
Crypto Market Roiled by New Allegations Against Tether, Bitfinex - seibelj
https://www.bloomberg.com/news/articles/2019-04-25/bitfinex-operator-accused-by-new-york-of-850-million-coverup?utm_source=google&utm_medium=bd&cmpId=google
======
nwj
From paragraph 60 in the filing (emphasis is mine):

"As explained to OAG attorneys by Respondents' counsel. Bitfinex and Tether
have also used a number of other third party payment processors to handle
client withdrawal requests, including various companies owned by
Bitfinex/Tether executives, _as well as other 'friends' of Bitfinex - meaning,
human being friends of Bitfinex employees that were willing to use their bank
accounts to transfer money to Bitfinex clients who had requested
withdrawals._"

~~~
wmf
This was rumored pretty heavily when Bitfinex said "Divulging [bank account]
info could damage not just yourself and Bitfinex but the entire digital token
ecosystem … you are cautioned that there may be serious negative effects with
this information becoming public." LOL [https://news.bitcoin.com/bitfinex-
introduces-top-secret-bank...](https://news.bitcoin.com/bitfinex-introduces-
top-secret-banking-system/)

~~~
nonbel
> "The New York Attorney General’s court filings were written in bad faith and
> are riddled with false assertions, including as to a purported $850 million
> “loss” at Crypto Capital. On the contrary, we have been informed that these
> Crypto Capital amounts are not lost but have been, in fact, seized and
> safeguarded. We are and have been actively working to exercise our rights
> and remedies and get those funds released. Sadly, the New York Attorney
> General’s office seems to be intent on undermining those efforts to the
> detriment of our customers."
> [https://www.bitfinex.com/posts/356](https://www.bitfinex.com/posts/356)

~~~
xmly
So they admit that the money was once lost, just they recovered part of it? Of
course, they forgot to disclose.

~~~
nonbel
No. They claim the money was seized from a "partner" (Crypto Capital) by
various governments (~$400 million to Poland, etc), and they are trying to get
it back.

~~~
belltaco
And why wasn't that disclosed to customers prior to today?

~~~
nonbel
That is between them and their "customers", I guess.

Bitfinex has been shady for a long time and tether from its beginning. So,
good luck to them. But that is nothing new.

------
apo
Here's the filing:

[https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet...](https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod)

~~~
Mengkudulangsat
Skimming through this I've come to some conclusions:-

A reliable banking partner is prerequisite to run a fiat-crypto exchange. Loss
of banking partner is fatal to an exchange, and should immediately trigger a
wind-down. On the flip-side, the banking partner should in good faith,
continue to process withdrawals until the wind-down is complete. Bitfinex's
refusal to wind-down after the Wells Fargo decision is irresponsible. Wells
Fargo's decision to immediately stop processing withdrawals without a grace
period is bad faith.

Reliable banking relationships are difficult to maintain if you are not in the
same jurisdiction with said bank. If you want to process USD, you have to be
in the US. Multiple fiat-currency crypto exchanges are not sustainable due to
this dynamic.

I see a sustainable status-quo as fiat-exchanges becoming single-jurisdiction,
single fiat-base. Ironically, just like most banks.

~~~
vkou
> Multiple fiat-currency crypto exchanges are not sustainable due to this
> dynamic.

And yet, multiple-fiat-currency exchanges are, for some reason, sustainable.

~~~
Mengkudulangsat
Very few examples... Coinbase / Bitstamp / Kraken?

People don't realize just how much of a tightrope they are walking on [1].
Serving crypto requires a deliberate business pivot [2], and not many are
keen. This IMO is the largest hurdle crypto is facing for adoption.

[1]
[https://diar.co/volume-2-issue-23/#2](https://diar.co/volume-2-issue-23/#2)
[2]
[https://www.sec.gov/Archives/edgar/data/1312109/000119312518...](https://www.sec.gov/Archives/edgar/data/1312109/000119312518329074/d568616ds1.htm)

~~~
vkou
I'm talking about fiat exchanges that convert one fiat currency into another,
and never touch crypto. They seem to figure out how to operate in multiple
jurisdictions... But that's possibly due to the part where they comply with
KYC and AML.

