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The New York State Attorney General (NYSAG) is suing cryptocurrency exchange Bitfinex and its Stablecoins are a class of cryptocurrency that aims to provide price stability. A perceived drawback of cryptocurrency is price volatility.... More for fraud. (USDT)
State Attorney General Letitia James announced the results of a probe today which accused Bitfinex of covering up missing funds. The cover-up was made possible by Bitfinex’s own stable coin Tether (USDT), which is supposed to be backed by real dollars.
According to an investigation, Bitfinex was using $850M from Tether’s backed reserves to cover up missing funds on the exchange. The funds apparently went missing sometime in mid-2018.
The lawsuit is being brought against iFinex Inc., which operates the Bitfinex cryptocurrency exchange and owns Tether Ltd. According to the lawsuit, Bitfinex made an effort to hide these missing funds so as to not bring unwanted attention.
Unable to find a reputable bank to work with, the cryptocurrency exchange partnered with Panama-based Crypto Capital, through which Bitfinex mixed customer funds with its own capital. The lawsuit claims that the co-mingled funds with Crypto Capital totaled some $1B.
According to the Attorney General, in October 2018, Bitfinex began to struggle with withdrawals because it had drained customer funds. With Crypto Capital holding the funds with no proper agreement, the funds were foolishly “lost” or, more likely, stolen by Crypto Capital.
Bitfinex has not publically commented on the loss of funds in 2018.
Although Tether had been scrutinized before, this is the first time a state probe has demonstrated that USDT was used to cover up fudged numbers and missing funds.
Bitfinex has been embroiled in controversy before, such as when it suffered a high-profile hack in May 2015 when $72M was stolen. This time around, there’s a good chance the exchange may be forced to significantly downsize — or cease operations, completely — if found guilty.
Do you believe Bitfinex will be found guilty? Are you surprised that Tether was supposedly used to cover up missing funds? Let us know your thoughts below.
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