Bitfinex and Tether have agreed to pay an $18.5mln settlement to the New York attorney general’s office as well as cease trading activity in the state.
The outcome was confirmed in a statement released by New York attorney general (NYAG) Letitia James after almost two years of legal proceedings between the companies and the state. In 2019 legal proceedings were brought against Bitfinex after it had essentially borrowed money from its sister-company Tether to plug operational costs.
The announcement outlines how the NYAG alleged that Bitfinex used hundreds of millions of dollars from Tether to cover the loss of around $850mln in users funds which were being held by payment processor Crypto Capital. The firm had some of its accounts frozen in different countries, which hampered Bitfinex’s ability to manage customer withdrawals.
The NYAG also alleged that Bitfinex and Tether had misled investors about the backing of USDT tokens by US dollar reserves. This was then compounded by the line of credit that was extended to Bitfinex by Tether, essentially using funds that should be reserved for the redemption of USDT to US dollars to cover the cash flow problems that Bitfinex was experiencing due to its funds being locked up in frozen Crypto Capital accounts.
Terms of the settlement
First and foremost, the companies have agreed to pay a monetary settlement to the value of $18.5mln for having made false statements about the backing of circulating USDT tokens and the movement of hundreds of millions of dollars from Tether to Bitfinex to cover its loss of funds.
Another major term of the settlement has seen Tether and Bitfinex agree to cease trading activity with persons and institutions in the state of New York. The New York attorney general sets an important precedent for companies acting in the traditional finance and cryptocurrency space:
“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines. Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system. This resolution makes clear that those trading virtual currencies in New York state who think they can avoid our laws cannot and will not. Last week, we sued to shut down Coinseed for its fraudulent conduct. This week, we’re taking action to end Bitfinex and Tether’s illegal activities in New York,” James said in a statement.
Letitia’s statement also explains how iFinex (the parent company of Bitfinex and Tether) and Tether had falsely claimed that it did not allow trading activity to New Yorkers. The subsequent investigation by the NYAG revealed this to be untrue, with the companies having operated as unlicensed and unregulated entities while trading cryptocurrencies illegally in the state of New York.
The NYAG stated that the agreement between the parties requires Bitfinex and Tether to discontinue any trading activity with individuals or companies based in the state.
Tether highlights no wrongdoing
Tether released a statement on its website following the agreement with the NYAG, highlighting the fact that the firm had admitted no wrongdoing in reaching a settlement.
“Tether and Bitfinex are pleased to have reached a settlement of legal proceedings with the New York Attorney General’s Office. Under the terms of the settlement, we admit no wrongdoing. The settlement amount we have agreed to pay to the Attorney General’s Office should be viewed as a measure of our desire to put this matter behind us and focus on our business,” a statement from Tether explained.
The statement also stresses that after two and a half years of investigations, the NYAG was unable to provide any evidence that Tether had issued USDT tokens without the necessary backing or that it had been guilty of manipulating cryptocurrency markets.