Troubled IFinex Inc., the parent company of Tether and exchange platform Bitfinex, has asked courts to consider loosening restrictions on how its Tether (USDT) funds can be used, amid ongoing investigations by the New York Attorney General (NYAG).
In filings submitted earlier this week, Attorney General Letitia James is seeking a 90-day injunction, to ensure Tether does not allow its reserve funds to be accessed by “any affiliated entity,” a direct reference to the reserves used to plug holes in the accounts at Bitfinex.
Meanwhile, lawyers for IFinex have petitioned for a 45-day injunction, as well as a commitment that affiliated entities can legitimately and fairly redeem tether for fiat currency.
The development is the latest twist in the story which began in April, after the NYAG filed an injunction against the firm for allegedly sharing reserve funds from Tether, with the legally distinct (though commonly owned and controlled) Bitfinex.
The allegations centered on the $850 million loss at Bitfinex, following difficulties in its dealings with an offshore crypto bank. While Bitfinex has been unable to recover the mony lost, the allegation is that the firm improperly used dollars held in reserve in Tether to fund the gap.
According to the New York Attorney General, this action is contrary to promises made in promoting the stablecoin, which the firm has repeatedly stated is backed 1:1 in U.S. dollar reserves.
Lawyers for Bitfinex argue the reserve funds can properly be used for investment purposes, or for purposes other than being held in cash reserves. They have even gone as far to suggest the firm would not be viable without investment returns, saying:
“If [Tether] simply held the proceeds in cash, the company would not earn the money required to fund its operations.”
However, James said that this was not true to the representations Tether had made to its users.
“Bona fide holders of tether should be able to redeem those tokens for cash, as Tether has long represented to the market,” the New York attorney general said. “Further, the OAG’ s proposed modifications do not restrain Tether from placing the reserves in legitimate interest-bearing or similar cash equivalent accounts, as the OAG understands Tether to have previously done.”
With investigations ongoing, it remains to be seen whether the courts are prepared to be lenient towards the troubled firm.
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