Tether price falters following iFinex investigation, bitcoin moved from Bitfinex ๐จ This article is 5 years old...
News โธ New York โธ Bitfinex โธ Tether โธ Regulation
Tether price falters following iFinex investigation, bitcoin moved from Bitfinex
4 min read
Updated: Nov. 7, 2019 at 6:02 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Following a probe which revealed the apparent loss of $850 million in funds, the attorney general of the State of New York obtained a court order against iFinex Inc., which operatesย Bitfinex and owns Tether Ltd., ordering them to cease further dissipation of the US dollar assets which back the USDTย stablecoin.
A $850 Million Cover Up
In a press release the Attorney General revealed that in 2018 iFinex Inc. handed almost a billion dollars without any written contract or assurance over to Crypto Capital Corp., a Panamanian payment processor. The idea was that Crypto Capital was going to handle Bitfinex customers-withdrawal requests. Later on, the Panamanian payment processor lost control of the funds and could no longer process the orders. After acknowledging this, iFinex Inc. failed to inform its investors of the potential losses and engaged in unlawful behavior.
โOur investigation has determined that the operators of the โBitfinexโ trading platform, who also control the โtetherโ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds,โ said Attorney General James.
The report disclosed that executives of Bitfinex and Tether dealt with the liquidity shortage in a series of transactions whereby the cryptocurrency exchange gave itself access to up to $900 million of Tetherโs cash reserves that were used to back the stablecoin. As stated in the press release:
โBitfinex has already taken at least $700 million from Tetherโs reserves. ย Those transactionsโwhich also have not been disclosed to investorsโtreat Tetherโs cash reserves as Bitfinexโs corporate slush fund, and are being used to hide Bitfinexโs massive, undisclosed losses and inability to handle customer withdrawals. ย The Officeโs filings further detail how the companies obfuscated the extent and timing of these corporate transactions during the Officeโs investigation.โ
More alarmingly, the transcript revealed:
โBTC could tank to below 1k if we donโt act quickly.โ
When unprocessed withdrawal requests peaked, Bitfinex stated in a Medium post on Oct. 15, 2018, that:
โAll cryptocurrency and fiat withdrawals are and have been processing as usual without the slightest interference.โ
Fiat deposit update – October 15th, 2018. https://t.co/F8o2ltVCN4 pic.twitter.com/ukE9JsRB0j
— Bitfinex (@bitfinex) October 15, 2018
Internally, the situation was different, as internal transcripts within the company revealed. A conversation between a Bitfinex executive (Merlin) and a Crypto Capital representative (CCC) showed signs the situation was getting out of control. This conversation happened on the same day that they were claiming that all fiat withdrawals were being processed as usual:
โMerlin [15.10.18, 09:53]: I have been telling you since a while.
Merlin [15.10.18, 09:53]: Too many withdrawals waiting for a long time.
Merlin [15.10.18, 09:54]: Is there any way we can get money from you? Tether or any other form? Apart with Crypto Capital we are running low on cash reserves.
Merlin [15.10.18, 09:54]: Please help.
CCC [15.10.18, 18:09:54]: I know. We are following the banks we post as many as we can and let them process as much as possible according to them. Everytime we push them they push back with account closure without reason.
Merlin [15.10.18, 09:55]: Dozens of people are now waiting for a withdrawal out of Crypto Capital.
Merlin [15.10.18, 10:01]: I need to provide customers with precise answers at this point, canโt just kick the can a little more.
Merlin [15.10.18, 10:02]: The international, I mean.
CCC [15.10.18, 10:02]: I will keep you posted here.
CCC [15.10.18, 10:02]: On the process of all international payments.
Merlin [15.10.18, 10:02]: Please understand this could be extremely dangerous for everybody, the entire crypto community.
Merlin [15.10.18, 10:03]: BTC could tank to below 1k if we donโt act quickly.โ
Since the ultimate solution to fulfill customersโ withdrawal requests was to combine customer and company funds together and not disclose these actions, iFinex Inc. is now being sued for fraud by the Attorney General of the State of New York, Letitia James. The AG is not seeking to prevent legitimate trading on Bitfinex or redemptions by Tether. Instead, she wants the court to grant a preliminary injunction to โpreserve the status quoโ pending completion of the investigation, which has now required that the operators of the companies stop moving money from Tetherโs reserves to Bitfinexโs bank accounts, halt any dividends or other distributions to executives, and turn over documents and information.
Bitfinex Fires Back
After the court order became public, Bitfinex released a statement on its website, arguing that the $850 million in question were not lost by Crypto Capital, but had been โseized and safeguardedโ and it is working to get the money back. The company sustained:
โBoth Bitfinex and Tether are financially strongโfull stop.โ
In addition, the cryptocurrency exchange suggested the attorney generalโs filings were โwritten in bad faith and riddled with false assertionsโ and characterized them as an overreach. Bitfinex claimed that it had been cooperating with the investigation, and it planned to fight the order.
Notably, two things happened before and after the Attorney Generalโs press release was issued:
- On Aug. 2, 2016, roughly 119,756 Bitcoins (BTC) were stolen from Bitfinex wallets, just a few hours before a court order obtained against iFinex Inc. became public, 550 of those BTC were moved.
- Right after the news dropped, USDT crashed as low as $0.9551.
Itโs still unclear how the loss of funds will impact Tether or Bitfinex. Given the amount of USDT circulating in the cryptocurrency markets, a loss of confidence in the stablecoin could have a material impact on the price of bitcoin.
Tone Vays, a former Wall Street analysts, believes that if Tether blows up there could be short-term panic in the market, but people will then realize that the only way to get out of it will be by quickly spending their Tethers on other cryptocurrencies that they can move out of the exchange.
Bitcoinโs hourly chart in Bitfinex adds credibility to Vaysโ idea. Around the time when the news dropped, BTC fell approximately $300 before rebounding. Moreover, Jacob Canfield, the co-founder of SignalProfits.com, tweeted that 650,000 Ethereum had been withdrawn from Bitfinex and it was reported that another 3,999 BTC had also been moved off the exchange.
While the investigation continues, the court order barred the operators of Bitfinex from further draining the cash reserves of Tether or taking dividends from the reserves of the companies. The order also compels the companies to produce documents relevant to the investigation, which they have so far โfailedโ to do so.
Tether USDt Market Data
At the time of press 6:02 am UTC on Nov. 7, 2019, Tether USDt is ranked #8 by market cap and the price is down 0.68% over the past 24 hours. Tether USDt has a market capitalization of $3.1 billion with a 24-hour trading volume of $27.2 billion. Learn more about Tether USDt ›
Crypto Market Summary
At the time of press 6:02 am UTC on Nov. 7, 2019, the total crypto market is valued at at $271.6 billion with a 24-hour volume of $94.7 billion. Bitcoin dominance is currently at 56.79%. Learn more about the crypto market ›
Mentioned in this article
Latest New York Stories
Latest Tether Stories
You might also enjoy...
Latest Press Releases
In this article
Tether
$1.00071
Launched in 2014, Tether is a blockchain-enabled platform designed to facilitate the use of fiat currencies in a digital manner.
Bitcoin
$60,563.98
Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.
Bitfinex
Bitfinex is a digital asset trading platform offering state-of-the-art services for digital currency traders and global liquidity providers.
Jacob Canfield is recognized for his expertise in trading and his entrepreneurial acumen, with a rich background as an Army veteran and a record of successful business ventures across various sectors.
Tone Vays, a seasoned professional in the financial sector, spent nearly a decade on Wall Street.
