Bitfinex Under Scanner for Covering Up $850M Loss of Tether Reserves, Markets React

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by Bhushan Akolkar · 4 min read
Bitfinex Under Scanner for Covering Up $850M Loss of Tether Reserves, Markets React
Photo: Marco Verch / Flickr

The fresh allegations come from the New York Attorney General’s office that accuses Bitfinex of covering the massive loss by transferring funds from Tether reserves without informing the exchange’s customers.

The controversial relationship between crypto exchange Bitfinex and stablecoin operator Tether is under scrutiny yet again. On Thursday, April 25, the New York Attorney General’s (NYAG) office accused Bitfinex of covering up its $850 million loss using Tether’s USDT reserves.

Bitfinex is known to have good ties with Tether, as both companies operate under the same parent – iFinex Inc. On Thursday, Attorney General Letitia James announced that she has received a court order against iFinex for violating New York State law and defrauding its local residents.

Citing the investigation conducted by her department, James noted that iFinex “engaged in a cover-up to hide the apparent loss of $850 million of co-mingled client and corporate funds”. She further added:

“New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

The Massive Cover-up

The case further notes that since Bitfinex was unable to find a bank to work with, Bitfinex sent $850 million worth customer and corporate funds to a Panamanian firm, Crypto Capital Corp. Capital Corp is an intermediary payments process which also holds funds from other exchanges. Allegations are that funds from Tether’s reserve were used to cover-up the shortfall but the entire activity was never disclosed to the Bitfinex customers.

Chad Cascarilla, the head of Tether’s rival stablecoin operator Paxos believes that the funds transferred by Tether could amount to 27% of its USD reserves. Well, Tether has been facing such allegations in the past as well where the critics alleged that the stablecoin operator doesn’t have sufficient funds backing its USDT tokens in circulation.

The investigation by NYAG’s office also reproduces some controversial messages sent by Bitfinex executive in August 2018. The messages plead for funds from Crypto Capital to which the exchange had sent funds. The message from a Bifinex executive named Merlin reads:

“The situation looks bad. We have more than 500 withdrawals pending and they keep coming in … [T]oo much money is parked with you and we are currently walking on a very thin crust of ice.”

Merline also warned one of her other contacts “Oz” saying that the situation is very fragile and could pose a big threat to the crypto industry and Bitcoin “could tank” to below $1,000.

The latest issued court order has asked all the Bitfinex top bosses and any other party affiliated to it, to stop making any sort of claims and statements from the USD reserves held by Tether. Similarly, individuals affiliated with iFinex have been asked to not tamper with any documents or records.

Bitcoin Takes a Dive

Soon after the statement coming from the New York Attorney General, Bitcoin and the overall crypto markets took a plunge. As per the daily charts on CoinMarketCap, the crypto market lost $10 billion in just a short time and has just marginally managed to cover since then.

Bitcoin too lost 5% of its value slipping below $5200 levels. At the press time, Bitcoin (BTC) is trading 3% down for $5287 with $93.4 billion market cap.

The latest allegations coming from NYAG’s office are serious statements and Bitfinex has certainly a lot to explain in this matter. Eric Turner, director of research at Messari, which tracks cryptocurrencies, said:

“It definitely brings Tether’s credibility into question. It’s been well known that they have struggled to maintain banking relationships, but this is the first I have heard about them losing access to funds.”

Also, at this point, there’s no official statement coming from Crypto Capital regarding the allocation of funds. However, Bitfinex has issued a statement on its website saying that the “New York Attorney General’s court filings were written in bad faith and are riddled with false assertions”.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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