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Bitfinex and Tether Respond to New York Judge, Will Pursue Appeals

Bitfinex and Tether have acknowledged the judge’s decision not to dismiss their case due to a claimed lack of jurisdiction in New York but plan to appeal.

Bitfinex and Tether have replied to Judge Joel Cohen’s recent ruling in the New York Attorney General (NYAG) ongoing case against companies. Cohen dismissed Bitfinex’s motion to throw out the case due to lack of jurisdiction, so the NYAG will continue to prosecute the companies via the Martin Act.

Bitfinex issued its reply in an official blog post on Aug. 20. Tether published the same response on its website, also on Aug. 20. The companies maintain that the NYAG’s claims are meritless and say they will pursue the issues at hand in appeals court.

NYAG’s allegations

Back in April, the NYAG filed a complaint against iFinex, Bitfinex and Tether alleging that the companies defrauded New York investors by covering up an $850 million loss on the Bitfinex trading platform. Attorney General Letitia James wrote:

“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.”

Jurisdiction is key

In an unrelated case previously reported by Cointelegraph, Justice of the High Court of England and Wales Matthew Nicklin threw out a libel suit on the grounds that the court had no jurisdiction. Craig Wright brought the suit against Bitcoin Cash (BCH) proponent and CEO Roger Ver. Wright is a computer scientist who declares that he is Satoshi Nakomoto, i.e. the creator of Bitcoin (BTC) — a key point in another legal battle he is fighting.

In his decision, Justice Nicklin wrote:

“The evidence clearly demonstrates that the most substantial publication of the statements complained of is in the U.S. It is common ground that, of the global publication, only some 7% took place in England and Wales.”

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New York Court Rules That State Attorney Has Jurisdiction Over Bitfinex

The New York State Supreme Court has ruled that Bitfinex is in the jurisdiction of the state’s Attorney General, allowing for a continuation of its investigation.

Disclaimer: This story is breaking and will be updated shortly with further details.

The New York State Supreme Court has ruled that the New York Office of the Attorney General (NYAG) has jurisdiction over cryptocurrency exchange Bitfinex.

According to a report by The Block on Aug. 19, this will allow the NYAG to continue its investigation of the exchange over allegations of fraud and misleading investors. 

Issues of jurisdiction had previously been a primary issue of contention in an ongoing case between the state of New York and the exchange.

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Report: Around 300 Addresses Contain 80% of Tether Supply

Around 80% of Tether is reportedly held by about 300 whale accounts, suggesting a highly concentrated ecosystem.

The Massachusetts-based crypto market research firm Coin Metrics says that 318 addresses hold at least $1 million worth of Tether (USDT), comprising 80% of the global Tether supply.

Bloomberg reported the company’s finding in a report on Aug. 7. Coin Metrics co-founder Nic Carter additionally mentioned that some of the USDT whales include major crypto exchanges, such as Binance and Bitfinex.

The report additionally notes that this is staggeringly different from the distribution of Bitcoin (BTC), for which whales apparently hold only around 20% of the total token supply. Moreover, over 20,000 BTC addresses reportedly hold at least $1 million in equivalent assets.

However, despite Bitcoin being more evenly distributed among its user base, the USDT whales may be able to swing the Bitcoin price on their own, as suggested by University of Texas at Austin finance professor John Griffin:

“The concentration of Tether suggests that control of Tether is in the hands of a few central players who can swing Bitcoin prices, and have a vested interest in doing so […] It also suggests that many exchange players have a vested interest in keeping the Tether game going.”

According to the report, Griffin has purportedly linked USDT to market manipulation and its rally to an all-time high in 2017.  According to Sid Shekhar, the co-founder of market tracker TokenAnalyst, there are also market concerns related to volatility that come into play whenever a large sum of USDT is injected into the market.

Tether continues to grow

As previously reported by Cointelegraph, USDT is now being offered on Bitfinex via another blockchain protocol for Bitcoin — BlockStream’s Liquid Network sidechain. USDT has, in the past, been run on the Omni blockchain. Liquid is additionally planning to make Liquid-based USDT available on other crypto exchanges in the future, including OKEx, OKCoin, BTSE, BTCTrader/BtcTurk, RenrenBit and Sideshift AI.

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Bitfinex-NY Attorney General Case: Injunction Extended — What’s Next?

Good or bad sign? The New York attorney general’s injunction against Bitfinex has been extended.

The saga continues. Despite everything that’s been said about Tether and Bitfinex, defying all the scrutiny and suspicion, they continue to survive as a controversial pillar of the global crypto ecosystem. And in their ongoing legal battle with the New York State Office of the Attorney General (OAG), they continue to fight against the attempt to sue them and their parent company, iFinex. Against all the odds, they’re doing a good job of holding their ground.