------
berbec
Is this a surprise to anyone? I was under the impression that even the most
ardent HODL-er thought Tether was, at best, a very risky investment, and more
likely a total scam.

~~~
patio11
This is pretty big news; the entire cryptocurrency economy relies on tethers
being valued at par, given that they're how billions of dollars of liquidity
are denominated. While rumors and suppositions about Tether have swirled for
quite some time, that was also true of Mt. Gox before the fall, and those of
us who have been saying loudly that they're insolvent have not been widely
believed.

~~~
driverdan
Anyone in the cryptocurrency space with half a brain knew something was up the
minute they refused an independent audit. It was only a matter of time before
someone brought charges and/or Tether collapsed.

~~~
Felz
Which does make it rather curious that the music's kept playing, so far. Is
"common knowledge" that it's probably a complete fraud (like this filing
should give) required to pop the tether bubble? Or will even this not be
enough?

~~~
panarky
People have been yelling that Tether is a ponzi fraud since it launched in
2015.

And yet it still trades 1:1 to USD today, after the court filing was released.

So is there some magic force that keeps the fraud running, and prevents market
participants from cashing out their Tether in the mother of all bank runs?

If you hold Tether why wouldn't you sell?

Or is there more to the story than just "Tether is an obvious fraud"?

~~~
Nursie
It's basically a giant game of chicken AFAICT, because tether is so endemic to
the market that if the market as a whole gives up on that valuation then
_everything_ goes boom.

~~~
panarky
How do you think this would work exactly?

If traders begin to lose faith in Tether, wouldn't they sell Tether and buy
BTC, ETH, XRP, BCH, LTC, EOS etc.?

So wouldn't that cause the USDT price to decline to $0.97, $0.95, $0.90,
$0.75, etc.?

And at the same time the demand for BTC, ETH, XRP, BCH, LTC, EOS would cause
their prices to rise, wouldn't it?

I suppose at some point, after the $3B of Tether is liquidated, people could
lose confidence in the entire market, but until that happens wouldn't
cryptocurrency prices _increase_ rather than _decrease_?

~~~
Nursie
Something like 80% of trades on the market currently involve tether, and
tether accounts for ~$3 billion of (presumed) cash-like holdings. If it
collapses then liquidity of the market is going to be severely hit, and the
people trying to exit to fiat are likely to cause a variety of bank-run type
situations.

These will be exacerbated by exchanges which have been run in bad faith and
which do not have either the cryptocurrency or fiat reserves they claim (see
Quadriga CX for a recent example).

Either way, it's going to be interesting to watch.

------
55555
So, let me get this straight...

Crypto Capital has claimed that the money is frozen and that's why they can't
send it back. Execs at Bitfinex/Tether believe maybe Crypto Capital's
principal, Ivan Lee, has stolen it and that's why he won't send it back. The
NY AG contacted Portugese and Polish authorities and, from them, was informed
that there were no official orders freezing Crypto Capital bank accounts in
those countries. So the most likely scenario by far is that Ivan Lee has
stolen the money.

The NY AG then files a civil lawsuit against Bitfinex, and in doing so reveals
to Ivan Lee that the US government is aware that he has stolen the money.

But he (Ivan) has not yet been arrested. So now we have a guy who has
committed a massive crime and who is comfortable with tax havens and living
internationally and corrupting institutions and who has been given a fair
warning to go into hiding before he inevitably is indicted. Oh, and he has
$850,000,000. Doesn't he sound like, idk, a flight risk? If he flees,
regardless of iFinex's failure to disclose the suspected loss to investors,
gross negligance on behalf of the NY AG may contribute to investors losing
$850 MM.

Why wouldn't they criminally charge the guy who they strongly imply has
actually stolen the money first before they file a civil suit against the
victims* dumb enough to send it to him? (* This is called VAF - Victim
Assisted Fraud)

There's a lot of angles from which to look at this. Bitfinex/Tether are shady,
no doubt. But if the NY AG actually believes what they are purporting to, this
stands out to me as a bizarre choice.

