NY Attorney claims Bitfinex used Tether funds to cover $850M loss

In a one way, biased, announcement, New York Attorney General’s office announced that Bitfinex and Tether used tether funds in an unethical way. In our New York AG Bitfinex Tether allegation story we cover the issues as well as our unbiased commentary.

April 25, 2019, | AtoZ Markets The recent allegations about Tether Bitfinex the New York Attorney General’s office (NYSAG) stirred caused enormous Bitcoin flash crash. The NYSAG official statement notes that Bitfinex lost $850 million and used customer and corporate funds from the affiliated stablecoin operator Tether to cover their loses. Sounds like a scary announcement, but they fail to announce that Bitfinex funds are with a PSP and New York AG so far has not much commented on how they will assist in recovering those funds. More on this story below.

Tether Bitfinex allegations in a brief

According to Tether Bitfinex allegations, the crypto trading platform provided its service to several New York and US-based traders, although, in 2018, said it would no longer offer to trade to such clients. It is likely that these are the users either using VPN/VPS or any other way to appear not to be from New York, as AtoZ Markets tried to open up an account from a New York based IP, and appeared to be a US resident, but failed to be approved.

“New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

The 23-page document, dated April 24, states that the NYSAG has an investigation underway to expose “ongoing fraud being carried out by Bitfinex and Tether,” requesting all documentation tied to Bitfinex users in the state of New York.

The US. attorneys statement details that Bitfex and Tether participated in “undisclosed, controversial operations to cover Bitfex’s losses by transferring money from reserve funds”. According to the Prosecutor General’s Office, at least 700 million dollars have been depleted from Teter’s reserves.

According to the lawsuit, Bitfinex through Crypto Capital mixed the funds stored on behalf of the client with its own capital.

The lawsuit states that: “according to the documents provided by the (Attorney General) AG Respondents, by 2018 Bitfinex placed more than one billion dollars in mixed client and corporate funds at Crypto Capital.”

In October 2018, AtoZMarkets reported that Bitfinex was facing liquidity issues with their withdrawals. It was then clarified that the issue was with the PSP Crypto Capital Corp., a payment processor that is also holding funds from other exchanges as well, such as QuadrigaCX. Bitfinex had sent $850 million of customer and (own) corporate funds to this PSP. However, when Bitfinex was unable to retreive the funds to pay the clients funds, they settled an agreement with Tether foundation to receive credit line to cover the shortfall, but neither the loss nor Tether’s fund movements were disclosed to customers.

The issue that the NYAG office is concerned is the fact that Bitfinex did not disclose the loss nor the agreement with tether in their $700 mln+ deal.

Longlasting legal trouble

According to Tuesday’s announcement, the New York AG office and Bitfinex / Tether representatives have been in discussion since November 2018. During this process law firms Morgan, Lewis & Bockius LLP of New York and Steptoe & Johnson LLP of Washington, D.C. have been representing Tether and Bitfinex jointly.

The announcement covers the discussions involving the migration from Puerto Rico based Noble Bank to Bahamas based Deltec bank and finally commenting about the Crypto Capital Corp. The major issue, Bitfinex didn’t have proper cocntractual agreement with Crypto Capital Corp.

Crypto Capital Corp had informed Bitfinex directors that Portuguese, Polish and American government officials had “seized” the funds, $851 mln USD. Though, Bitfinex declared that they do not beleive that their funds were seized, AG office does not mention much on this nor any support on how to retreive these funds. But, the statement continues as the following:

“Tether and Bitfinex are being owned by the same group of people. Neither Tether nor Bitfinex is licensed to engage in any business in New York state.”

How did Bitfinex Tether enaggegement mislead the community?

When Bitfinex lost access to their $851 mln funds, clients wanted their withdrawals processed. In an attempt to find a quick solution, Bitfinex and Tether entered into a credit loan agreement. As a part of this agreement Tether was to provide $900 million line of credit, with a three-year term and an interest rate of 6.5 percent to Bitfinex.

Bitfinex commented the following in a response to NYOAG’s announcement:

“The New York 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. 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.”

Tether Bitfinex allegations impact the stablecoin market

The aforementioned allegations seem to have influenced the USDT peg to the US dollar and undermined market confidence, which caused a total sell-off with larger crypto-containing tools, such as ethers and XRP, by 6.99 and 4.8 percent, respectively.

According to CoinMarketCap, the total capitalization of the cryptocurrency market fell by $ 10 billion to $ 167 billion by early morning on UTC and has since risen above $ 172 billion at the time of publication.

At 21:00 UTC on Thursday, the USDT price began to fall from the desired target price of $ 1.00 to a minimum of about $ 0.955, according to the Kraken and OKCoin exchanges in the United States, which provide a pair for USDT versus US dollars.

The price of the USDT has since risen back and may see further uncertainty in price as the day continues to evolve.

Other stable currency assets, such as USDC, TrueUSD, and GUSD, are in the positive from 0.25 to 3 percent as a result of investor funds shifting towards some other more regulated alternatives.

Maker (MKR), a crypto asset of the MakerDAO stablecoin project, declined by 14.65 percent over a 24-hour period, declining in price by $ 73 and is currently the worst in productivity among the top 25 cryptographers.

Tether Bitfinex allegations affect Bitcoin market

Bitfinex charges negatively affected most other cryptocurrencies. Bitcoin has recovered slightly and changes hands by $ 5,138 after dropping to a minimum of $ 4,953 on Coinbase on Thursday.

The Twitter service, which tracks blockchain transactions, reported that several hours after Tether Bitfinex allegations 3999 bitcoins worth $ 20 million were exported from Bitfinex exchange wallets to unknown addresses.

Such actions indicate the mood of traders who are currently seeking to reduce their risk by transferring funds from the allegedly problematic exchanges.

The complete court filing is available on scribid.

If you are on social media, share your voice. NYOAG may be right to some extend, but they should also support Bitfinex to retreive their funds, instead of blame game.

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