The New York Attorney General’s investigation has determined that the Bitfinex trading platform and the virtual currency, ‘tether’, have covered up the apparent loss of $850 million in co-mingled client and corporate funds. The Attorney General, Letitia James, said: “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.” A court order obtained by the office of the Attorney General requires the companies to immediately cease further dissipation of USD assets which back tether tokens.

Tether had repeatedly told its investors that the virtual currency was backed 1-to1 by USD held in cash reserves. Court papers filed by the Attorney General’s office alleged that Bitfinex has taken at least $700 million from Tether’s reserves to hide its undisclosed losses. Whilst it seems that the cash reserves did exist, the Attorney General’s comments suggest that the reserves could be used for other purposes without investors knowing. The companies’ General Counsel has said in an affidavit that Tether has on hand $2.1 billion in cash and cash equivalents representing approximately 74% of the current outstanding tethers.

Bitfinex and Tether dispute that the court has jurisdiction over the companies because they do not operate in the US and because they ban New York residents from operating on their platforms. The companies sought to modify the injunction, to prevent disruption to its business, at a hearing on Monday but the judge ordered the injunction to remain in effect. The parties have been given a week to try and agree the scope of the injunction for the judge to rule on.

{ Rumours have long swirled about the bona fides of Tether, a four-year-old cryptocurrency with more than $2.8bn in circulation, and of Bitfinex, the exchange on which it is traded. On April 25th New York’s attorney-general, Letitia James, accused both of a cover-up intended to hide a $850m loss in client and corporate funds.}

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