In a statement released on Thursday, New York Attorney General Letitia James accused the operators of the Bitfinex cryptocurrency exchange of using at least $700 million of tether reserves to hide $850 million of losses. The AG’s office announced that it has obtained a court order enjoining the Bitfinex operators from further violations of the law “that may have defrauded New York investors that trade in virtual or ‘crypto’ currency.”

Attorney General James called the company’s actions a cover-up:

“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.  And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

The AG’s office had outlined its investigatory findings in a filing with the Manhattan Supreme Court. Those findings suggest that Bitfinex had lost access to the $850 million of “co-mingled client and corporate funds” after it transferred those assets to Crypto Capital Corp., a Panamanian entity. The exchange never informed investors of the loss.

Instead, company Bitfinex and Tether executives reportedly made a “series of conflicted corporate transactions” that allowed Bitfinex to access as much as $900 million of the stablecoin’s reserves. The AG alleges that Bitfinex has already dipped into those accessible reserves:

According to the filings, Bitfinex has already taken at least $700 million from Tether’s reserves.  Those transactions – which also have not been disclosed to investors – treat Tether’s cash reserves as Bitfinex’s corporate slush fund, and are being used to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals.  The Office’s filings further detail how the companies obfuscated the extent and timing of these corporate transactions during the Office’s investigation. 

The order was entered against Bitfinex operator iFinex Inc. and Tether Limited and requires both companies to “cease further dissipation of the U.S. dollar assets which back ‘tether’ tokens” and produce documents related to subpoenas from the AG investigators. The two companies were also ordered to preserve all documents and communications related to the case.

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