When the same management team rules over both a crypto exchange and a “honey pot” with $3.5 billion on hand, while in a totally unregulated environment, there will always be the potential for fiduciary transgressions that cross over the line of accepted ethical standards. Such is the case with iFinex, the managing parent corporation for both the Bitfinex exchange and the Tether stablecoin platform (USDT). Back in April, the New York Attorney General’s office called them to account for alleged violations.
At that time, Ethereum World News had reported:
A document unveiled by the New York Attorney General’s (NYAG) office on Thursday has revealed that iFinex, the company behind both Tether (USDT) and Bitcoin exchange Bitfinex, is being sued. Per a lawsuit issued by official Letitia James, iFinex Inc, which is the company behind the two aforementioned crypto startups, promoted the “issuance, distribution, exchange, advertisement, negotiation, purchase, investment advice, or sale of securities” in New York State, which is illegal without the proper licensing and documentation.
From court filings, it appeared that the iFinex “commingled” management arrangement had played a bit fast and loose with New York regulations, licensing requirements, and disclosures to investors and depositors. There had long been rumors about whether the reserves behind the Tether stablecoin “USDT” were being properly handled at arms length and as to whether the full amount was actually on deposit. iFinex executives had been evasive when questioned, although they did maintain that everything was proper.
The legal strategy for iFinex was simple – try to get the case dismissed because New York had no jurisdiction. All of its entities are registered in Hong Kong, but they also operate across the globe. The USDT stablecoin maintains the largest market cap by far of any other such token to date and is often used to “store” capital before investing in other cryptos or converting to fiat. The NY lawsuit also contends that Bitfinex withdrew roughly $850 million from USDT reserves to cover up a funding problem of its own. In late April, lawyers for Tether Limited confirmed that only $0.74 of USDT were backed by cash and cash equivalents. Presumably, a note from Bitfinex covered the shortfall.
The new news is that the New York Supreme Court dismissed the new iFinex motion to dismiss and ruled that the case can continue. The New York AG is presently requesting documents, which must be delivered by the 14th of October. Previously, Bitfinex and Tether had complained that the AG’s requests were too broad and that it was spending an exorbitant amount of time and money responding to a “fishing expedition”. The Supreme Court actually agreed and then ordered the AG to re-focus its investigation.
At this hearing, Bitfinex and Tether tried the same tactic again, but according to CCN, the court was not amused this time around:
The Court does not believe that is enough to warrant staying this case and further delaying or otherwise interfering with Petitioner’s investigation.
In previous rulings, the Court had ordered Bitfinex to stop dealing with U.S. customers, but it has determined that Bitfinex has continued its activities in New York, including dealings with traders, lending activities, and banking arrangements.
Bitcoin advocates have learned over time that, when controversy hits Tether, customers tend to withdraw their deposits and stash them in BTC, thereby driving prices upward. When the initial lawsuit hit the press, Bitcoin prices dipped 7%, but soon thereafter, the news of a “run on the bank” created new demand. This time around BTC rallied 5%.