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Bitfinex Permitted to Withhold Documents About Alleged $850 Million Cover-up

The Appellate Division of the New York Supreme Court has ruled that Bitfinex is legally allowed to withhold documents pertaining to the alleged cover-up of an $850 million loss on its trading platform.

A court order authorized by court justices David Friedman, Peter Tom, Troy Webber, Ellen Gesmar and Jeffrey Oing has stopped the previous ruling of New York Supreme Court Judge Joel Cohen that required Bitfinex to produce documents and information related to the loss of $850 million from its trading platform.

The story so farIn April 2019, the New York Attorney General’s Office filed a complaint against Bitfinex, parent company iFinex and affiliated stablecoin issuer Tether—alleging that the companies were in violation of New York law in connection with activities that may have defrauded New York-based crypto investors by covering up the loss on the Bitfinex trading platform.

Attorney General Letitia James revealed that her office obtained a court filing which alleged that Tether had given Bitfinex access to $900 million of Tether’s cash reserves through a series of masked corporate transactions. The funds were then used to hide the losses and satiate clients’ withdrawal requests.

James wrote at the time that the Attorney General’s office had determined that, “Operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds. 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.”

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US Court to Determine Which Law Firm Should Lead Classic Action Against Tether

Stablecoin issuer Tether, owned by iFinex and its other subsidiary, Bitfinex exchange, is facing charges of allegedly manipulating the price of Bitcoin in 2017. Although the company, on the other hand, is vehemently in denial of the charges leveled against it.

This leaves the court with the responsibility of determining which firm should lead the classic action against Tether. Proceedings in a US courthouse for the Southern District of New York, pass judgment on Katherine Failla heard on Feb. 25, from three plaintiff firms who brought the charges against iFinex et.al. With court set to determine which firms will take the lead in a magnificence motion with more than tens of thousands of aggrieved contributors.

As the legal process to determine who takes the lead gets tense, Kyle Roche, representing plaintiffs Leibowitz et al., submitted that his company Roche Cyrulnik Freedman LLP was once the primary platform to analyze the alleged price manipulation, the primary to record a grievance, and the only one to have in possession a high level of experience in cryptocurrency. Roche stated, “cryptocurrency is exclusive, the legislation is new, and this example gives tricky definitional problems.”

Who is in the right position to sue Tether?

Karen Lerner of Kirby Mcinerney LLP, who represents plaintiffs’ Younger, Kurtz, Crystal, et al., in her arguments she stated, “We’re magnificence motion legal professionals, and we’re antitrust and commodities legal professionals.” She contended that although they weren’t the primary to record a grievance, their paintings used to be essentially the most authentic, with in-depth regression research that known 115 explicit dates when marketplace manipulation befell and 256 precise transactions. Their company’s proprietary set of rules would display “a lockstep pricing dating between spot Bitcoin and Bitcoin futures,” she argued.

With doubt within the crypto community in doubt for a long time as to the allegations that Tether is in fact supported by the US dollar at a 1:1 ratio as claimed; and the Griffin paper finding Insufficient Tether reserves, it will be beneficial to all parties involved in the case brought against Tether and its partner to have the most capable firm lead the case before the court.

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Tether Ordered by New York Judge to Document USDT Backing

A longstanding crypto price manipulation case between Tether and Bitfinex and some of its users may be turning against the stablecoin firm as the presiding judge has ordered the firm to provide evidence of the USDT backing of its reserves at the time.

With the case dating back to 2019, Bitfinex, and iFinex, Tether’s parent company, both denied the fact that they were falsely inflating the USDT reserves at the time to manipulate prices.

In their defense, they told the judge for the case is baseless and that it should be thrown out, considering the fact that they had already provided sufficient documentation to both the United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in their previous enforcement actions against it.

With their defence and earlier permission to withhold the documents, Katherine Polk Failla, the judge for the United States District Court for the Southern District of New York believes providing the required documentation is important to bolster the Plaintiff’s argument and, as such, ordered the defendants to produce it.

While it is unclear whether iFinex and Bitfinex kept the right records to present to the District Court, the company has actually been more transparent with its attestation reports detailing the composition of its reserve.

This new approach to transparency came with the settlement reached with the Office of the New York Attorney General (NYAG) back in February of last year. The company paid the sum of $18.5 million to the regulator and was made to pledge to publish regular updates of its reserve backing, as well as, blocking New York residents from using its products.

