Bitfinex Appeal Over $850M In Lost Funds Rejected

Crypto exchange Bitfinex will be facing allegations from the State of New York, that it hid over $850 million in lost funds, after its appeal was rejected by the NY Supreme Court, Bloomberg reported on 10 July.

According to the publication, the cryptocurrency exchange and its related stablecoin company Tether will have to face claims that they hid the loss of more than $850 million in commingled corporate and client funds. The accusation was first brought up by New York Attorney General (NYAG) Letitia James in April 2019, when she accused the firms and several associated companies of using money from the Tether (USDT) stablecoin to cover the loss.

At the time James said:

“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.”

Following the allegations from the NYAG, Bitfinex appealed to the court claiming that it does not have jurisdiction over it, as the company was not based in New York, and did not serve local traders. The appeals court quickly rejected the firm’s claims, stating that the Attorney General’s office was seeking documents dating back to 2015, and that the firm did allow New York citizens to trade on its platform until January 2017. It further claimed that USDT was neither a commodity nor a security, though that argument was quickly dismissed by the court.

James also commented on the court ruling, saying:

“Today’s decision validates our office’s ability to use its broad and comprehensive investigative powers to protect New Yorkers. Not even virtual currencies are above the law. We are pleased with the court’s decision, and will continue to protect the interest of investors in the marketplace.”

When first confronted about the lost funds, the operator of both Bitfinex and Tether, iFinex, claimed that the funds were deposited with Crypto Capital, a firm which was accused of providing shadow banking services to crypto exchanges. The funds in question were lost when government authorities from various countries seized Crypto Capital’s funds. In October 2019, Crypto Capital’s executive Oz Yosef was indicted on three criminal counts by the United States Attorney for the Southern District of New York.