Cryptocurrencies are increasingly coming under government scrutiny, especially in light of a growing market for these issues following the success of bitcoin. With this increased government scrutiny has come likewise increased government action, and recently, New York Attorney General Letitia James announced a new court order obtained by her office to address the Bitfinex virtual asset trading platform.
More specifically, the court order enjoins Bitfinex’s operator, iFinex Inc., as well as the issue of the Tether virtual currency Tether Limited, from violations of New York law directly connected to potential fraud and virtual currency issues.
The court order also sets forth key findings of the Attorney General’s office’s investigation into both Tether and Bitfinex, and requires the companies to “…immediately cease further dissipation of the U.S dollar assets which back “tether” tokens while the Office’s investigation continues….”
James elaborated, noting “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. New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”
The Attorney General’s office’s efforts targeting cryptocurrency go back to September 2018, when the office released its “Virtual Markets Integrity Initiative Report,” a report which discussed exchanges and other “virtual asset trading platforms” that either did operate or were believed to be currently operating in New York. The report noted that there was “…substantial potential for conflicts between the interests of the platform, platform insiders, and platform customers.” The report also offered further information about trading platforms, and the potential risks that retail investors faced therein.
Not long after, in November 2018, the Attorney General issued a set of subpoenas targeting Tether and Bitfinex, focusing on several different issues. Court papers alleged that the Bitfinex platform allowed New Yorkers to purchanse and trade virtual currencies, including Tether, which was “backed 1-to-1” by US dollars kept in Tether’s internal cash reserves. Such a move became questionable after Bitfinex handed over in excess of $850 million to Crypto Capital Corp., a Panamanian entity, with no assurances or written contract of any sort. The filings additionally note that Bitfinex has drawn upon Tether’s cash reserves for at least $700 million, transactions which weren’t disclosed to investors.
The subsequent investigation, meanwhile, is being handled by a range of officials within New York, including Investor Protection Bureau Senior Enforcement Counsel John D. Castiglione as well as Assistant Attorney General Brian M. Whitehurst. Elements of the Bureau of Internet and Technology, Investor Protection Bureau, Bureau of Internet and Technology, and more are also involved in the investigation.
Felix Shipkevich is a principal of Shipkevich PLLC. His practice focuses on providing counsel to FinTech and financial services firms, including financial technology, payments and emerging digital currency space. He has spoken at national panels in the money transmitter space and payments industry. Mr. Shipkevich’s payments practice has brought him into contact with money transmitter registration requirements in all fifty U.S. States.
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