While Tether was notably not anticipating a judgment like this, the company recently tapped the services of BDO Italia as the primary attestator for its USDT reserves. With BDO ranked as the fifth largest accounting firm in the world, many consider the move as one of Tether’s most ambitious to gain the trust of regulators around the world.

iFinex Proposes $150 Million Share Buyback from Bitfinex Hack Victims

iFinex, the parent company of Bitfinex, has proposed to repurchase $150 million worth of its shares distributed to customers as compensation for a 2016 security breach on the Bitfinex cryptocurrency exchange, according to a Bloomberg report. The breach, which occurred in 2016, resulted in a loss of $71 million, with around 36% of Bitfinex’s total user balance, entirely denominated in Bitcoin, being stolen. Due to insufficient cash reserves at the time, Bitfinex could not refund the affected customers.

To address the financial shortfall, Bitfinex issued recovery-right-tokens (RRT) and iFinex shares to the impacted users, valuing each share at ten dollars. A total of 15 million shares were distributed, stemming from a stock exchange transaction in 2016 via the BnkToTheFuture investing platform. Affected customers received RRT BFX tokens, which were later redeemed by iFinex through BnkToTheFuture for company shares.

On September 22, iFinex communicated its buyback intentions to its shareholders through a letter. The move, motivated by the company’s “positive performance” over the recent years, aims at offering liquidity to investors holding the somewhat illiquid shares. The buyback program is set to be selective, available only to a limited number of iFinex and its subsidiaries’ directors. There is no predetermined minimum shareholding requirement to participate in the buyback, and shareholders have until October 24 to decide on the offer.

Following the share distribution, iFinex’s valuation soared to $1.7 billion post the $10 per share offering, a significant leap from its $120 million valuation in 2016. The share buyback proposal reflects a move to re-consolidate ownership amid a heightened valuation, providing an exit opportunity for the early investors who were forced to take equity as compensation.

US Congress Proposes Bill to Restrict Government Interactions with Foreign Adversarial Blockchain Networks

On November 8, 2023, the United States Congress witnessed the introduction of a significant piece of legislation – H.R.6307. Sponsored by Representative Zachary Nunn [R-IA-3], this bill aims to defend against the economic and national security risks posed by foreign adversarial blockchain networks. The bill has been referred to several key committees, including the House Foreign Affairs, Financial Services, and Intelligence (Permanent Select), for comprehensive consideration.

Central to the bill’s purpose is the prohibition of U.S. government personnel from engaging in business with blockchain companies based in China. This move signifies Washington’s growing skepticism towards China’s role in the cryptocurrency sector. The bill specifically targets iFinex, the parent company of Tether and issuer of USDT, the leading stablecoin by market cap. Co-led by Representatives Zach Nunn (R-Iowa) and Abigail Spanberger (D-Va.), the Creating Legal Accountability for Rogue Innovators and Technology (CLARITY) Act, extends these restrictions to include transactions with Chinese-based blockchain networks.

A key driver behind this legislative move is the concern over national security and data privacy. The bill seeks to prevent foreign adversaries from gaining backdoor access to critical national security intelligence and the private information of Americans. Rep. Nunn highlighted the urgency of addressing China’s significant investments in blockchain infrastructure, citing the potential risks to national security and data privacy.

The bill delineates clear restrictions for government personnel, banning transactions with specific entities like The Spartan Network, The Conflux Network, and Red Date Technology Co., the latter being pivotal in China’s national blockchain initiative and its central bank digital currency (CBDC), known as the digital yuan.

In light of these developments, Red Date Technology responded by clarifying the intended use of the BSN Spartan Network for conventional IT, not crypto. The company has invited U.S. officials to review its open-source code, encouraging independent assessments of their technology.

This legislative proposal follows a trend of increased scrutiny over Chinese technology in the U.S., paralleling earlier actions like the ban on TikTok for government personnel over security concerns. The bill reflects heightened vigilance over foreign involvement in critical technological sectors and the perceived risks they pose to national security.

The introduction of H.R.6307 marks a significant moment in U.S. legislative efforts to address the challenges and risks associated with foreign adversarial blockchain networks. It underscores the importance of maintaining national security and data privacy in the face of rapidly evolving technological landscapes, particularly in the realm of blockchain and cryptocurrencies.