A New York state court ruled that the exchange, and companies connected to it, must face court claims according to Bloomberg. Last year, New York Attorney General Letitia James accused Bitfinex of hiding the loss of more than $850 million in client and corporate funds.
Panama Firm in The Spotlight
The firms in question have made claims that the funds were deposited in a company called Crypto Capital Corp, based in Panama. These were then seized by various governmental authorities and the exchange has been battling to recover them ever since. Last year, the New York Attorney General accused Bitfinex of hiding more than $800 in losses.
Bitfinex was founded in 2012, and became the largest international cryptocurrency exchange after Mt. Gox imploded in 2014. It has been embroiled in controversy surrounding its stablecoin, Tether, and whether it is actually backed by real dollars.
Tether market capitalization has surged this year as its treasury keeps minting more tokens to keep up with demand. So far in 2020, USDT has surged 125% in terms of market capitalization from $4.1 billion to $9.2 billion according to CoinMarketCap.com. It is currently the third-largest cryptocurrency in terms of market cap, and the provider of the majority of liquidity on exchanges around the world.
Crypto Capital Corp has been repeatedly accused of money laundering and spurious activities shuffling Tether around through a number of shell companies.
The appeals court rejected the argument that Tether is not a security or commodity, and reaffirmed that the court has jurisdiction over its issuer.
Bloomberg added that the court also rejected the argument that since Bitfinex is not based in New York, it shouldn’t be answerable to or have to produce certain documents for New York authorities. It added that traders based in New York had been using Tether. The Attorney General added;
“Today’s decision validates our office’s ability to use its broad and comprehensive investigative powers to protect New Yorkers. Not even virtual currencies are above the law. We are pleased with the court’s decision, and will continue to protect the interest of investors in the marketplace.”
What is Backing Tether?
Bitfinex has been very cagey regarding the true backing behind Tether, changing its statement in 2018 to read;
“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”)”
This rather vague declaration only deepens the doubt around the crypto exchange and the world’s largest stablecoin. It seems that the courts, in New York at least, also want some answers.