New York AG Fines Crypto Trading Platforms $18.5M Over False Financial Claims

On Tuesday, New York Attorney General Letitia James announced an agreement with cryptocurrency trading platforms Bitfinex and Tether, requiring them to end all trading activity with New York residents and pay a multi-million dollar civil penalty. The companies are controlled by the same individuals.

The settlement agreement reached with iFinex Inc., BFXNA Inc., and BFXWW Inc. (collectively, Bitfinex), and Tether Holdings Limited, Tether Operations Limited, Tether Limited, and Tether International Limited (collectively, Tether) resolved the complaint lodged against them for falsely claiming that their virtual currency was fully backed by U.S. dollars. 

According to the state’s office of the attorney general, Tether is an issuer of a virtual currency, a so-called “stablecoin,” or virtual currency that is always supposed to have the same real-dollar value. Through an investigation, the attorney general’s office found out that Tether lacked access to banking since at least mid-2017, despite assurances that cash reserves backed its digital tokens. The investigation also showed that the cash reserves Tether touted had only been placed into its account the morning of the company’s purported “verification.”

It reportedly repeated the duplicitous verification on Nov. 1, 2018 when it again publicly confirmed that real money backed the approximately 34 billion tethers issued, outstanding, and traded in the market. On Nov. 2, 2018,  Tether reportedly began to move hundreds of millions of dollars from its bank accounts to Bitfinex’s accounts. Thus, the attorney general claimed, one day after Tether’s latest verification, “tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.” 

For Bitfinex’s part, the company allegedly tried to cover up $850 million in losses it incurred while involved with a Panama-based company known as Crypto Capital Corp. Bitfinex reportedly responded to reports of liquidity problems by providing false assurances to its investors and the market about the whereabouts of the customer funds held by Crypto Capital.  

In April 2019, the attorney general’s office sought and obtained an injunction against the transfers of assets between Bitfinex and Tether. A few months later, a state court ruled that the office had jurisdiction over the defendants, that Tether’s stablecoin and other virtual currencies were regulated commodities, and that the attorney general’s office met the requirements for both an injunction and an order compelling the companies to produce documents and other information relevant to the state’s investigation.

Yesterday’s agreement requires Bitfinex and Tether to discontinue trading activity with New Yorkers and pay the state $18.5 million. In addition, these companies must adhere to several compliance and transparency measures, including the submission of regular reports to the OAG. The settlement follows an OAG suit filed last week to shut down Coinseed, also a digital currency trading platform, for failing to register as a securities seller.