New York says cryptocurrency exchange Bitfinex hid $850-million loss

FILE - In this Feb. 7, 2018 file photo, a neon sign hanging in the window of Healthy Harvest Indoor
A sign in a business indicates it accepts cryptocurrency.
(Gillian Flaccus / Associated Press)

New York’s top cop said operators of one the world’s biggest cryptocurrency exchanges and digital coins engaged in a cover-up to hide the “apparent loss” of $850 million of comingled client and corporate funds.

The accusations announced Thursday against iFinex Inc., which runs the Bitfinex trading platform, and the issuer of the digital coin Tether speak to one of the most hotly debated questions in the crypto world — whether every Tether really is backed by a U.S. dollar. The answer has big implications for the entire market, because virtual-currency traders use Tether as a substitute for dollars.

The most popular cryptocurrency, bitcoin, dropped 6.7% to $5,126 at 6:33 p.m. in New York, according to Bloomberg data.

“New York state has led the way in requiring virtual currency businesses to operate according to the law,” said New York Atty. Gen. Letitia James, a Democrat who took office in January and brought the civil case. “We will continue to stand up for investors and seek justice on their behalf when misled or cheated by any of these companies.”


Justice Debra James in Manhattan issued an order barring iFinex and Tether from any further violations of state law while the case proceeds, and to retain all documents tied to the probe, court records show.

Kasper Rasmussen, a spokesman for Bitfinex, didn’t immediately respond to a message seeking comment. There was also no response to messages left with a Bitfinex email address for the media and an outside public relations agency.

Bitfinex allegedly lost more than $850 million of comingled funds that it reportedly handed over to a Panamanian firm, Crypto Capital Corp., the attorney general said. Bitfinex transferred the funds “without any written contract or assurance”’ and didn’t disclose the loss to investors, according to the statement.

Executives at Bitfinex and Tether allegedly cooked up a series of “conflicted corporate transactions” in which Bitfinex gave itself access to up to $900 million of Tether’s cash reserves, “which Tether for years repeatedly told investors fully backed the Tether virtual currency ‘1-to-1,’” according to the statement.


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