The New York State Attorney General (NYSAG) office has accused the operator of the Bitfinex cryptocurrency trading platform and the issuer of the Tether currency of engaging in a cover-up to hide the apparent loss of $850 million in client and corporate funds.
Attorney General Letitia James says her office has obtained a court order enjoining Bitfinex parent iFinex and Tether Limited - which are controlled by the same people - from "further violations of New York law" in connection with ongoing activities that may have defrauded New York investors that trade in virtual currency.
According to the NYSAG, Bitfinex handed over, without any written contract, $850 million dollars of co-mingled client and corporate funds to a Panamanian entity called Crypto Capital Corp. Bitfinix no longer has access to these funds and has not told investors about the move, says a statement.
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 one-to-one, says NYSAG.
Bitfinex has already taken at least $700 million from Tether's reserves without telling investors. This is treating Tether's reserves as Bitfinex's "corporate slush fund" in order to hide "massive, undisclosed losses and inability to handle customer withdrawals," say authorities.
The Attorney General is also accusing Bitfinex of allowing New Yorkers to buy and trade virtual currencies despite claiming that it does not do business in the State.
In response, Bitfinex says the 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".
Continues a statement: "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."