On September 17, 2020, Bitfinex exchange got some relief from a US judge on the pressure to produce loan documents from 2019. Last week, the exchange had been ordered to turn over requested documents to the New York Attorney General office (NYAG).
The documents pertain to allegations that the exchange drained $700M from the reserves backing its digital coin, Tether, to cover up for $850M in missing funds.
Bloomberg reports revealed that the Judge overseeing the inquiry ruled on Thursday that the document production order from the NYAG is too broad.
He thus gave an order extending the document production request, giving Bitfinex and Tether (USDT) added time to comply with the court’s injunction.
The Judge refused to set a firm deadline for when the documents would be released to the NYAG. The decision to impose such a deadline was left to a special referee, after which the inquiry would resume.
Bitfinex Tapped Tether’s Reserves to Mask Losses
In 2019, the NYAG accused iFinex, the company that operates the Bitfinex exchange and popular stablecoin Tether, of combining client funds with its capital.
IFinex allegedly did this to hide the fact that funds went missing from Bitfinex exchange. The funds obtained from Tether’s reserves helped mask the losses and settle customer withdrawals.
The transfer of funds from Tether to Bitfinex prompted the attorney general’s office to file a lawsuit seeking to uncover ongoing fraud carried out by the affiliated companies.
The suit contained an order instructing iFinex to cease transfers from Tether’s cash reserves to Bitfinex’s accounts. It also suspended dividends payouts to company execs and demanded that Tether and Bitfinex turn over documents about the transferred funds.
Following the lawsuit, bitcoin’s price plunged on April 26 to $5,092, down by 5% from levels that topped $5,580 earlier that week.
The Bitfinex and Tether saga has since dragged on, with the NYAG office demanding that Bitfinex exchange release documents concerning the Tether loan.
Following yesterday’s ruling of an extension to the loan document request, the Attorney general asserted that the exchange had been given more than enough time to resolve the situation since 2019.
Even though the court extended the deadline, it reiterated that Bitfinex must turn over all relevant documents explaining how Tether played a part in this $700M ordeal.
Bitfinex Exchange Pushes Back
Bitfinex has always insisted that it isn’t mandated to share the Tether loan documents since it is not a US-based firm.
The exchange insists that the NY jurisdiction shouldn’t apply to the case and has even unsuccessfully appealed for the NYAG lawsuit’s dismissal.
Charles Michael, a Bitfinex attorney, insisted that the company ought to be allowed to push back against the document production order from the NYAG.
Michael explained that the exchange would continue fighting to reduce the disclosure scope into Bitfinex’s financial history and transactions with Tether.