Bitfinex NYAG probe Tether ends $ 18.5 million deal

A closely watched legal case involving Bitfinex and Tether with major implications for the cryptocurrency industry has been resolved.

The New York Attorney General’s (NYAG) office reached a settlement with Bitfinex during a 22-month investigation into whether the cryptocurrency exchange sought to cover the loss of $ 850 million in corporate and client funds held by a payment processor. .

The NYAG office announced the settlement on Tuesday, formally ending the investigation that began in April 2019. Under the terms of the agreement, Bitfinex and Tether will not admit to wrongdoing, but will pay $ 18.5 million and provide quarterly reports. that describe the composition of Tether’s reserves for the next two years. Most significantly, these reports will match the information Tether has already provided to the NYAG about its reservations. NYAG will not press charges as part of the settlement.

In a statement, New York Attorney General Letitia James said: “Bitfinex and Tether recklessly and illegally covered up massive financial losses to keep their scheme running and protect its bottom line. Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie. “

The deal may help solve, in one way or another, an issue that has long plagued the entire $ 1.6 trillion global cryptocurrency market. By requiring Tether to provide a greater level of transparency than ever before about the backing of its USDT stablecoin, a fundamental piece of cryptocurrency plumbing, the deal could replace whispering and guessing with regular data. Depending on the level of detail provided, investors might have better tools to assess the claim that the company has been printing unsupported tokens to artificially boost the market benchmark bitcoin price.

Under the settlement, the NYAG claims that Bitfinex and Tether held a portion of Tether’s reserves in trust for several months in 2017 and did not disclose their issues with Crypto Capital Corp. in a timely manner in their factual findings. The NYAG also found flaws in a blog post Bitfinex published after the investigation was first announced, where the exchange said that funds held by Crypto Capital had been “seized and guarded.”

‘Solve accusations’

Charles Michael, a partner at the law firm Steptoe & Johnson LLC who represented the companies in the investigation, said the settlement “resolves allegations of public disclosures” about Tether’s loan to Bitfinex.

“To the credit of the Attorney General’s Office, after two and a half years of investigation, their findings are limited only to the nature and timing of certain disclosures,” Michael said. “And contrary to online speculation, no finding was found that Tether ever issued moorings without backing or to manipulate crypto prices.”

However, the agreement read: “As of November 2, 2018, the ties were no longer backed 1 to 1 for US dollars in a Tether bank account, because a substantial part of the support in the Deltec account had been transferred to Bitfinex to offset the funds taken by Crypto Capital, while the corresponding funds transferred from Bitfinex’s Crypto Capital account to Tether’s Crypto Capital account were affected by Crypto Capital’s actions. “

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 matter behind us and focus on our business,” Bitfinex and Tether General Counsel Stuart Hoegner said in a statement.

It said Tether “voluntarily” provided the NYAG with information about Tether’s reservations and will continue to do so for two years.

“We proposed that, as part of the settlement agreement, we would release additional information on Tether’s reserves to both the Attorney General’s Office and the public on a quarterly basis,” Hoegner said.

The disclosures will include the breakdown of cash and cash equivalents found in the reserves. It is not clear if this will take the form of attestations or some other type of update, or if an external auditor or a law firm will write the reports. The settlement only said that the disclosures will match “substantially” what the companies provided to NYAG during its investigation. Bitfinex and Tether must also disclose any information about fund transfers between them.

“Setting aside the Attorney General’s characterization of these disclosure issues as misrepresentations or violations of any legal obligations, the Attorney General’s Office concluded, in essence, that Bitfinex and Tether could have done better to publicly disclose these events,” said Michael .

22 months

New York Attorney General Letitia James first announced the legal investigation in the spring of 2019, revealing that Bitfinex had lost access to nearly $ 1 billion and had covered the losses with funds from its sister company Tether. Tether, which shares ownership and key executives with the exchange, loaned Bitfinex $ 550 million and extended a line of credit.

The NYAG investigation secured a court order to freeze this line of credit, prevent further fund transfers and compel the companies to turn over any documentation on the deal, which both companies objected to in court. A judge ruled in favor of the NYAG, which subsequently also won an appeal.

In the end, the companies turned over more than 2.5 million documents, Hoegner said.

“The loan was made to guarantee the continuity of Bitfinex clients. Since then it has been reimbursed early and in full, including interest. At no point did the loan affect customers or Tether’s ability to process repayments, “said Michael.

The NYAG investigation did not diminish demand for USDT, the dollar-pegged stablecoin issued by Tether. Since the case began, the value of the dollar-pegged tokens in circulation has grown from $ 2 billion to more than $ 34 billion, according to Tether’s transparency page.

The price of bitcoin has soared more recently, climbing to a new all-time high of over $ 58,000.

“We are pleased that our clients have shown loyalty and commitment to our businesses over the past two years while this investigation was ongoing. … We expect both companies to continue to lead the industry and serve our customers, ”said Hoegner.

Millions lost

Since the case entered the public sphere, Bitfinex has attempted to recover funds held by Crypto Capital held by law enforcement officials in Portugal, Poland, and the US. It is unclear how long these could take. cases to be resolved, given the different jurisdictions and ongoing cases against Crypto Capital operators.

Last year, Bitfinex requested subpoenas in three different states, seeking to remove banks that may have had funds for the payment processor.

At the time, Hoegner told CoinDesk through a spokesperson that the efforts were “directly aimed at getting more information” about Crypto Capital and its funds. “Bitfinex is a victim of fraud and is asserting its rights to the funds taken by Crypto Capital through legal measures initiated in various countries.”

The swap has received some of these subpoenas. The Bitfinex deal is among the largest in the history of crypto. EOS builder settled with the SEC for $ 24 million in 2019 over allegations that its $ 4 billion token sale was an offering of unregistered securities. Telegram, at the time an aspiring digital currency issuer, also settled with the SEC for $ 18.5 million after raising $ 1.2 billion for the TON network, which was ultimately scrapped.

UPDATE (February 23, 2021, 13:15 UTC): Updated with additional context.

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