“Introduction: The New York Attorney General’s Office issued a statement on Thursday saying that Bitfinex lost $850 million in funds and secretly concealed it with Tether. The office also received a court order to stop violating New York law and deceiving New York. Residents.
According to the documents, Bitfinex sent $850 million in customer and corporate funds to payment processing company Crypto Capital Corp., but was later told that the funds were “confiscated” by government officials in Portugal, Poland and the United States. Bitfinex has questioned this claim, but in order to make up for this funding, Bitfinex and Tether reached an agreement, and Tether provided Bitfinex with a $900 million loan limit to address Bitfinex's liquidity problems. ” The New York Attorney General's Office (NYAG) said that Bitfinex, a cryptocurrency exchange, lost $850 million, and then used the secret money of its associated stable currency operator Tether to make up for this huge loss.
According to a press release issued on Thursday, NYAG Letitia James announced that she had obtained an order from the court against iFinex Inc. to stop them from violating New York law and deceiving New York residents. iFinex Inc. operates both Bitfinex and Tether.
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James said that a survey in her department determined that iFinex "masked the apparent loss of $850 million," the client and the company, adding:
“The State of New York is the first to require virtual currency companies to operate according to law. When these companies mislead or deceive investors, we will continue to provide justice for them.”
According to the statement, Bitfinex sent $850 million in customer and corporate funds to Crypto Capital Corp. Crypto Capital Corp. is a payment processing company that is said to also hold funds from other exchanges such as QuadrigaCX. Funds from the Tether Reserve were used by Bitfinex to make up the difference, but Bitfinex did not disclose it to customers, regardless of the loss or Tether's funding.
So far, it has been said that it has transferred $700 million.
According to a document by Assistant Attorney General Brian Whitehurst, the investigation began sometime in 2018. According to the document, "NYAG has reason to believe that Bitfinex still allows individual investors in New York to access virtual currency and transactions, as well as other transactions in the Bitfinex trading platform.
According to the court's order, iFinex's directors, officers, officers, agents, employees, contractors, assignees or any other associated individuals are required to discontinue use, loan or any other requirement for Tether's US dollar reserves.
Similarly, individuals associated with iFinex are ordered not to tamper with any documents, including an overview of the records of these operations.
It is worth noting that the document stated that the Office of the Attorney General of New York did not attempt to prevent Bitfinex’s legal transactions or Tether’s redemption; instead, the Office hoped that the court would issue a preliminary ban on “maintaining the status quo” before the investigation ended .
A few months ago, the office published the results of the office's investigation, focusing on a group including Bitfinex.
Given the long-standing scrutiny of the company and its USDT stable currency, the focus on the Tether reserve is a noteworthy issue. Critics say Tether (USDT) has a market capitalization of more than $2 billion and does not actually receive sufficient funding to support it as its operators claim. These suspicions are further exacerbated by the failure to obtain proper audits as promised previously. In March of this year, Tether changed the reserve rules and revealed that the reserves used to support the USDT may not be entirely constituted by fiat currencies.
The document of the Office of the Inspector General of New York outlines the turmoil of the past few months.
According to a statement from Brian Whitehurst, Assistant Attorney General of New York, the discussion between the office and representatives of Bitfinex and Tether dates back to last November. According to the document, New York-based Morgan, Lewis & Bockius LLP and Washington, DC's Steptoe & Johnson LLP jointly represented the two companies.
This documentary statement details Bitfinex's growing banking business and the company's efforts to maintain its services in some form, including the ongoing partnership with Puerto Rico's Noble Bank, a partnership that has ended. It ended in October 2019. Bitfinex and Tether's lawyers told the office that Bitfinex and Tether terminated their partnership because Noble Bank was unable to handle large wire transfers and gave them low interest rates.
CoinDesk reported in November last year that Tether later established a banking relationship with Deltec in the Bahamas.
According to the office, Bitfinex's ability to handle withdrawal requests has been weakened by the inability to secure $850 million in client/enterprise funding. CoinDesk described these issues in detail before, and some customers complained about long response times and delayed payment.
