[Latest Update] $850 Million Bitfinex & Tether Crypto Fraud

In a court filing, the lawyers representing Bitfinex and Tether, on 21 May, have asked for dismissal of the case on the grounds that the New York court has no jurisdiction in the matter of an alleged cover-up of more than 850 million dollars in losses.

Arguing that both Tether and Bitfinex are neither operating in the city of New York nor they have clients that were harmed in that state, the law firms said that the court has no jurisdiction over the case as there was no locus standi for the Office of the New York Attorney General which had filed the case last month. The filing reads:

The Office of the New York Attorney General (“OAG”) initiated this particular proceeding ostensibly ‘to protect New York investors.” […] But OAG chose to target two virtual currency businesses that have nothing to do with New York investors — the businesses do not allow New Yorkers on their platforms and do not advertise or otherwise do business here.

The counsel also added that the law being used as a premise for the trial, The Martin Act, does not apply to to Tether’s stable coin. The Act is a New York state anti-fraud law and is considered to be the most severe blue sky law in the country. It gives the attorney general more powers in cases of securities or commodities fraud. The attorney general also, according to the law, is responsible for implementing and enforcing the law.

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History of Alleged Bitfinex and Tether Fraud

Just last month, the New York Attorney General Office launched an investigation about an alleged cover-up of more than 850 million dollars in losses by Bitfinex using funds from a sister company Tether. Both Tether and Bitfinex are allegedly owned by the same company, IFinex, a Hong Kong-based firm, registered in the British Virgin Island.

Attorney General Letitia James’s office announced that they had received a court order to investigate IFinix Inc. The company behind the Bitfinex and Tether has been accused of defrauding millions off of crypto investors. The court order allows the prosecutor’s office full access to the files and documents of the company. The court has also ordered IFinix to stop their operations.

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The company is supposed to cease further dissipation of the money that backs Tether’s value on the exchange. Furthermore, the company is also prohibited from destroying or deleting any documents, files, messages and computer applications. The subpoena also gives the prosecutor’s office full access to their financial information as well. The court order was issued when Ms James’s office convinced the judge that there was some misappropriation of investor’s money. While talking about the case, Letitia 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. New York state has led the way in requiring virtual currency businesses to operate according to the law. Moreover, we will continue to stand up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

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One of the interesting facts that emerged from the filing is that Tether, which operates its stablecoin, admitted that the company has invested in bitcoin and other assets. The company’s stablecoin is backed by cash; however, on the company’s website it states that it is now investing in assets beyond cash. The revelation did not go well for Tether in the trial as the judge remarked:

Tether sounded to me as sort of the calm in the storm of cryptocurrency trading. And so, if Tether is backed by Bitcoin, how is that consistent? If some of your assets are in a volatile currency that Tether is supposed to modulate somehow, that seems like ‘it’s playing into what they are saying

Similar Investor Fraud Cases

Bitcoin and the cryptocurrency world, in general, are just plagued with the recurring scams and frauds that surface every other day. This is not the first time a crypto unicorn has landed into trouble due to alleged malpractices. Onecoin was another cryptocurrency company that defrauded people off millions of dollars. The company worked a Ponzi scheme and sold tokens to novice investors through their multi-level marketing techniques.

The company also allegedly artificially increased the value of their Onecoin token from 0.5 euro to more than 29 euros. The company was valued at more than four billion dollars at its peak. However, everything went crumbling down when it was revealed in 2016 that Onecoin was nothing but a multi-level marketing Ponzi scheme. Many cases are being pursued against Onecoin in different countries over investor fraud.

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