Bitfinex: New York State Attorney General Can't Win

Odaily资深作者

2019-05-08 18:49 (UTC+8)

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The reason why Bitfinex is so emboldened is that they found that the New York State Attorney General's Office had insufficient reasons to sue them under the Martin Act.

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The reason why Bitfinex is so emboldened is that they found that the New York State Attorney General's Office had insufficient reasons to sue them under the Martin Act.

This article comes fromBitcoin Magazine, original author: Colin Harper

Odaily Translator |

This article comes from

, original author: Colin Harper

Odaily Translator |

In 2009, Merrill Lynch mobilized client funds to cover shortfalls caused by its own trading activities, but the New York State Attorney General's Office did not use the Martin Act to restrain Merrill Lynch at the time.

Now, the same thing happened to Bitfinex, they were found to have "misappropriated" $850 million from Tether (USDT) to make up for the shortfall, only to be sued by the New York State Attorney General's Office, and the confrontation between the two parties is escalating .

One is a well-known cryptocurrency exchange in the industry, and the other is the highest legal regulator in New York State. They obviously do not want to make any concessions to each other.

Earlier, a corner of the New York State Attorney General's Office filed a lawsuit in the state court, requiring Bitfinex to disclose more information in response to details of its $850 million funding gap. However, Bitfinex seems to have ignored the regulator's complaints, and its parent company iFinex even launched a $1 billion token sale project.

In the latest letter submitted by the two parties to the New York State Supreme Court, the New York State Attorney General’s Office and Bitfinex refused to give in to each other. On the surface, they both made some responses to the previously issued documents, but the content of the responses was still The same "recipe", the same "taste", and even the caliber and wording have not changed much.

However, Bitfinex's attitude seems to be much tougher this time. They not only continue to deny any wrongdoing, but also "reverse it", claiming that the New York State Attorney General's Office has no legal basis to further investigate their business operations, let alone unilaterally Cut off their loan line from Tether.

On the other hand, the New York State Attorney General's Office is equally full of information that it believes its investigation is flawless and has justified to the court why it was necessary to cut off Bitfinex's loan. In addition, the New York State Attorney General's Office requested to continue the investigation of the case and provided new evidence in an effort to prove the legality of its actions.

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Is it necessary to maintain the status quo?

Although the New York State Attorney General's Office spoke out in the court, according to their latest filings, the content is basically not much different from the earliest filings to the court. The regulator claimed that the purpose of ordering Bitfinex to stop lending was to "Protecting the Public". According to them, Bitfinex and its affiliated company, Tether, the issuer of the stablecoin USDT, reached an internal transaction to obtain a loan line of up to US$900 million to make up for the US$850 million funding gap Bitfinex stranded in the payment processor Crypto Capital. If the court allows Bitfinex to continue to receive Tether loans, Bitfinex trading platform users and Tether (USDT) holders will be at risk.

The question is, why did the New York State Attorney General's Office feel that it would be risky for Bitfinex to receive financial support from Tether?

In fact, the New York State Attorney General's Office believes that if Bitfinex is allowed to continue to take out loans from Tether's reserves (it is reported that Bitfinex has withdrawn at least $750 million), it will be a lot less powerful for USDT holders. Endorsed funds. If something goes wrong with Bitfinex and cannot guarantee the safety of funds, or loses its ability to repay, then the funds will not be recovered, which will eventually lead to losses for a large number of users.

Considering the series of issues raised by the New York State Attorney General's Office, Judge Debra James of the Manhattan Court of the New York State Supreme Court ordered that Bitfinex must provide relevant documents to meet the requirements of the New York State Attorney General's Office, including the New York State Attorney General's Office. The Attorney General's Office began requesting relevant information from Bitfinex in November last year. Not only that, Judge Debra James also issued another more important order, ordering that Bitfinex and Tether be prohibited from obtaining Tether's dollar reserves by means of loans, credits, mortgages, or all claims.

However, Bitfinex disagreed with the judge's ruling.

In fact, in Bitfinex's view, if the ruling is formally implemented, it will bring more risks to Bitfinex and Tether users, and the risk index will even be higher than the subsequent business risks of the exchange-especially Judge Debra James' ban Bitfinex's acquisition of Tether's reserves makes them very disturbed, because this move is likely to have a huge impact on Bitfinex's existing business.

Therefore, in the latest document submitted to the New York Supreme Court, Bitfinex specifically hopes to revoke the request of the New York State Attorney General's Office, or amend the requirements of the New York State Attorney General's Office.

However, the New York State Attorney General's Office does not want to let Bitfinex go easily, and denies that the current law enforcement actions will have an impact on Bitfinex's business, because they believe that the current normal law enforcement activities have not hindered existing users from trading on the Bitfinex trading platform, and Deposit and Withdrawal Activities.

Not only that, the New York State Attorney General's Office provided more new evidence to the New York Supreme Court, proving the need for further in-depth investigations into Bitfinex. Such evidence includes:

2. Bitfinex mentioned in its own submission that it borrowed Tether’s USD 675 million in reserves last year to make up for part of its USD 850 million loss. While the New York State Attorney General's Office issued a subpoena to investigate it, Bitfinex disclosed to the New York State Attorney General's Office that the borrowing amount was US$625 million, which was US$50 million less than the amount disclosed this time.

In its latest letter to the New York Supreme Court, the New York State Attorney General's Office pointed out that they had hoped to obtain more investigation-related documents related to the Bitfinex exchange, but were unable to obtain them. An exchange with a bad record, so the investigation should not be shelved.

"It is important that the New York State Attorney General's Office has repeatedly requested the Bitfinex exchange to disclose relevant documents, but has not received even a little bit of documentation and information that reveals Bitfinex's liquidity problems and customer risk exposure. Bitfinex should have Assist in the investigation by informing the New York State Attorney General's office and the courts of their true current financial situation."

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Bitfinex: New York State Attorney General Can't Win

In fact, Bitfinex has not wavered in its fight against the New York State Attorney General's Office's prosecution.

In response to the New York State Attorney General's Office's response, Bitfinex once again requested the court to revoke or modify the existing injunction in its latest response letter, although both the New York State Attorney General's Office and Judge Debra James believe that the current injunction is "appropriate and appropriate" .

Bitfinex’s attitude seems to be very tough, and it refuted the view of the New York State Attorney General’s Office. The legal basis - the "Martin Act" does not have any jurisdiction over Bitfinex and Tether.

Bitfinex’s legal counsel wrote in the document:

“The New York State Attorney General’s office doesn’t even try to explain why USDT is subject to the Martin Act, which, in fact, applies primarily to securities or commodities...there has been no power base to regulate the cryptocurrency space, so , the New York State Attorney General’s office does not have the power to issue such a strong drug as a preliminary injunction, let alone order my client (ie Bitfinex) to submit a huge amount of documents to meet their investigation needs.”

It is worth noting that the reason why Bitfinex is so confident is that they found that the New York State Attorney General's Office sued them in accordance with the "Martin Act" for insufficient reasons, and their lawyers obviously grasped this point and made a big fuss.

In this regard, the New York State Attorney General's Office did not show weakness. They cited some past cases to prove that there were such similar regulatory precedents before. However, the move was refuted by Bitfinex, claiming that the New York State Attorney General's Office used "false" citations.

The New York State Attorney General’s Office accused Bitfinex of withdrawing Tether’s stablecoin reserves to cover its own losses (the New York State Attorney General’s Office was particularly concerned that the transaction was not made public), which was actually Bitfinex and Tether colluding to engage in fraudulent activities. Bitfinex also denied this allegation in a document filed with a New York court.