{"id":4920,"date":"2019-12-17T10:38:27","date_gmt":"2019-12-17T09:38:27","guid":{"rendered":"https:\/\/www.newmoneyreview.com\/?p=4920"},"modified":"2020-01-13T13:50:07","modified_gmt":"2020-01-13T12:50:07","slug":"bitfinex-digs-in-for-new-york-legal-fight","status":"publish","type":"post","link":"https:\/\/newmoneyreview.com\/index.php\/2019\/12\/17\/bitfinex-digs-in-for-new-york-legal-fight\/","title":{"rendered":"Bitfinex digs in for New York legal fight"},"content":{"rendered":"<p>The battle between New York state prosecutors and the operators of tether, the world\u2019s largest \u2018<a href=\"http:\/\/beta.newmoneyreview.com\/index.php\/2019\/10\/09\/the-stablecoin-race\/\">stablecoin<\/a>\u2019, shows no sign of dying down.<\/p>\n<p>In a <a href=\"https:\/\/iapps.courts.state.ny.us\/nyscef\/ViewDocument?docIndex=PGPA0A4fPa9gWHml\/J5wEQ==\">brief filed on 4 December with the New York State Supreme Court<\/a>, attorney general Letitia James said that her office was fighting \u201can extraordinary effort to halt an ongoing investigation\u2026into potential securities and commodities fraud\u201d.<\/p>\n<p>The attorney general <a href=\"http:\/\/beta.newmoneyreview.com\/index.php\/2019\/04\/26\/ny-prosecutor-alleges-fraud-by-bitfinex\/\">first accused iFinex, the owner of the Bitfinex virtual currency exchange, and Tether, the operator of the tether stablecoin, with fraud in April this year<\/a>.<\/p>\n<p>Tether, according to the state prosecutor, is owned and operated by the same group of executives and employees who run Bitfinex.<\/p>\n<p>The Martin Act, a New York state law passed in 1921, gives the local attorney general broad powers to investigate securities fraud so long as the offer, sale, or purchase of securities and commodities takes place within or from New York.<\/p>\n<p>In its April lawsuit, the state prosecutor sought and obtained an order compelling Bitfinex and Tether to hand over a series of company documents relating to the apparent loss of $850m of commingled client and corporate funds.<\/p>\n<p>\u201cExecutives of Bitfinex and Tether engaged in a series of conflicted corporate transactions whereby Bitfinex gave itself access to up to $900m of Tether\u2019s cash reserves, which Tether for years repeatedly told investors fully backed the tether virtual currency \u20181-to-1\u2019,\u201d the attorney general said in April.<\/p>\n<p>\u201cThose transactions treat Tether\u2019s cash reserves as Bitfinex\u2019s corporate slush fund, and are being used to hide Bitfinex\u2019s massive, undisclosed losses and inability to handle customer withdrawals,\u201d the attorney general said.<\/p>\n<p>Bitfinex and Tether have however fought back, refusing to hand over the requested documents, <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2019-05-22\/crypto-exchange-bitfinex-wins-partial-stay-on-n-y-info-demands\">winning a partial block<\/a> against the New York prosecutor\u2019s demands to produce them, and <a href=\"https:\/\/www.bitfinex.com\/posts\/362\">conducting a $1bn token sale in May<\/a> to help address a cash shortfall at the exchange.<\/p>\n<p>In its latest lawsuit, the attorney general calls on the Supreme Court to put an end to what it sees as obstruction by Bitfinex and Tether.<\/p>\n<p>\u201cEight months have now passed since [New York] Supreme Court issued the [Martin Act Section 354] order, and respondents continue to evade producing the core materials that would establish (or disprove) their liability,\u201d the attorney general wrote in its brief.<\/p>\n<p>\u201cNo principle of law or rule of procedure allows a subject of an investigation to refuse to comply with that investigation in the face of a lawful court order.\u201d<\/p>\n<p>Bitfinex and Tether replied to the New York prosecutor\u2019s latest lawsuit with <a href=\"https:\/\/iapps.courts.state.ny.us\/fbem\/DocumentDisplayServlet?documentId=Za0rHXEQYfN21WKw4GaEnw==&amp;system=prod\">their own brief, filed on 13 December<\/a>, in which they allege the state prosecutor has made a series of legal errors.<\/p>\n<p>First, say Bitfinex and Tether, the original lawsuit filed in April was improperly served. Second, they say, the attorney general lacks jurisdiction because the lawsuit does not arise from any activity by Bitfinex or Tether in New York. Third, they say, \u2018tethers\u2019 (the tether virtual currency) are not securities or commodities within the reach of New York state law.<\/p>\n<p>As a result, say Bitfinex and Tether, the lawsuit should be thrown out.<\/p>\n<blockquote><p>\u201cThe fact that New York sued Bitfinex is a signal to the crypto industry that the regulators are coming\u201d<\/p><\/blockquote>\n<p>\u201cAny criticism of our \u2018tactics\u2019 in this case or in any other proceeding is baseless,\u201d Tether said in a press release issued on December 13.<\/p>\n<p>In its statement, Tether appears to be digging in for a lengthy fight.<\/p>\n<p>\u201cHolders of tethers are entitled to redeem them for exactly what they paid for them \u2013 no more and no less \u2013 and Tether has had no issue satisfying redemption requests to anyone, even after the New York attorney general&#8217;s incendiary case,\u201d Tether said.<\/p>\n<p>\u201cTether has proven itself to be a useful, liquid, and trusted digital asset in the crypto ecosystem, and its use case and market capitalisation since the New York attorney general began this proceeding has grown, not shrunk. Tether serves a key function in the digital economy, and the community&#8217;s chosen stablecoin is here to stay.\u201d<\/p>\n<p>But according to Rick Levin, chair of the fintech and regulatory practice at law firm Polsinelli, there are also no signs that US law enforcement bodies are going to back down in their actions against what they see as rogue operators.<\/p>\n<p>\u201cOften the regulators will start with the smaller players and work their way up the ladder. The fact that the SEC sued Kik and that New York sued Bitfinex is a signal to the crypto industry that they are coming,\u201d Levin told <em>New Money Review<\/em>.<\/p>\n<p><a href=\"https:\/\/www.sec.gov\/news\/press-release\/2019-87\">In June, the Securities and Exchange Commission (SEC) sued the operators of Kik Interactive Inc. for conducting an illegal $100 million securities offering of digital tokens. <\/a><\/p>\n<p>The New York State Supreme Court is expected to set a date for hearings in the Bitfinex\/Tether case early next year.<\/p>\n<p><em>Don\u2019t miss any more New Money Review content:\u00a0<a href=\"http:\/\/eepurl.com\/du6eTr\"><strong>sign up here<\/strong><\/a>\u00a0for our newsletter<\/em><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The battle between New York state prosecutors and the operators of tether, the world\u2019s largest \u2018stablecoin\u2019, shows no sign of dying down. In a brief filed on 4 December with [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":4919,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1013,1012,1053],"tags":[1419,1616,1615,1420],"class_list":{"0":"post-4920","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-account","8":"category-exchange","9":"category-featured-1","10":"tag-bitfinex","11":"tag-letitia-james","12":"tag-new-york","13":"tag-tether"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Bitfinex digs in for New York legal fight - New Money Review<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/newmoneyreview.com\/index.php\/2019\/12\/17\/bitfinex-digs-in-for-new-york-legal-fight\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bitfinex digs in for New York legal fight - New Money Review\" \/>\n<meta property=\"og:description\" content=\"The battle between New York state prosecutors and the operators of tether, the world\u2019s largest \u2018stablecoin\u2019, shows no sign of dying down. 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