The New York Attorney’s Office (NYAG) has settled a lawsuit with Bitfinex and Tether. The firms will pay $ 18.5 million in fines and will be required to provide quarterly reports on their activities.
NYAG announced a settlement of claims against Bitfinex and Tether, officially ending an investigation that began in April 2019. Under the terms of the settlement, Bitfinex and Tether will not acknowledge any violations, but will pay $ 18.5 million in fines and will provide quarterly reports describing the composition of Tether’s reserves over two years.
These reports will be consistent with the reserves information that Tether has already provided to prosecutors. NYAG does not make any charges as part of the settlement. New York Attorney General Letitia James said:
“Bitfinex and Tether have recklessly and illegally covered huge financial losses in order to maintain their scheme and protect their financial results. Tether’s claims that its virtual currency was always fully backed by US dollars were false. ”
The settlement could help resolve the issue of the validity of the reserves backing USDT, which has long been a concern of the cryptocurrency industry. Since Tether will now be required to report its reserves, depending on the level of detail in the reports, investors may have better tools to assess the claim that the company is issuing unsecured tokens to artificially inflate the price of Bitcoin.
New York prosecutors say Bitfinex and Tether held some of their USDT reserves in trust for several months in 2017 and were unable to disclose their problems with Crypto Capital Corp. in a timely manner. NYAG also found false information in a Bitfinex blog post following the first investigation report in which the exchange said the money in Crypto Capital’s possession was “confiscated and protected.”
New York prosecutors filed a complaint against Bitfinex and Tether in April 2019, claiming that Bitfinex covered over $ 850 million in losses by borrowing money from Tether’s reserves.
Settlement of charges
Charles Michael, partner at law firm Steptoe & Johnson LLC, who represented the companies in the investigation, said the settlement “removes the public disclosure claims” regarding Tether’s Bitfinex loan.
“To the attorney general’s credit, after two and a half years of investigation, her findings are limited only by the nature and timing of certain information disclosures,” Michael said. “And contrary to speculation on the Internet, it has not been discovered that Tether has ever issued USDT without collateral or to manipulate cryptocurrency prices.”
However, the agreement states: “As of November 2, 2018, USDT was not collateralized at a 1: 1 ratio of USD in the Tether bank account, as a significant portion of the collateral in the Deltec account was transferred to Bitfinex to refund the money taken by Crypto Capital. However, the corresponding money transferred from the Crypto Capital Bitfinex account to the Crypto Capital Tether account was affected by the actions of Crypto Capital. ”
Stuart Hoegner, general counsel for Bitfinex and Tether, said the $ 18.5 million the companies will pay in the settlement “should be seen as a measure of our willingness to leave this issue behind and focus on our business.” He said that Tether “voluntarily” provided NYAG with information about the USDT collateral and will continue to do so for two years.
“We have proposed that as part of the settlement agreement, we disclose to both the Attorney General’s office and the public on a quarterly basis, additional information about Tether’s holdings,” Högner said.
The disclosures will include a breakdown of cash and cash equivalents held in reserves. It is unclear in what form the data will be provided and whether the reports will be filed by a third party auditor or a law firm. The agreement only says that the disclosures will be “broadly” consistent with what the companies provided NYAG during the investigation. Bitfinex and Tether are also required to disclose any information about money transfers between themselves.
Two-year litigation
In the spring of 2019, New York Attorney General Laetitia James announced a legal investigation that revealed that Bitfinex had lost access to nearly $ 1 billion and covered losses with the money of its subsidiary Tether, which provided Bitfinex with a $ 550 million loan and opened a line of credit. …
The NYAG investigation secured an injunction to freeze that line of credit, prevent any further money transfers, and force companies to hand over any transaction documentation, which both firms objected to in court. The judge ruled in favor of NYAG, which subsequently also won the appeal. The companies ultimately disclosed more than 2.5 million documents, Högner said.
“The loan was provided to ensure the continuity of the Bitfinex exchange. Since then, it has been repaid ahead of schedule and in full, including interest. At no point did the loan impact customers or Tether’s ability to process payments, ”Michael said.
The NYAG investigation did not reduce the demand for USDT. Since the investigation began, USDT’s market capitalization has grown from $ 2 billion to over $ 34 billion. The price of BTC has recently gone up sharply, climbing to a new all-time high of over $ 58,000. However, at the beginning of the week, there was a correction in the market and bitcoin returned to $ 46,000.
“We are delighted that our customers have shown loyalty and commitment to our business over the past two years as this investigation continues … We hope both companies continue to lead the industry,” said Högner.
Missing millions
Following the investigation, Bitfinex and Tether sued to return $ 800 million of client money frozen in four countries after the seizure of Crypto Capital accounts. It is unclear how long it might take to resolve this issue, given the different jurisdictions and current cases against Crypto Capital operators.
In the fall of 2019, the Attorney’s Office for the Southern District of New York accused Crypto Capital founder Oz Josef of bank fraud, conspiring to carry it out, and providing money transfer services without a license. Last spring, iFinex, the parent company of Bitfinex, sued SunTrust Bank in Georgia, Bank of Colorado in Colorado and Arizona bank ABT & Trust, hoping to recover the $ 800 million blocked. At the time, Högner said the effort was “seeking more information.” about Crypto Capital and its money.
“Bitfinex has been a victim of a scam and is defending its rights to the money stolen by Crypto Capital through legal action initiated in various countries.”
The Bitfinex and Tether settlement is one of the largest in cryptocurrency history. In October 2019, Block.One paid the SEC $ 24 million for an unregistered EOS ICO, and Telegram agreed to pay $ 18.5 million last summer to settle a lawsuit with the SEC over the TON ICO.
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