This was underlined most clearly at the end of July, when Justice Joel M. Cohen of the New York Supreme Court (NYSC) ruled to extend the attorney general’s preliminary injunction against iFinex and its subsidiaries. This was to provide the OAG with more time to investigate its case but also to provide the judge himself with more time to decide whether to accept or reject iFinex’s appeal to have the case dismissed, based on the alleged grounds that it doesn’t operate in the state of New York.

But even if the same Justice Cohen has previously criticized the attorney general’s injunction for being “vague, open-ended and not sufficiently tailored” to prove what has caused or will cause harm against New York residents, this latest delay doesn’t necessarily mean that iFinex will have its appeal accepted. In fact, as certain legal experts suggest, the attempts to have the case dismissed on jurisdictional grounds, as well as its receipt of a stay of document demands, might indicate that it’s trying to divert scrutiny away from the fundamental issue of whether it defrauded its customers.

A brief recap

On April 25, New York Attorney General Letitia James published legal filings against Bitfinex, alleging that the crypto exchange had defrauded its customers, chiefly by losing $850 million and secretly taking funds from the affiliated Tether in order to cover up this loss. A month later, on May 21, Bitfinex and Tether filed to have the case dismissed, arguing that the attorney general doesn’t have jurisdiction over them since they “do not allow New Yorkers on their platforms.”

Related: Tether’s Trouble With New York Attorney General — Will Crypto Cope?

Unsurprisingly, the OAG has contested these counterclaims, providing documents that purport to show that Bitfinex opened a trading account with a New York-based cryptocurrency trading firm in January 2019. However, this filing alone doesn’t seem to have convinced Justice Cohen, because on July 29, he extended the injunction — largely because he required more time to decide whether to reject Bitfinex’s motion or accept it. “The idea is to keep things where they are until the decision of this motion, so the decision is to extend the stay and […] extend the injunction,” he said.

What does an extension mean?

At this stage, it’s hard to really know whether this extension is good or bad news for Bitfinex and crypto. On one hand, it is encouraging news, since it indicates that Justice Cohen isn’t entirely convinced by the attorney general’s case. Otherwise, he would have just rejected Bitfinex’s appeal, but in line with his previous statements regarding the “amorphous and endless” character of the OAG’s claims against the crypto-exchange, it suggests that he hasn’t seen anything strong or clear enough to decide on behalf of New York.

But by the same token, it’s still not wholly positive news for Bitfinex and Tether because, if the case against them were entirely meritless or unjustifiable in Cohen’s view, he would have no doubt accepted iFinex’s request to dismiss. He hasn’t, and as Richard Howlett of the London-based crypto lawfirm Selachii Legal explained to Cointelegraph, this is because Cohen is sensitive to the possibility that new key evidence may come to light. Howlet explained further:

“Judges quite often take a view that is less risk-averse to grant an extension than to make a final decision. The worry is always that evidence will come to light at a later stage which makes the original decision wrong and an appeal will be filed. No Judge likes an appeal against a decision they have made so they err on the side of caution.”

While Howlett himself doesn’t say which side is likely to produce new evidence, the fact that the onus is on the attorney general to prove its case would indicate that Justice Cohen has granted an extension in the event that the OAG dredges up new, material evidence. Indeed, when asked whether the extension is good or bad news for Bitfinex, Howlett suggested that the likelier possibility is that it’s good news, at least insofar as it indicates that the attorney general doesn’t have especially decisive evidence right now. According to Howlett:

“Such situations are very hard to read. On the one hand, it could be argued that an extension is required as new evidence has come to light that is being investigated. Another school of thought is that the AG is desperately trying to find something to stick and need more time because they have nothing at present. If I were to gamble on this, I would say the latter, the AG has nothing and is delaying the inevitable.”

Other legal experts, however, are currently too unsure of the specifics in this case. Chetan Phull is a principal lawyer at the Toronto-based Smartblock Law, which is also licensed in Ontario, New York. Like Howlett, he suggested that the extension has been granted in order to provide the OAG with more time to investigate, but is unsure of who stands to benefit. Phull said:

“An extension will permit further investigation of fact-based jurisdictional issues. More evidence on these factual issues could potentially enable the court to render a decision, without having to deal with certain legal questions that are better left in the hands of federal legislators currently working in this area.” 

Although, when asked about the implications of this extension for Bitfinex and Tether, he added, “I am reluctant to speculate without delving deeper into the history of this case, which I unfortunately do not have time for at present.” Still, despite the reluctance of blockchain-focused legal experts to jump to an unequivocal conclusion in this matter, there is generally the consensus that the extension has been granted in order to provide the attorney general with more time to uncover evidence. Aaron Kaplan, a former attorney who is now the CEO of New York-based trading platform Prometheum, told Cointelegraph:

“An AG should have solid proof when seeking a preliminary injunction. Seeking the investigatory extension indicates a weakness in the AG’s position. One would expect that when the AG seeks a preliminary injunction that he or she already has solid proof.”

