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Bitfinex, New York Tether Fraud Investigation

After a week of Tether founder Brock Pierce announcing his candidacy for President of the United States, a New York appeals court has given the go-ahead to the New York Attorney General’s ongoing investigation into the close-knit iFinex companies (including Bitfinex and hereinafter referred to as) given as Bitfinex) and Tether.

The ruling is the confirmation of a June ruling that will allow the New York Attorney General to proceed with the investigation into Bitfinex and Tether under the Martin Act. One of New York’s notorious anti-fraud laws, the Martin Act gives the attorney general the power to investigate and prosecute securities fraud.

Attorney General Letitia James had issued a court order preventing Bitfinex from taking more money from Tether and required both Bitfinex and Tether to hand over documents relevant to the investigation – particularly documents that James claims were a massive embezzlement of client and corporate funds between Bitfinex and Tether.

Following this latest decision, Bitfinex and Tether must now adhere to these instructions.


While the Attorney General has not yet filed a formal lawsuit against Bitfinex and Tether, the order was brought under the extensive investigative powers of the Martin Act as part of James’ office’s investigation into Bitfinex, Tether and their affiliates.

The investigation was heralded in April 2019 by the publication of a court ruling by the Attorney General accusing Bitfinex of secretly using Tether’s reserves to mitigate a $ 850 million loss allegedly due to the use of a Panamanian company called Crypto Capital is due and process their funds. Bitfinex was forced to take advantage of the company after failing to find a partner in traditional banks.

The $ 850 million was held by Crypto Capital, but Bitfinex and Tether claim the funds are tied up in a series of freezes enforced on Crypto Capital’s bank accounts by several overseas governments. In 2019, Crypto Capital’s CEO was charged with fraud in New York, while the company’s president was extradited to Poland on money laundering and drug charges.

The attorney general also suggested to Bitfinex to represent to the market that Tether was fully backed 1: 1 by US dollars, despite knowing that Bitfinex actually took the risk in relation to the money sent to Crypto Capital.

According to a press release from the Attorney General:

“Our investigation has revealed that the operators of the ‘Bitfinex’ trading platform, which also controls the ‘Tether’ virtual currency, have made a cover-up to hide the apparent loss of $ 850 million in mixed customer and corporate funds. ”

“New York State has led the way in requiring virtual currency companies to operate in compliance with the law. And we will continue to stand up for investors and seek justice on their behalf if they are misled or betrayed by any of these companies. ”

According to the Attorney General, Bitfinex used Tether as a “corporate slush fund” to fill the void the loss has left in Panama.

Legal argument, next steps

In citing the court order, Bitfinex tried to argue that:

  • The court did not have jurisdiction to give the order because tether is not a security or commodity within the meaning of the Martin Act.
  • The court was not empowered to make the order against him because it is not based in New York and does not serve New York customers.

In dismissing the appeal, the Court generally noted that under the Martin Act, the Court’s involvement in the legal investigative phase is limited and attempts to reject the Attorney General’s request are false: the role of the General Court is to give orders under the Giving, repealing or amending law, and beyond these possibilities, the role of the court in an investigation before the lawsuit is limited.

However, the Court rejected the argument that tether was not a security or a commodity, referring to the comparatively broad definition of these terms by the Martin Law. The second argument was rejected on the grounds that the attorney general was requesting documents as early as 2015, while Bitfinex allowed trading with New York citizens until January 2017.

The ruling has immediate implications: iFinex now owes the Attorney General the requested documents and the $ 900 million line of credit between Bitfinex and Tether has been frozen. While it is important to emphasize that no formal charges or allegations have been made by the Attorney General, the order now in effect is a huge step forward in the ongoing investigation into Bitfinex, Tether and their affiliates.

If the documents meet the attorney general’s expectations, we should see more signs that Bitfinex and Tether have conspired to cover up a huge loss of capital from Bitfinex, thereby misleading and defrauding its clientele.

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