Cryptocurrency giants in $850m fraud allegations

The New York Attorney General has accused cryptocurrency exchange Bitfinex and cryptocurrency Tether of an $850m fraud.

The State’s Attorney General Letitia James obtained a court order last week directing iFinex, which operates Bitfinex and Tether, to turn over financial documents within 30 days. In a separate legal filing, she accused Bitfinex’s operators of controlling the cryptocurrency, and said that the exchange has covered up the loss of $850m to a company in Panama.

Tether has called itself a stablecoin, which is a cryptocurrency pegged to a stable asset to minimize price volatility. Stablecoins are supposed to be stable enough to use as currencies, as opposed to wildly volatile cryptocurrencies like Bitcoin, which have become speculative assets. In Tether’s case, one Tether is supposed to be worth one US dollar, and it originally claimed to hold enough US dollars to cover all the Tether cryptocurrency that it has issued.

According to James, Bitfinex handed over $850m in funds to Panamanian company Crypto Capital Corp. There was no written contract between the two companies, and Bitfinex lost access to those funds, which commingled corporate and client funds. She said:

In order to fill the gap, executives of Bitfinex and Tether engaged in a series of conflicted corporate transactions whereby Bitfinex gave itself access to up to $900 million of Tether’s cash reserves.

James said that Bitfinex has taken at least $700m from Tether’s reserves already.

Bitfinex had facilitated nearly $6.8bn in cryptocurrency trades in the last 30 days, according to CoinMarketCap.