A detailed lawsuit regarding Bitfinex and Tether with major consequences for the cryptocurrency industry has been resolved.
The New York Attorney General’s Office (NYAG) has agreed with Bitfinex on a 22-month investigation into whether the cryptocurrency exchange wanted the $ 850 million loss in client and corporate funds held by a payment processor cover.
The NYAG office announced the settlement on Tuesday and formally ended the investigation that began in April 2019. Under the settlement, Bitfinex and Tether will not acknowledge any violations, but will pay $ 18.5 million and provide quarterly reports outlining Tether’s reserves for the next two years. More significantly, these reports will be consistent with the information that Tether has already provided to the NYAG about its reserves. The NYAG will not charge any fees as part of the settlement.
In a statement, New York Attorney General Letitia James said: “Bitfinex and Tether are covering massive financial losses recklessly and illegally to keep their scheme going and protect their core. Tether’s claims that its virtual currency was at all times fully supported by US dollars, was a lie. “
The settlement could somehow help solve a question that has plagued the entire global $ 1.6 billion cryptocurrency market for a long time. By requiring Tether to offer a greater level of transparency than ever before in support of its USDT stable coin – a fundamental piece of crypto plumbing – the arrangement could replace whispers and suspicions with regular data. Depending on the level of detail, investors may have better tools to evaluate the claim that the company has printed unbound signs to artificially increase the price of bitcoin, the clock in the market.
According to the settlement, the NYAG claims that Bitfinex and Tether trusted a portion of Tether’s reserves for several months in 2017 and did not disclose its problems with Crypto Capital Corp in a timely manner in its findings. The NYAG also found fault with a blog post published by Bitfinex after the investigation was first announced, where the stock exchange said the funds owned by Crypto Capital were ‘seized and protected’.
Resolve allegations
Charles Michael, a partner at the law firm Steptoe & Johnson LLC, which represented the companies in the investigation, said the settlement “resolves allegations of public disclosure” surrounding Tether’s loan to Bitfinex.
“To the credit of the Attorney General’s office, their findings after two and a half years of investigation have been limited to the nature and timing of certain disclosures,” Michael said. “And contrary to online speculation, there was no finding that Tether ever issued ters without supporting or manipulating crypto-prices.”
However, the settlement said: “As of November 2, 2018, ters were no longer backed 1 to 1 by US dollars in a Tether bank account because a large portion of the support in the Deltec account was transferred to Bitfinex. for the funds taken by Crypto Capital, while the corresponding funds transferred from Bitfinex’s Crypto Capital account to Tether’s Crypto Capital account were prejudiced by the actions of Crypto Capital. ”
The $ 18.5 million that the companies are paying as part of the settlement should be seen as a measure of our desire to put this case behind us and focus on our business, ‘said Bitfinex and Tether’s chief executive, Stuart Hoegner , said in a statement.
He said Tether had “voluntarily” provided information to the NYAG on Tether’s reserves, and would do so for another two years.
“We have proposed that as part of the settlement agreement, we will make it known quarterly to the Attorney General’s Office and to the public,” Hoegner said.
The disclosure will include the distribution of cash and cash equivalents in the reserves. It is unclear whether this will take the form of attestations or another update, and whether a third-party auditor or law firm will write the reports. According to the settlement, the disclosures will “substantially” correspond to what the companies provided the NYAG during its investigation. Bitfinex and Tether must also disclose any information about fund transfers.
“The Attorney General’s characterization of these disclosure issues as misrepresentations or breaches of any legal obligation, the Attorney General’s Office essentially concluded that Bitfinex and Tether could have done better to disclose these events,” he said. Michael said.
22 months
New York Attorney General Letitia James announced the legal investigation only in the spring of 2019, revealing that Bitfinex lost access to nearly $ 1 billion and covered the losses with funds from its sister firm Tether. Tether, which shares ownership and key executives with the exchange, has lent Bitfinex $ 550 million and extended a line of credit.
The NYAG investigation has received an order to freeze this line of credit, prevent further fund transfers and force the companies to hand over any documentation on the agreement, to which both businesses objected in court. A judge ruled the NYAG, which subsequently also won an appeal.
Eventually, the companies handed over more than 2.5 million documents, Hoegner said.
‘The loan was made to ensure continuity for Bitfinex customers. It has since been repaid early and in full, including interest. “The loan did not at any stage affect customers or Tether’s ability to process repayments,” said Michael.
The NYAG investigation did not reduce demand for USDT, the dollar-denominated stable currency issued by Tether. Since the case began, the value of dollar-denominated tokens has grown from $ 2 billion to more than $ 34 billion, according to Tether’s transparency page.
The price of bitcoin recently shed a tear and rose to a new high of more than $ 58,000.
‘We are pleased that our customers have shown loyalty and dedication to our businesses over the past two years while this investigation was ongoing. “We look forward to both companies leading the industry and serving our customers,” said Hoegner.
Missing millions
Since the case entered the public sphere, Bitfinex has been trying to recover the funds owned by Crypto Capital, which is held by law enforcement in Portugal, Poland and the US. It is unclear how long it may take before these cases are resolved, given the different jurisdictions and the ongoing cases against Crypto Capital’s operators.
Last year, Bitfinex filed subpoenas in three different countries to deposit banks that may have had funds for the payment processor.
At the time, Hoegner told CoinDesk through a spokesman that the efforts “were aimed at obtaining further information” about Crypto Capital and its funds. “Bitfinex is the victim of a fraud and claims its rights to funds taken by Crypto Capital through legal measures instituted in different countries.”
Some of these summonses were awarded to the scholarship. The Bitfinex settlement is one of the largest in crypto history. EOS builder Block.one agreed to $ 24 million for $ 24 million in 2019 on allegations that the $ 4 billion sale was an unregistered security offering. Telegram, then an aspiring issuer of digital currencies, also settled $ 18.5 million with the SEC after raising $ 1.2 billion for the TON network, which was eventually scrapped.
UPDATE (23 February 2021, 13:15 UTC): Updated with additional context.