Bitfinex thought it would be able to have the case against it by the New York State Attorney General’s Office (NYSAG) dismissed, only to find that things are not as easy as it had hoped. While the company looks to avoid scrutiny for its questionable dealing with Tether’s USDT stablecoin, it is finding out that regulators and lawmakers are becoming more serious about cryptocurrencies every day, and will hold them to the same standards as they do any form of currency, investment vehicle, trading instrument or any other financial offering that coins claim to be.
The NYSAG has requested that Bitfinex turn over documents related to a loan Tether made to the crypto exchange. The state’s attorney general, Letitia James, asserts that the two entities “misled their clients and investors,” and states, “While that and other discrepancies do not change the core issues in this case […] they only heighten the OAG’s [Office of the Attorney General’s] need to obtain documents and information in a timely, organized fashion so that the OAG may understand what has taken place, and what continues to take place, at these companies.”
Bitfinex reportedly received a bailout from Tether, with the latter giving it $625 million and, subsequently, a line of credit for $900 million. Bitfinex had reportedly needed part of the funds to allegedly hide losses worth $850 million that it incurred from a failed business deal, which it later tried to hide through the Tether funds.
Bitfinex has tried to have the case thrown out, even though it recognizes the NYSAG’s authority to investigate the incident. According to a filing by the NYSAG in response to the request for dismissal, “For almost one hundred years, the Office of the Attorney General (“OAG”) has been empowered by General Business Law § 352 et seq., commonly known as the Martin Act, to conduct investigations of suspected fraud in connection with the purchase, sale, or exchange of securities and commodities. While the text of the Act has changed over time, section 354 of the Act, entitled ‘Examination of witnesses and preliminary injunction,’ is original, adopted with the law’s passage in 1921. Relevant to this matter is the language of section 354 empowering the court to issue an injunction: ‘The order shall be granted by the justice of the supreme court to whom the application has been made with such preliminary injunction or stay as may appear to such justice to be proper and expedient.’”
Bitfinex is still planning on moving forward with a new initial exchange offering that it hopes will attract $1 billion in funds for its new digital token, the LEO. Given its past history of reportedly trying to cook its books and other shady deals, investors need to proceed with extreme caution and would do good to avoid the company completely.
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