New York Attorney General Letitia James alleges in a court order obtained on Wednesday that foreign cryptocurrency exchange Bitfinex and its sister company Tether not only lost approximately $850 million of customers’ money, but hid it.
James claims that Bitfinex lost the funds by co-mingling them, “without any written contract or assurance,” with a Panamanian company called Crypto Capital Corp.
The judge-signed order James’s office obtained, made public on Thursday evening, bars Bitfinex from borrowing funds from Tether, which operates a cryptocurrency the company created and pegged to the U.S. dollar. James alleges Bitfinex drew on Tether’s reserves to plug its own fund shortfalls, and that barring further transactions between the companies is necessary to protect the ability of their customers to withdraw funds.
The judge also ordered Bitfinex and Tether to provide documents requested by James’s office in an investigation into potential fraud, and set a court date of May 3 by which to do so.
In a release announcing the action, James alleged, “Bitfinex has already taken at least $700 million from Tether’s reserves. Those transactions – which also have not been disclosed to investors – treat Tether’s cash reserves as Bitfinex’s corporate slush fund, and are being used to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals.”
If connected to criminal malfeasance, the approximately $850 million would dwarf the previous largest criminal cryptocurrency incident by dollar, the 2014 hack of the Japan-based Mt. Gox exchange.
Bitcoin’s price dropped by over $400 after news of the court order James’s office obtained became public on Thursday.
