bitfinex tether scam

There’s something fishy going on in the crypto exchange community, and it involves Bitfinex and Tether.

The two popular cryptocurrency exchanges have been the subject of criticism online. Specifically, a number of documents have appeared online alleging that Ludovicus Jan “Jean-Louis” van der Velde is the CEO of both Bitfinex and Tether.

The day after that news appeared online, Tether apparently lost access to $31 million of funds from its treasury. The attack occurred on November 19, 2017.

Tether, of course, isn’t your ordinary cryptocurrency exchange. The platform sells US Dollar Tethers, or USDT, in exchange for USD at a 1:1 ratio. Crypto traders use Tether to securely store their USD without actually withdrawing it to their bank. The cryptocurrency community is freaking out about this latest leak because it could mean that Tether is having financial problems.

Let’s take a look at the key points you need to know about Tether’s connection to Bitfinex – and where those missing funds may be.

November 18: Tweets Appear Online Claiming that Bitfinex and Tether Might Have the Same CEO

On November 18, a tweet appeared online “confirming” that Bitfinex and Tether shared the same CEO. Twitter user @ArmandBouillet posted a tweet with an image attached. That image featured a document from a lawsuit filed by Wells Fargo in April 2017. That document appears to feature the testimony of J.L. van der Velde, who clearly states that he is the CEO of both Bitfinex and Tether:

“I am the Chief Executive Officer for iFinex Inc. (“iFinex”), BFXNA Inc. (“BFXNA”), BFXWW Inc. (“BFXWW”), and Tether Limited (“Tether”).”

The statement goes on to explain that van der Velde is capable of competently testifying to the activities of Bitfinex and Tether.

What Are Bitfinex and Tether?

Bitfinex is a cryptocurrency exchange. It’s one of the largest and most popular cryptocurrency exchanges in the world. You can deposit USD into the platform and purchase cryptocurrencies with those US Dollars. Or, you can trade cryptocurrencies for other cryptocurrencies.

Tether, meanwhile, is more unique. Tether allows users to store, send, and make purchases with a form of digital currency – digital tokens called tethers – that are fully backed by US dollars on deposits from customers.

In other words, each “Tether” you buy – like a US Dollar Tether or USDT – is a digital representation of $1 USD held in Tether’s account.

Tether has always made a big deal of its transparency. The company publishes its financial information on its front page, including an immediate look at the money it currently holds in its reserves.

Unfortunately for Tether, that transparency backfired as the front page of the site suddenly displayed a $30 million deficit.

Armand Bouillet’s Twitter feed, by the way, is a great place to check for the latest updated information regarding this issue. He’s flooding the site with the hashtag #DontGetTethered, and he seems dedicated to taking the website down.

November 19: Tether Might Be Missing $31 Million USD

On November 19, a Tether user spotted a big problem on the front page of the website. Specifically, $31 million was missing from the website.

You can view the screenshot of the missing money here. It was taken on Tether’s “Transparency” page. It appears to show a significant chunk of money missing from Tether’s reserves.

Soon after, Tether posted a critical announcement online explaining the issue:

“Yesterday we discovered that funds were improperly removed from the Tether treasury wallet through malicious activity by an external attacker. Tether Integrators must take immediate action…to prevent ecosystem disruption.”

A total of $30,950,010 was removed from the Tether Treasury wallet on November 19. That money was sent to an unauthorized bitcoin address. Tether knows the address, and it’s posted in the official update. They’re attempting to recover the tokens, and they’re encouraging users to avoid any transactions from that address.

Tether is Taking Steps to Address the Issue

If you’ve noticed Tether has been acting strange lately, then it’s not just you. Tether has taken steps to address this latest attack, including:

  • The Tether.to back-end wallet has been temporarily suspended. Tether is undertaking a thorough examination of the attack to prevent similar actions in the future.
  • Tether is providing new builds of Omni Core to the community (Omni Core is the software used by Tether Integrators to support Omni Layer transactions). These builds should block the movement of stolen coins from the attacker’s address
  • Tether is working with the Omni Foundation to investigate ways that will allow Tether to reclaim its stranded tokens and rectify the issue.

Tether Doesn’t Guarantee Payment for Tethers

Here’s where things get scary for those of you with a lot of Tethers, or any funds deposited into the platform. Here’s what Tether’s terms and conditions has to say:

“PURCHASE AND REDEMPTION OF TETHERS: The Site is an environment for the purchase and redemption of Tethers. Once you have Tethers, you can trade them, keep them, or use them to pay persons that will accept your Tethers. However, Tethers are not money and are not monetary instruments. They are also not stored value or currency.

There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.”

In other words, Tether’s service doesn’t promise to pay you anything in exchange for your Tethers. The company suggests that it will pay you money for your Tethers – but it doesn’t promise anything.

Did Bitfinex’s CEO Receive a $1 Million Phantom Deposit?

While all of this is going on, news appeared online of Bitfinex’s CEO apparently receiving a $1 million phantom deposit. This occurred back in 2013, and the email regarding the transaction can be seen here.

That worrying email seems to suggest that Bitfinex “tempered[sic]/adjusted” accounts twice. The first time it occurred, the exchange credited Tang with $150,000, and the second time it occurred, “Mister Devasini was credited one million dollars”, which was “money that he didn’t have deposited in his account.”

That email claims that because of these past transgressions, it’s hard to verify any profit/loss statements from Bitfinex, and the entire platform needs to be audited. The email ominously concludes:

“You are the only operator of the Bitfinex platform and you let the platform to lose money on purpose, you have been notified concerning problems with the MTGOX platform, these losses are not generated by mistake or by incompetence, you knowing it and let this happen and you didn’t want to stop it. Because of all these points and the reasons exposed above my trust level is extremely low and any decision regarding my financial interest in Bitfinex will be made after consulting other people.”

You can read the initial discussion of that email on a Bitcointalk forum thread from 2013 here. The same issues we brought up here are discussed in that forum thread – including who the identities of the people mentioned in the email may be.

Additional Bitfinex & Tether USDT

If all of this really interests you, here is a near 3 hour hangout from some long time bitcoin backers about the multi-faceted debate and discussion.

What the Heck is Going on with Tether and Bitfinex?

There’s a lot of confusion in the bitcoin industry right now, and it’s not totally clear what’s going on.

Some people say this could be Mt. Gox 2.0. Others are saying it’s just FUD from a competitor.

Until the dust settles, we’re not going to know what’s going on with Tether, Bitfinex, and the alleged connections between the two companies. However, there’s a lot of talk going on in the bitcoin community – so stay tuned for more information as the story continues to emerge.

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