NY Attorney General: Bitfinex and Tether lost $850 million to payment processor

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In a file published by the Supreme Court of the State of New York on April 26th 2019, Attorney General Letitia James has revealed that Bitfinex’s Panamanian payment processor Crypto Capital has lost or stolen $850 million of the exchange’s funds. As presented on the 12th page of the report, it’s been since April 2018 that a senior Bitfinex executive (codenamed “Merlin”) has been soliciting a representative from Crypto Capital to return the money. Due to this inconvenience, the cryptocurrency exchange had been unable to honor the withdrawal requests of their customers.

As it turns out, the funds could not be returned by Crypto Capital due to issues with authorities from Portugal, Poland, and the United States of America. Consequently, in order to deal with this shortage of liquidity, $625 million have been transferred from Tether to Bitfinex (which have the same ownership) in November 2018, and a “line of credit” has been created on Tether’s reserves. None of these actions have been disclosed publicly to investors, as the decisions have been made and executed behind closed doors.

In order to determine whether or not investors and USDT holders from the State of New York have been affected by these untransparent practices, Attorney General Letitia James has filed a lawsuit against iFinex inc, BFXNA inc, Tether Holdings Limited, Tether Operations Limited, Tether Limited, and Tether International Limited, as all organizations have been proven to be operated under the same umbrella.

Correspondingly, the documents demanded for the trial include information on subpoenas, files on customers and accounts from the state of New York, communications concerning business relations with any NY entities, full disclosure of tether transactions “wherever located”, tax filings for the years 2017 and 2018, and weekly reports on issuances and redemptions of USDT – among many others.

The crypto market crashes, Tether (USDT) loses dollar parity

Following the filing of the lawsuit and all the media coverage surrounding it, all cryptocurrencies have dropped by 3 to 6 percent within the first hour. At press time, USDT has gone as low as $0.9929, once again losing its parity with the US dollar.

Compared to the historic data provided by CoinMarketCap for April 21st 2019, Bitcoin and Ethereum have both lost more than $1.5 billion from their market capital. Globally, the entire valuation of cryptocurrencies has lowered by almost $11 billion within the first hour since the Tether news broke.

Given the gravity of the situation, it’s expected that more Bitfinex customers will liquidate their accounts, while Tether gets converted into other cryptocurrencies or stablecoins. This phenomenon should hypothetically help the entire market, as the $2.8 billion invested in USDT can be used to buy bitcoin, ether, USDC, or other assets.

Nevertheless, the downtrend still continues at press time, and official reactions from Bitfinex, Tether, and Crypto Capital are yet to get published. Crypto Insider will keep you posted with the latest developments.

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