~~~
stzup7
"The NY AG contacted Portugese and Polish authorities and, from them, was
informed that there were no official orders freezing Crypto Capital bank
accounts in those countries"

I've read the 24 pages report and missed that part, could you quote it please?

To me, the whole thing looks like this: "Hey Bitfinex, you can't keep running
your operations when you're missing 800M. We know that, because we're the one
who seized that money from you"

~~~
55555
Oops, I misread page 15 and confused the Respondents for the OAG. I was
skimming. My bad.

> To me, the whole thing looks like this: "Hey Bitfinex, you can't keep
> running your operations when you're missing 800M. We know that, because
> we're the one who seized that money from you"

This sounds right. Pretty interesting stuff

------
arcticfox
I wonder if this is somehow related, 550 BTC (~$3M USD) connected to 2016
Bitfinex hack were moved today:

[https://www.reddit.com/r/Bitcoin/comments/bha10i/bitcoins_fr...](https://www.reddit.com/r/Bitcoin/comments/bha10i/bitcoins_from_the_bitfinex_hack_2016_moved_today/)

~~~
danaos
This is only a small fraction of the 120k bitcoins stolen at the time though.
It may be a coincidence.

~~~
village-idiot
Allegedly stolen.

~~~
stzup7
? The FBI collaborates on the investigation and even returned them some funds
they were able to seize a few months ago.

~~~
village-idiot
It’s a crypto exchange. The bar for it _actually_ being stolen by a third
party is high. Usually it’s just an exit scam, or they gambled with customer
money.

------
aedron
This article goes to great alarmist lengths, past the point of being
deceiving. Just the very first line:

> _One of the world’s most widely traded virtual currencies faces renewed
> doubts about its stability [...]_

Tether is nothing in terms of crypto currency penetration. It does not even
have a percent of daily trading. Then a few paragraphs down:

> _[...] within an hour of the attorney general’s statement and Tether slid
> 1.4 percent._

1.4 per cent. Even big cap stocks fluctuate that much some days.

> _At the time of the correspondence, Bitcoin was trading at around $6,500. It
> dropped 4.7 percent to $5,236.03 at 12:10 p.m. in Hong Kong on Friday._

So they mention a price from 8 months ago, and then mention yesterday's price,
implying that it fell that much because of this event.

Garbage journalism.

~~~
ccjnsn
For something pegged 1:1 with the US dollar a 1.4% decrease is quite unusual.

It's volume is 2nd only to Bitcoin per [1]coinmarketcap.

With your 3rd point about pricing changes, yeah correlation/causation, it's a
theory that is plausible though.

1.coinmarketcap.com

~~~
GreaterFool
If the peg was actually backed by anything then yes, that'd be unusual.

~~~
askmike
Not really no, it depends on how much liquidity of a certain type is worth
compared to liquidity of another type. Given the volatility in crypto markets
this tends to change drastically in different times.

Same as why lending rates for crypto & fiat can go from 0.0001% to 0.08% (per
day for example) in a matter of hours based on certain sudden price action.

------
patio11
You might enjoy this court order:
[https://ag.ny.gov/sites/default/files/2019.04.24_signed_orde...](https://ag.ny.gov/sites/default/files/2019.04.24_signed_order.pdf)

~~~
animex
Doesn't this mean they can't sell/buy/exchange tethers at all!

~~~
nostrademons
It appears to mean they can't _issue_ new Tethers nor can they raid the Tether
reserves, but it doesn't stop trading in Tethers themselves.

~~~
6nf
Well they issued some more tethers:

[https://whale-
alert.io/transaction/bitcoin/0c8c22ee5cd69649f...](https://whale-
alert.io/transaction/bitcoin/0c8c22ee5cd69649ff36c0396bb9ce951425614a32129d8d54c0144895ef4e7a)

on the same date as this court filing. Did the court filing happen due to the
new new Tether minting or was it the other way around? Or just a coincidence?

------
csomar
I think the news was out for some time and only now the rumor started to
confirm.

Tether is trading at exactly $1/$1 on Kraken. It had touched $0.85/$1 on
October 2018 though. It was discounted for the last quarter of the last year.
The discount lasted for several months suggesting lack of liquidity and
possibly lack of funds.

The Tether discount suddenly disappeared. And suddenly a discount/premium
appeared on Bitfinex. However, that discount was getting smaller everyday and
almost disappeared (until a bit earlier but still negligible in the volatile
crypto market).

I personally hold a significant amount of USDT/Finex Dollars and not worried.
I think the price is more relevant than the news. The probabilities or lack of
funds will be builtin in the price. And the current price suggests that iFinex
has got its shit together.

