Bitfinex accused by NY authorities of trying to mask US$850m loss

Cryptocurrency exchange Bitfinex has been accused by New York authorities of trying to mask an US$850 million loss using cash reserves from the Tether virtual currency.

New York Attorney-General Letitia James said her office had obtained a court order compelling Bitfinex’s owner iFinex and Tether to turn over a large number of documents and to cease alleged activities that could violate New York law.

“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 US$850 million dollars of co-mingled client and corporate funds,” James said in a statement.

James said that the Attorney-General’s office had issued subpoenas to Bitfinex and Tether in November last year.

“As alleged in court papers filed by the Attorney General’s office, the Bitfinex trading platform allows New Yorkers to purchase and trade virtual currencies, including the so-called “Tether” stablecoin, a virtual currency the companies long claimed was “backed 1-to-1” by US dollars held in cash reserve,” the statement continued.

The NY Attorney-General alleged Bitfinex handed over US$850 million to a Panamanian entity called Crypto Capital Corp, “without any written contract or assurance”.

The office went on to allege that the loss was “never disclosed to investors” and that “in order to fill the gap, executives of Bitfinex and Tether engaged in a series of conflicted corporate transactions whereby Bitfinex gave itself access to up to US$900 million of Tether’s cash reserves”, of which it had taken “at least US$700 million”.

Cryptocurrencies including Bitcoin fell by about 5.5 percent on the news.