The New York Attorney General's office has announced that it obtained a court order against iFinex Inc., which operates major cryptocurrency exchange Bitfinex and affiliated stablecoin operator Tether, warning it not to violate New York law and defraud New York residents in future.
NYAG Letitia James said in a statement that an investigation by prosecutors has found that Bitfinex used funds from Tether to secretly cover the shortfall arisen from the loss of $850 million customer and corporate funds.
She stated that New York state has led the way in requiring virtual currency businesses to operate according to the law, and that it will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.
The cryptocurrency markets reportedly endured a loss of around $10 billion following the allegations.
Bitfinex allegedly sent $850 million of customer and corporate funds to Crypto Capital Corp., a payment processor that is said to be holding funds from other exchanges as well, such as QuadrigaCX. Funds from Tether's reserve were used to make up the shortfall, but neither the loss nor Tether's fund movements were disclosed to customers.
So far, $700 million is alleged to have been transferred.
The Manhattan Supreme Court ordered iFinex to stop further dissipation of U.S. dollar assets that support "tether" tokens while the New York Attorney General's office continues its investigation.
The irregularity was found during an investigation carried out last year.
In November 2018, the Attorney General had issued subpoenas to Bitfinex and Tether, which claimed that they were not doing business in New York. But, the Bitfinex trading platform allows New Yorkers to purchase and trade virtual currencies, including Tether stablecoin.
The filings explain how Bitfinex no longer has access to more than $850 million dollars of "co-mingled client and corporate funds" that it handed over, without any written contract or assurance, to a Panamanian entity called "Crypto Capital Corp."
Bitfinex never disclosed this loss to investors, prosecutors said.
Bitfinex market share continued to slide after Tether-related controversy put a question mark around one of the oldest cryptocurrency exchanges. Although the Hong Kong-based company still maintains more than 20 percent of traded volume on the majors, it is only one third of what it once controlled.
Bitfinex has a market capitalization of $386,898,107.
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