Bitfinex and Tether pay a fine of $ 18.5 million in New York

New York Attorney General Letitia James continued her efforts today to protect investors from fraudulent and misleading virtual or “crypto” currency trading platforms by urging Bitfinex and Tether to cease trading with New Yorkers.

Millions across the country and around the world today use virtual currencies as decentralized digital currencies – as opposed to real, regulated government currencies, including the US dollar – to purchase goods and services, often anonymously, through secure online transactions. Stable coins in particular are virtual currencies that should always have the same real dollar value. In the case of Tether, the company demonstrated that each of its stablecoins was backed one-to-one by US dollar reserves. However, an investigation by the Attorney General’s Office (OAG) found that iFinex – the operator of Bitfinex – and Tether made false statements about supporting the stablecoin “Tether” and moving hundreds of millions of dollars between the US two companies to the truth Covering up Bitfinex’s massive losses. An agreement with iFinex, Tether and their affiliates states that they will cease trading with New Yorkers and force the companies to pay fines of $ 18.5 million. They also need to take a number of steps to increase transparency.

“Bitfinex and Tether have ruthlessly and illegally covered massive financial losses to keep their program going and protect their bottom line,” said Attorney General James. “Tether’s claim that its virtual currency was fully backed by US dollars at all times was a lie. These companies masked the real risk investors were exposed to and were operated by unlicensed and unregulated individuals and companies operating in the darkest corners of the financial system. This resolution makes it clear that those who trade virtual currencies in New York State who believe they can circumvent our laws cannot and will not do so. Last week we shut down Coinseed for fraudulent behavior. This week we are taking action to end Bitfinex and Tether’s illegal activities in New York. These legal actions send a clear message that we will stand up to corporate greed, whether it comes from a traditional bank, virtual forex trading platform, or any other type of financial institution. “

A stable coin without stability – cables were not always fully secured

The OAG’s investigation found that as of mid-2017, Tether had no access to banking around the world and therefore did not hold reserves to secure the cables in circulation at the price of one dollar per cable for certain periods. contrary to his representations. In 2017, amid persistent questions as to whether the company actually had adequate funds, Tether released a self-proclaimed “review” of its cash on hand, calling it “in good faith on our behalf, to provide an interim analysis of our cash position. “In reality, however, the money allegedly backing the leash had not been deposited into Tether’s account until the morning of the company’s“ verification ”.

On November 1, 2018, Tether released another self-proclaimed “review” of its cash reserve. This time at Deltec Bank & Trust Ltd. in the Bahamas. The announcement was based on a letter dated Nov. 1, 2018 that stated the cables were fully cash backed at one dollar per cable. The very next day, November 2, 2018, Tether began transferring funds from his account, eventually moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. As of November 2, 2018 – one day after their last “review” – the Tethers were no longer one-to-one covered by US dollars in a Tether bank account.

To date, Tether represents that over 34 billion Tether have been issued and are pending and traded in the market.

If no bank can help, turn to shady companies – Bitfinex has hidden massive losses

In 2017 and 2018, Bitfinex increasingly relied on third-party “payment processors” to handle customer withdrawals and withdrawals from the Bitfinex trading platform. In 2018 when trying to “move money [more] efficient, ”Bitfinex suffered due to its relationship with a supposedly Panama-based company known as“ Crypto Capital Corp. “Is known to have a massive and undisclosed loss of funds. Bitfinex responded to ubiquitous public reports of liquidity problems by misleading the market and its own customers. On October 7, 2018, Bitfinex claimed “not fully understanding the arguments that are supposed to prove us insolvent” when its executives had spent months asking Crypto Capital to return nearly $ 1 billion in assets.

On April 26, 2019 – after the OAG announced in court documents that approximately $ 850 million had disappeared and Bitfinex and Tether misled their customers – the company made a false statement: “We were informed that this Crypto Capital amounts not present are lost but have actually been confiscated and protected. “The reality, however, was that Bitfinex actually did not know where all of the client funds held by Crypto Capital were and therefore had no such assurance to make.

The OAG investigation sheds light on illicit trafficking in New York State

From the very beginning of interacting with the OAG, iFinex and Tether falsely claimed that they did not allow New Yorkers to trade. The OAG investigation found that this is not true and that the companies have been operating as unlicensed and unregulated companies for years, illegally trading virtual currency in New York state.

In April 2019, the OAG filed for and received an injunction against further transfers of assets between and between Bitfinex and Tether that belong to and are controlled by the same small group of people. That lawsuit – under Section 354 of the New York Martin Act – ultimately resulted in a July 2020 decision by the New York State Appellate Division of the Supreme Court, First Department, which found that:

Bitfinex and Tether – and other virtual currency trading platforms and cryptocurrencies operated from various locations around the world – remain under the jurisdiction of the OAG when doing business in New York.
The stablecoin tether and other virtual currencies were “commodities” under Section 352 of the Martin Act and stated that virtual currencies can also represent securities within the meaning of the law. and
The OAG had established the factual rating required to uphold the injunction and required the submission of documents and information relevant to its investigation prior to filing a formal lawsuit.
Bitfinex and Tether are not allowed to continue illegal activities in New York

Under today’s agreement, Bitfinex and Tether will have to cease all trading activities with New Yorkers. In addition, these companies must submit regular reports to the OAG to ensure compliance with this ban.

In addition, companies must submit to mandatory reporting on core business functions. Specifically, both Bitfinex and Tether are required to report quarterly that they are properly segregating corporate and customer accounts, including the segregation of government-issued and virtual currency trading accounts by company executives, and undergoing mandatory reporting regarding transfers of assets between and between Bitfinex and Tether units. In addition, Tether must offer disclosure of assets supporting Tethers by category, including disclosure of loans or receivables to or from affiliates. Companies will also provide more transparency and reporting requirements regarding the use of non-bank payment processors or other entities that are used to transfer customer funds.

Eventually, Bitfinex and Tether have to pay $ 18.5 million in fines to New York State.

In September 2018, the OAG published its report on the Integration Initiative for Virtual Markets, which highlighted the “significant potential for conflict between interests” of trading platforms, insiders and issuers of virtual currencies. Bitfinex was one of the trading platforms examined in the report.

This matter was handled by John D. Castiglione, Senior Enforcement Counsel, and Brian M. Whitehurst, Assistant Attorney General, and Tanya Trakht of the Investor Protection Bureau. Deputy Attorneys General Ezra Sternstein and Johanna Skrzypczyk of the Internet and Technology Bureau; and Paralegal Charmaine Blake – all overseen by Internet and Technology Bureau Chief Kim Berger and Kevin Wallace, Senior Enforcement Counsel for Economic Justice. The Investor Protection Bureau is headed by Chief Peter Pope. Both the Internet and Technology Bureau and Investor Protection Bureau are part of the Economic Justice Department overseen by Assistant Attorney General Chris D’Angelo and First Assistant Attorney General Jennifer Levy.

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