Key Takeaways

  • Bitfinex argued that the state had no authority to pursue the case
  • NY’s appellate court rejected their claims and affirmed the state’s jurisdiction over the case
  • The company must now disclose documents and testify before the NY court under oath

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Tether and cryptocurrency exchange Bitfinex must face trial in a case regarding the loss of more than $850 million co-mingled client and corporate funds, a NY state appeals court ruled on Thursday.

Bitfinex is accused of engaging in a massive cover-up after it allegedly lost $850 million and then attempted to use funds from sister-entity Tether to cover up the incident quietly.

The case dates back to 2018 when NY Attorney General Letitia James began an investigation of several companies associated with Bitfinex and Tether under suspicions that Tether “lacked sufficient liquidity to permit customers to redeem tether at the represented value.”

In 2019, after the Attorney General served iFinex (the parent company of Bitfinex and Tether) with subpoenas seeking information regarding Tether’s operations, and the company acknowledged them and produced some of the requested documents, the state’s investigation revealed that the defendants had allegedly hidden information that came within the scope sought by the subpoenas. 

Tether’s recent suspicious activities raised alarms with the Attorney General and indicated that iFinex was in severe financial trouble and suggested that its USDT stablecoins wasn’t fully backed. On April 24, 2019, in response to the Attorney General’s request, the Supreme Court ordered iFinex to withhold from making any claims on the U.S. dollar reserves held by Tether; making any payments to any individual associated with the company from the U.S. dollar reserves held by Tether; altering or destroying any documents related to the investigation.

In May 2019, iFinex responded to the order by filing a motion to dismiss the investigation, quoting that the authorities lack subject matter and personal jurisdiction. The company argued that, since they’re not based in NY nor provide their services in the state, they shouldn’t be liable before the NY authorities. Still, The Supreme Court denied iFinex’s motion to dismiss, to which decision iFinex then appealed.

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Finally, on Thursday, the state’s appellate court rejected Tether’s appeal and confirmed the Attorney General’s jurisdiction over the case. 

“The trial court properly rejected the attempts by respondents to limit petitioner’s lawful authority to protect New York residents,” the appellate court declared.

As things currently stand, Bitfinex has no legal wiggle room left. The company is facing serious charges and now has no choice but to produce all documents as requested by the Attorney General and, if need be, testify under oath before the Supreme Court of the State of New York.

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