The New York Attorney General Office (NYAG) has responded to Bitfinex’s appeal to have the authority stop the ongoing investigations against them and Tether. This filing was made with the Appellate court in New York and seems to be slowly mounting pressure on both Tether and Bitfinex whose NY operations were halted as early as January 2017.
Bitfinex and Tether’s Fund Mismanagement Background
Investigations on securities misconduct and operating as one entity began when the NYAG raised claims that Bitfinex was using funds from Tether’s USDT reserves to meet its liquidity needs. This was later spiked by the arrest of Crypto Capital officials, a financial institution, which operated as a shadow bank for crypto projects until authorities cracked down on some illegal activities they had facilitated.
Bitfinex found itself in the middle of the Crypto Capital collateral damage having stored around $625 million funds with the ‘crypto bank’. This forced the crypto exchange to use proceeds from Tether to meet withdrawal demands despite the prohibitions on such activities. In doing so, Bitfinex was looking to meet a short of $850 million arising from the frozen funds but instead attracted the authorities. Reports from the NYAG office claim that the two entities have common shareholders and executives; a position which may have influenced the funds movement.
The NYAG Argument for Investigating Bitfinex
In the latest filing, the NYAG defended itself based on the Martin Act which gives this office the authority to initiate investigations before starting legal proceedings on financial market misconduct. Basically, the appeal will determine the extent to which the NYAG can request for information or start a legal process to prosecute Bitfinex and Tether.
However, Bitfinex in their defense had claimed that the human resources in New York linked to the firm’s operations is not sufficient to place it within the state’s jurisdiction. According to the NYAG, this is not entirely correct given the exchange’s Chief Strategy Officer was based in New York as well as a number of representatives. Furthermore, there has been evidence to show that the Bitfinex platform has been accessed from New York in 2019 despite its ban for almost 2 years.