New York Supreme Court Orders Tether to Freeze Transfers to Bitfinex
Tether (USDT), the stable coin issued by Tether Limited, and Bitfinex, the crypto exchange platform owned and run by iFinex Inc. have recently been making headlines. A few days ago, the New York Office of the Attorney General (NYOAG) applied for a court order to investigate the two platforms’ business operations. The court order was meant to investigate Bitfinex’s suite of international companies, including its umbrella firm iFinex Inc. and Tether Holdings Ltd. following the $850 million fraud.
According to the New York office of the AG, Bitfinex used funds from Tether to mask $850 million in losses in customer funds that resulted either from mismanagement by payment processor Crypto Capital or potential theft.
Bitfinex ended up relying on the fiduciary services of the Panama-based Crypto Capital following a series of troubled banking relationships. By mid-2018, Crypto Capital held roughly $1 billion worth of combined business and customer funds on behalf of Bitfinex. The legal petition filed alleges that Bitfinex entrusted Crypto Capital with these funds without signing a contract or business agreement.
Asides from the case, the NYOAG had filed an injunction seeking restriction on Bitfinex from accessing funds in Tether’s reserve for not less than 90 days. The NYOAG argued that if Bitfinex was allowed to continue drawing funds from Tether without assurance of repayment then the chances that the funds will ever be recovered are very slim.
Also, Judge Joel Cohen, a New York Judge, ordered them to turn over documentation about a loan and a line of credit that Tether has provided to Bitfinex. According to his orders:
- Tether cannot loan any assets to Bitfinex or other parties, except in the normal course of conducting its business.
- They cannot distribute any funds from its reserves to executives, employees, or other individuals except for payroll and normal contractor, consultant or vendor payments.
- Neither of the two platforms is allowed to modify documents asked for in the NYOAG’s original subpoenas.
Bitfinex said the NYOAG acted in ‘’bad faith’’ since the office ignored the exchange’s ‘’previous historical, and voluntary co-operation with them’’.
According to Bitfinex’s statement:
“We will vigorously defend against any action by the New York Attorney General’s office, and we remain committed, as ever, to protecting our customers, our business, and our community against their meritless claims.’’
Despite all this, the exchange still praised the court’s decision as it allowed the two platforms to continue running their businesses.