“The documents submitted to the office show that by the middle of 2018, Bifinex encountered great difficulties in meeting customers’ requests for withdrawals from the trading platform, as Crypto Capital refused to process customer withdrawal requests, refused or could not The funds are returned to Bitfinex, and Crypto Capital holds all or almost all of the funds from Bitfinex."
In mid-October 2018, Bitfinex issued a statement announcing that the withdrawal was “without any interference”, but “the complexity of the process” has caused the fiat currency deposit to be suspended. Although some customers are still complaining about the slow withdrawal rate.
According to the Office of the Attorney General of New York, this statement is incorrect. “The documents provided by the respondents to the office showed that Bitfinex had a serious problem handling customer withdrawals.”
Representatives of Bitfinex and Tether told the office that an official at Bitfinex was told that they could not use the $851 million because the government officials in Portugal, Poland and the United States “confiscate” the funds.
But Bitfinex doesn't believe this explanation.
Whitehurst’s statement states:
“According to the statement of the respondent’s attorney to the attorney of the office… The respondent did not believe that Crypto Capital’s statement that the funds had been seized.”
As the office pointed out in the press release, Bitfinex's inability to obtain these funds is confidential to customers, and today's press release is the first public disclosure of these losses.
It is in this context that Bitfinex and Tether began discussing how to make Bitfinex use reserve funds to support USDT.
The document explains:
“At a face-to-face meeting on February 21, 2019. Bititex and Tether’s attorneys explained that in order to compensate for the apparent loss of $851 million caused by Crypto Capital, both Bitfinex and Tether are considering the transaction, Bitfinex can Extract Tether's cash reserves as needed.
As stated by a lawyer. Bitfinex will receive a $600 million to $700 million line of credit from the Tether-backed reserve. The lawyer did not make any suggestion. Bitfinex will gradually accumulate Tether or Tether holders from the transaction. Lawyers also did not imply that the deal would be disclosed to the public, including investors trading on the Bitfinex platform or holders of Tether. ” Whitehurst said that considering the close relationship between Bitfinex and Tether (with the same manager and owner), when asked about possible conflicts of interest, "the lawyer described the upcoming transactions of the two companies as a Independent trading, but did not provide a reason why this happened."
The documents show that the disclosure of this information has raised concerns in the Office of the Attorney General of New York.
“The information disclosed by lawyers at the February 21 meeting raised serious questions about Bitfinex's viability as a continuing concern, including Tether's cash reserves being exhausted, uncollectible, and whether Bitfinex and Tether are misleading. Their customers (including Bitfinex trading platform customers and Tether holders)."
In the next few weeks, the office will continue to seek information from Bitfinex and Tether, including data on Tether issues and their claims for the $850 million loss.
Whitehurst’s statement states:
“On March 4, 2019, the lawyers of Bitfinex and Tether wrote in a reply to the letter from the office: 'The office could not get this information before March 1'. The lawyer did not provide any other dates.”
On March 29, after further discussion, representatives of Bitfinex and Tether revealed in a letter to the Office of the Attorney General of New York that Tether’s credit line for Bitfinex had been closed. “In November 2018, Tether put it in The $625 million in Deltec's account was transferred to Bitfinex's account on Deltec." Bitfinex credited a total of $625 million to Tether's account through a ledger entry in Crypto Capital and debited the corresponding amount in the Bitfinex account. The purpose of the deal is to enable Bitfinex to address liquidity issues unrelated to Tether . ”
Subsequently, the two sides reached an agreement to provide a credit line of 900 million US dollars for a period of three years with an interest rate of 6.5%.
Under the deal, the line of credit is secured by more than 60 million shares of iFinex Inc. owned by DigFinex. DigFinex agreed not to set other obstacles. The transaction was completed around March 19th or March 19th. As of today, the total amount allocated under the loan arrangement is $700 million," the delegates said in the letter and said at the end:
“On March 27th, Bitfinex and Tether launched a transaction that debited $62 million previously credited to Tether's account in Crypto Capital and transferred the funds to Crypto Capital's Bitfinex account. In this transaction, before The transaction or asset is converted into a credit line secured by DigFinex stock."
According to Whitehurst's statement, this credit line was not disclosed to investors except for the $850 million loss.
The statement says:
“Respondents only provided limited information on the facts and circumstances of the $625 million transfer and subsequent 'credit quota' transactions.”