Bitfinex must face NY suit over $850 million in lost funds

Today the New York State Supreme Court’s appellate division ruled that Bitfinex will have to face New York state allegations that it hid the loss of commingled client and corporate funds. In April 2019, New York Attorney General Letitia James alleged that Bitfinex lost $850 million in client and corporate funds, and then used money from affiliated stablecoin Tether to cover the loss.

The appeals court rejected both Bitfinex’s arguments that Tether is neither a security or commodity, and that since they are not based in New York or cater to local traders, they shouldn’t be answerable to or have to produce certain documents for New York authorities. The appeals court said it has jurisdiction over its issuer.

More specifically, for background, Bitfinex funds were deposited with a Panamian company called Crypto Capital Corp. and then seized by government authorities in various countries. Funds from Tether’s reserve were used to make up the shortfall via a $625 million loan and $900 million line of credit from Tether to Bitfinex. Just months after the allegations were revealed Bitfinex successfully raised $1 billion in an ICO for its LEO exchange token. Bitfinex has since paid back $200 million of the loans.

Why it matters:

• While it’s unclear what consequences Bitfinex and Tether could face, it is now certain they will now face their day in court.
• The news comes just a day after FATF released a new report on stablecoins calling for increased regulation over stablecoins.