But even if an extension is arguably more indicative of a lack of significant evidence than anything else, this still doesn’t necessarily mean that iFinex is on the cusp of having its appeal to dismiss granted by Justice Cohen. Kaplan went on to add:

“Don’t forget, the judge and the AG essentially have the same client, they are both elected officials and are both responsible to the public interest and subject to ongoing public approval. Therefore, a judge will be hesitant to dismiss the AG’s case when the general public is allegedly being defrauded out of their hard-earned capital.”

Negative impact on Tether and Bitfinex?

Even though the indecision of Justice Cohen might imply that Bitfinex could eventually escape litigation, a long, protracted injunction could already be damaging enough as it is because the more Bitfinex and Tether have their names dragged through the mud, the more traders and customers will potentially be scared away from them.

Well, maybe not exactly. While few companies benefit from associations with legal disputes, it doesn’t appear that Bitfinex’s business has been impaired too much by its confrontation with the New York attorney general. In terms of its adjusted trading volumes (as reported by CoinMarketCap), things have remained comparatively stable over the period between April 25 and today, even if there have been a number of dips.

Related: Tether Stablecoin: Can the Crypto Market Live Without It?

On April 25, for instance, Bitfinex’s adjusted 24-hour volume was $210,787,032. This dipped after the attorney general announced that it was suing the exchange, with the volume coming in at $107,934,242 on May 1. However, a month later (June 4), its 24-hour adjusted volume was $510,369,772, while it was $494,845,894 on July 2.

Of course, as a vivid indication of just how confused and unclear this whole episode is, it’s worth noting that Tether also issued a large amount of its stablecoin, USDT, over the period in question. On April 25 — the very day the attorney general announced its proceedings – Tether issued 300 million USDT. On June 11 and June 17, it printed a further 150 million and then 100 million USDT, while it has printed at least 450 million USDT since July 1. 

No doubt Bitfinex and Tether will claim that this busy period of issuance was part of an attempt to meet increased demand for liquidity in cryptocurrency markets. Nonetheless, given reports and allegations that Tether has been used to manipulate the Bitcoin (BTC) and other crypto markets, it’s not entirely out of the realm of possibility that newly minted USDT could have potentially been used to inflate Bitfinex’s volume.

Slipping through the net?

The case against the attorney general may have been negatively affecting Bitfinex’s business, but given the lack of transparency around Tether, it is hard to say for sure. Assuming Bitfinex is being hit hard by this case, there’s little doubt it would have a ruinous effect if it were ultimately settled against the exchange and Tether. But this is a big assumption, and there isn’t any hard evidence so far that it will be validated.

That said, a couple points can be made about the case with a little more confidence, even at this stage. First of all, it’s likely that the New York attorney general is struggling to obtain concrete, damning evidence against Bitfinex. Not only is this indicated by the extension itself, but it’s also indicated by the letter the OAG submitted on Aug. 1, in which it argued against the stay of demands Justice Cohen granted Bitfinex in May. This stay means that Bitfinex has to produce and release documents relevant only to whether it operated in New York. As such, the OAG is probably being deprived of documents related to the more important issue of alleged fraud, potentially hampering the case against iFinex.

Secondly, even though the OAG has yet to convince Justice Cohen that New York has jurisdiction over Bitfinex, there still seems reason to believe that the exchange has been serving customers based in the state. In addition to the evidence the OAG has already amassed related to Bitfinex opening accounts with New York-based platforms, reports emerged at the end of July that traders residing in the state have been able to register with Bitfinex simply by clicking a box that declared they aren’t U.S. residents.

There’s also the fact that, rather than focusing on disproving the OAG’s claims that it didn’t defraud its customers regarding an $850 million loss, iFinex has instead concentrated on what one could describe as technicalities. It has claimed that the New York attorney general has no jurisdiction over it, while in May, it successfully appealed for a stay of document demands, meaning that it doesn’t have to turn over evidence related to whether it did cover up the aforementioned loss. Kaplan explained:

“If their position is legitimate, Bitfinex/Tether’s attorneys will provide as much information as possible to the AG, as it will continue to prove the absence of violations of law. Alternatively, if they are not confident in their position, the Bitfinex/Tether attorneys will attempt to obfuscate, confuse and dance around the issues in order to address technical defects in the AG’s case, rather than provide substantive facts.”

