Bitfinex and Tether Issued Court Order for An Alleged $850 Million Loss Cover-up

Crypto exchange Bitfinex is once again under the scanner for its controversial link to the stablecoin operator Tether Ltd. Last Thursday, April 25, the New York State Attorney General’s Office obtained a court order against iFinex Ltd.

The court order accuses iFinex of defrauding New York investors and violating the New York State law, says Attorney General Letitia James. In an official statement, James said that during their investigation, the found that Bitfinex exchange operators engaged in a secret activity with Tether to cover-up their $850 million loss “of co-mingled client and corporate funds”.

James further noted that the “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.”  

Crypto exchange Bitfinex has been under scrutiny over the last year as the exchange faced alleged charges of pumping the Bitcoin price during the 2017 bull run by sourcing Tether’s USDT dollar-pegged stablecoin without actually backing them with physical dollars.

Several banks, including Wells and Fargo, announced to cut their ties with Bitfinex in 2017. Furthermore, Bifinex is said to have handed over the corporate funds to a Panamanian entity called “Crypto Capital Corp.,” without any assurance or written contract.

In the latest court order, the allegations on Bifinex are that they secretly used Tether’s funds to cover massive losses without informing their investors of customers.

In the latest investigation Attorney General Letitia James shares some explosive messages sent by Bitfinex executive named “Merlin” in August 2018. The message reads: “The situation looks bad. We have more than 500 withdrawals pending and they keep coming in … [T]oo much money is parked with you and we are currently walking on a very thin crust of ice.”

Merlin also told one of her contacts “Oz” that if the situation is not handled properly, it could likely create a panic in the Bitcoin market taking its price below $1000.

Responding to these allegations by the NYAG, Bitfinex said that they were made in bad faith and are riddled with false assertions. Bitfinex said: “Bitfinex and Tether have been fully cooperative with the New York Attorney General’s office, as both companies are with all regulators. The New York Attorney General’s office should focus its efforts on trying to aid and support our recovery efforts”.

Following the announcement from NYAG on Thursday, Bitcoin (BTC) price crashed from over $5.5K to hitting a low around $5.1K, as seen on the weekly charts by WorldCoinIndex.