The New York prosecutor’s office in a press release alleged that Bitfinex covered up more than 850 million dollars in losses by using affiliate company Tether’s funds. After the press release from Attorney General’s office on Friday 26th April 2008, the price of bitcoin fell more than 7%.
New York Attorney General, Letitia James’s office announced that they had received a court order to investigate IFinix Inc. The company behind the Bitfinex and Tether has been accused of defrauding millions off of crypto investors. The court order allows the Prosecutor’s office full access to the files and documents of the company, and the court has also ordered IFinix to stop their operations. The company is supposed to cease further dissipation of the money that backs Tether’s value on the exchange. Furthermore, the company is also prohibited from destroying or deleting any documents, files, messages and computer applications. The subpoena also gives the Prosecutor’s office full access to their financial information as well. The court order was issued when Ms. James’s office convinced the judge that there was some misappropriation of investor’s money. While talking about the case, Letitia James said:
“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. Moreover, we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies”.
Bitfinix was founded as a peer-to-peer bitcoin exchange in 2012 by IFinix inc, a Hong Kong-based crypto startup. Registered in the British Virgin Island, IFinix has been accused multiple times of multiple malpractices. The second company involved in the case is Tether Inc, a company based in Santa Monica that is behind the Tether cryptocurrency. Tether is what we call a stablecoin, that is backed by USD. The company has been facing much criticism lately. In 2018 it was discovered that the company was responsible for the bitcoin price hike in 2017 to 20,000$. The scandal unearthed when few researchers saw that whenever Tether released coins onto the market, it pumped the price of bitcoin. Moreover, it was also discovered that Tether Inc. and IFinix Inc. had the same shareholders and was run by the same people.
The case started in 2018 when the office of the Auditor General discovered that the company didn’t have sufficient funds to meet the consumers’ demand, but it seemed to be doing fine. All the withdrawals were going smoothly without any delay. The AGs found that the company had transferred more than 850 million dollars to a Panama company, and didn’t report the loss to its investors. Instead, the company used Tether’s funds to keep the payment service running without disclosing the information to the investors of both the companies. The Report by AG’s office said:
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.
Bitfinix is one of the only exchanges in the world that trades bitcoin for traditional currency and the news affected investor confidence in bitcoin. However, the CEO of Bitfinix Jean Louis van der Velde in an email to investors explained that the filing was inaccurate and filled with speculations and it has no relation to the truth whatsoever. He thanked his customers and investors and assured them that the company was as strong as ever and will come out from this stronger than before.