NY Attorney General Hits Back at Bitfinex

It was an eventful weekend for iFinex, the operator of the Bitfinex exchange and the Tether stablecoin – with the New York Attorney General (AG) Letitia James retaliating in a deepening legal feud, and talk of a forthcoming USD 1 billion token sale. (Updated on 10:42 UTC: A response from Bitfinex and Tether has been added (in bold.)

The Bitfinex operator was last month handed a court summons after the AG claimed the company had “mismanaged” customer funds – “helping itself” to cash reserves put aside to back the Tether stablecoin, and “covering up” its misdeeds.

Lawyers for Bitfinex responded forcefully, claiming the AG’s claims were untrue and without legal grounds.

However, it has emerged that the AG has responded to Bitfinex’s lawyers. The AG’s office filed a strongly worded memorandum of law to a New York Court on May 3, claiming that Bitfinex has indeed broken the law in regards to the Martin Act – a piece of anti-fraud legislation.

The AG’s latest document also alleges the following:

The AG has not violated any legal due process protocols
The AG’s actions are not excessive
Bitfinex/Tether have indeed broken the Martin Act
Bitfinex/Tether’s “fraud” is “ongoing”
Customers will suffer “irreparable injury” if the court upholds Bitfinex/Tether’s legal claims
The AG’s court order has not been disruptive to Bitfinex/Tether’s business
The AG also quotes legal precedent, noting that in the case of an IT firm sued by New York prosecutors in 2013, a judge ruled that “equities lie in favor of shutting down an illegal, unsafe, deceptive business, rather than allowing [it] to continue to operate.”

Furthermore, the AG says it wants Bitfinex to provide documental proof of its financial transactions with Tether, details of loans, its dealings with its Crypto Capital partner and the USD 850 billion it says the company has mishandled.

Meanwhile, in a response, Bitfinex and Tether claim that “The undisputed facts show that there was no ongoing fraud, and no “victims” in need of the drastic remedy of an injunction to protect them.”

“In arguing that there was nonetheless fraud afoot, the Attorney General faults Bitfinex and Tether for (i) having “failed to disclose the loss of over USD 850 million” in connection with the Crypto Capital deposits, and of (ii) engaging in an “undisclosed, conflicted” transaction that their customers “would find material.” (NYAG Opp., at 18.) Neither of these amounts to fraud,” the companies said, adding that “there is no duty for Bitfinex to disclose its internal financial matters to customers.”

And elsewhere, a Bitfinex shareholder named Dong Zhao has posted an image of what he says is details of a forthcoming LEO token sale. The document states that Bitfinex plans to sell 1 billion tokens, with each token priced at 1 tether. The tether is pegged to the value of the US dollar. At the time of writing it still trades above USD 1.

Many crypto-enthusiasts remain cautious about Bitfinex and its token sale-related matters, particularly as there appear to be a number of elaborate but fake-looking Bitfinex “white papers” such as this circulating on social media.

Meanwhile, on Sunday, Bitfinex retweeted a Twitter post by its Chief Technical Officer, Paolo Ardoino, saying “LEO” and later adding “full stop,” but without providing any other comments.