state as a means of protecting investors from fraudulent and deceptive activities of both companies.

Attorney General James pointed out that both Bitfinex and Tether made false statements about backing their stablecoin of Tether with actual US dollars.

Bitfinex and Tether, which are owned and controlled by the same small group of individuals. That action — under Section 354 of New York’s Martin Act — ultimately led to a July 2020 decision by the New York State Appellate Division of the Supreme Court, First Department, holding that:

Bitfinex and Tether — and other virtual currency trading platforms and cryptocurrencies operating from various locations around the world — are still subject to OAG jurisdiction if doing business in New York; The stablecoin “tether” and other virtual currencies were “commodities” under section 352 of the Martin Act, and noted that virtual currencies may also constitute securities under the act; and The OAG had established the factual predicate necessary to uphold the injunction and require production of documents and information relevant to its investigation in advance of the filing of a formal suit.

However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S.
dollars in a Tether bank account.

As of today, Tether represents that over 34 billion tethers have been issued and are outstanding and traded in the market.

When No Bank Backs You, Turn to Shady Entities — Bitfinex Hid Massive Losses

In 2017 and 2018, Bitfinex began to increasingly rely on third-party “payment processors” to handle customer deposits and withdrawals from the Bitfinex trading platform.

Moreover, they moved hundreds of millions of dollars to cover up the apparent loss of $850 million of the commingled client and corporate funds.We’re ending @bitfinex and @Tether_to‘s virtual currency trading in New York after the companies covered up about $850 million in losses around the globe and deceived the market by overstating reserves.

Those trading virtual currencies in New York cannot avoid our laws, period.

— NY AG James (@NewYorkStateAG) February 23, 2021

James said the settlement with Hong Kong-based iFinex Inc and related entities will likewise expect them to stop trading activity with New Yorkers. More so, he added the redirection broke Tether’s public guarantee to investors.

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