The New York Attorney General’s office has alleged that cryptocurrency exchange Bitfinex has lost $850 million, and has used funds from Tether to cover up the mess, according to a press release from the Attorney General office published 25 April.
According to the press release, New York Attorney General Letitia James and her office obtained a court order against iFinex Inc, the operator of Bitfinex, Tether Limited, and their associated entities. According to the investigation done by James and her department, iFinex engaged in a cover up to hide “the apparent loss of $850 million of co-mingled client and corporate funds”, she further added:
“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds. 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.”
According to the filings, the $850 million were handed over in 2018, without any written contract or assurance, to Crypto Capital Corp, a Panamanian entity which is said to hold funds from other exchanges as well, to handle customers’ withdrawal requests, which it failed to process in the following months. The loss of these funds was never reported to the investors.
Executives of the exchange then allegedly engaged in a series of conflicting corporate transactions with Tether, in which Bitfinex got access to up to $900 million of Tether’s cash reserves. Allegedly Bitfinex “borrowed” around $700 million of Tether’s cash reserves so far to hide the loss. Reportedly the court has ordered the operators of the companies to cease the squandering of U.S. dollars that back Tether, and to produce information and documents related to the investigation. The order also prohibits the destruction of potentially related documents.
The focus on Tether reserves in understandable, given the scrutiny the firm has seen over its USDT stablecoin in the past months. Critics have alleged that Tether was not backed by sufficient funds as claimed by its operators. In March, the company revealed that the reserves backing Tether may not consist entirely of fiat currency.
Shortly after the NYAG filling, Reddit user jankeldidi claimed that “Bitcoins from the Bitfinex Hack 2016 moved today,” explaining that around 300 BTC were moved from addresses connected to the 2016 Bitfinex hack, providing a Blockchair link with the transactions and a spreadsheet listing all of the unauthorised transactions from the hack. This revelation has sparked further speculation.
The markets have reacted to the news, as Tether is currently losing value. The so-called stablecoin has dropped to $0.97 on Kraken, while competing stablecoin USDC has seen a sharp rise in buying pressure on Binance, increasing its price to 1.0348 USDT.