These facts lead us to believe that the attorney general isn’t holding smoking gun evidence against Bitfinex, yet there remain legitimate suspicions that there’s still a case against the exchange and its sister company Tether. This is likely why Justice Cohen has granted the extension, but if the attorney general doesn’t provide hard evidence in this case soon, it’s possible that Bitfinex and Tether will slip through its net.

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NYAG Argues Against Continued Stay of Demands for Bitfinex

The New York Office of the Attorney General has filed a letter, arguing against Bitfinex and Tether’s request for a continued stay of demands.

The New York Office of the Attorney General (NYAG) has submitted a letter to Justice Joel M. Cohen, arguing that cryptocurrency exchange Bitfinex and affiliated Stablecoin firm Tether should not be granted a continuing stay of demands.

The NYAG submitted its letter on August 1 — the latest chapter in the New York Attorney General’s ongoing case against Bitfinex, parent company iFinex and Tether, in which the state alleges a multimillion loss coverup took place.

The motivation for NYAG’s letter

The court initially issued a stay of document demands in May at the defendants’ request. This means that the court currently only requires the defendants to produce documents and information pertinent to the issue of whether or not New York is the appropriate jurisdiction for the NYAG’s complaint, as opposed to a wholesale disclosure of complaint-pertinent documentation.

Bitfinex’s lawyers recently wrote that it had spent over $500,000 responding to NYAG’s document requests, adding that they would appeal for a continued stay of demands even if a dismissal motion does not go through.

The defendants’ lawyers asserted that producing full documentation would be particularly difficult, costly and unfair given the resources they have already spent on the investigation. They wrote:

“Finally, a stay will serve the public interest, including by conserving judicial resources. And it will serve the interests of justice, as basic fairness dictates that the Respondents, who have been hauled into this forum against their will and have already incurred extraordinary expense to comply with portions of this § 354 Order to date, should not be made to suffer irreparable harm from being required to comply with that Order while seeking relief therefrom.”

Today, the NYAG said that the defendants have not sufficiently demonstrated irreparable harm absent an injunction, that the factual issues pertaining to jurisdiction are not new and that it should be neither costly nor difficult to produce information previously subpoenaed by the NYAG. The office also argued against the defendants’ claims on why it is unfair for the court to not grant a continuing stay. 

The current legal battle began when Attorney General Letitia James alleged that iFinex, Tether Limited, and their associated entities violated New York law in connection with activities that may have defrauded New York-based crypto investors. The NYAG said that Bitfinex borrowed $850 million from Tether to cover a loss that it never disclosed to investors.

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Bitfinex, Tether Spent $500,000, Hired 60 Lawyers for Documents Order

Lawyers for Bitfinex, Tether and parent firm iFinex Inc. have said the respondents have already spent over $500,000 responding to document requests for their ongoing legal battle.

Lawyers for Bitfinex, Tether and parent firm iFinex Inc. have said the respondents have already spent over $500,000 responding to document requests for their ongoing legal battle.

The lawyers’ letter —  submitted to Justice Joel M. Cohen on July 30 and shared by Altana Digital Currency Fund CIO Alistair Milne via Twitter on the same date — reveals the apparent costliness and complexity of complying with document demands for the state investigation.

As previously reported, the case against the respondents began on April 24, when the Office of the New York Attorney General (NY OAG) accused Bitfinex of losing $850 million of funds needed for user redemptions, and subsequently using capital from affiliated firm Tether to secretly cover the shortfall.

Lawyers say proceedings are a costly quagmire

In this latest episode of the court battle, the respondents’ lawyers have engaged with the Court’s earlier ruling to stay a portion of an extensive document order compelling the production of materials about the loan Tether allegedly made to Bitfinex. 

The lawyers noted that part of the reason that the Court previously issued a stay of the document order, pending resolution of the respondents’ motion to dismiss the case against them, was to prevent the eventuality that the respondents would have to spend a small fortune producing documents that may turn out to be unnecessary.

The lawyers affirm that the Court’s erstwhile concern about the excessive costs of document production was well-founded given that the sum spent has already allegedly topped $500,000.  The letter reads:

“The process of responding to the carve-out from the stay involved one of the largest, most complex document collection and review effort in which undersigned counsel have ever participated, involving over 60 lawyers.”

A stay, not a delay

The lawyers closed their letter to Justice Cohen by arguing that the minimal inconvenience caused to the OAG by staying the document order is far outweighed by the irreparable harm the respondents face by having to comply with it, at an expense that “would moot the very relief the Respondents would be seeking to appeal.” 

They also note that the stay is not in any way designed as a delay, given that the respondents are pursuing their motion to dismiss, and, if necessary, an appeal of its prospective denial. They furthermore express faith that they will ultimately conclude a successful challenge to the case. 

At the court hearing earlier this week, Justice Cohen granted a 90 day extension to the case so that the NY OAG can continue its investigations.