~~~
6nf
Why would you hold significant amounts of Tether? There's no upside and all of
the downside.

Why do you do it?

~~~
chimpburger
It's used for margin trading at exchanges that do not accept fiat

~~~
asynchrony
I suppose leveraged betting is done best when backed by worthless collateral.

------
blake1
This seemed inevitable for a long time. Tether is very important for
maintaining the price of bitcoin, and yet the stablecoin’s financial condition
has been an unanswered question. The company has raised every red flag and in
a rational market, tether would have been priced at pennies in the dollar,
with a corresponding markdown for bitcoin with the loss of “convertibility” to
dollars.

And I honestly am surprised how pedestrian the fraud was. It sounds like they
had the cash to back tether and just flat out stole it to cover for a trading
loss. This has happened countless times before.

~~~
darawk
> And I honestly am surprised how pedestrian the fraud was. It sounds like
> they had the cash to back tether and just flat out stole it to cover for a
> trading loss. This has happened countless times before.

Where do you see anything like that? The report says that their funds were
frozen by Crypto Capital as the result of (claimed) seizure by governments.
The funds were borrowed from the Tether reserves to cover that shortfall.
AFAIK, nowhere does it state that there was any trading loss.

------
impostervt
Predictably, the BTC/USDT market (on Binance) is showing an inflated price for
BTC as people try and bail out. Elsewhere the price of BTC is falling. It's
impossible to tell the real price anymore because, for the moment, both
actions are cancelling each other out.

~~~
nonbel
Looks like the last shakeout, not a big deal to anyone who didn't trust tether
to begin with:

>"OAG does not seek lo enjoin or interfere with the orderly operation of
Bitfinex or Tether' s legitimate businesses. if any. including orders by
legitimate traders on the Bitfinex platform, or legitimate tether holders, to
redeem their tethers for dollars. Indeed. protecting legitimate traders using
the Bitfinex platform. and legitimate holders of tether. primarily those
residing in New York, is why a preliminary injunction is necessary now to
preserve the status quo pending the completion of OAG's investigation."
[https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet...](https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod)

~~~
ShorsHammer
> protecting legitimate traders using the Bitfinex platform. and legitimate
> holders of tether. primarily those residing in New York

Bitfinex doesn't accept US customers though?

------
ronsor
Cryptocurrency exchanges seem to be full of fraud and deception.

~~~
hendzen
Speaking as someone who was deeply interested in bitcoin in ~2013,
cryptocurrency today is a wretched hive of scum and villainy. When someone
tells me today that they are working on something related to crypto I make a
mental note to never work with them or take anything they do seriously.

~~~
asenna
This quite an ignorant comment. I've been working with Blockchain tech (Crypto
by extension) for a while now and there's a lot of experimenting, genuine
projects being built right now. A lot of smart people are in this space
building solutions. Major companies like Samsung / Facebook have teams working
on PoCs.

Unfair to imply that everyone in Crypto is selling snake oil.

~~~
lalaland1125
> Unfair to imply that everyone in Crypto is selling snake oil.

So, who isn't? Look throughout the blockchain ecosystem and all you will see
are scams, illegal activity and get rich quick fools. I have personally yet to
see a use of blockchain tech for useful legal purposes. Yes, you will see some
companies "announce" that they are "investigating" blockchain or whatnot to
get some free PR, but you don't ever see them actually release anything
useful.

(I fully accept that blockchain has revitalized criminal enterprises such as
child pornography, extortion, and Ponzi schemes, but I don't see any reason to
celebrate that).

~~~
tim333
There seems to be a real project afoot with the Depository Trust & Clearing
Corp but I'll give you that a) it hasn't released and b) they could probably
do the same with MySQL
[https://www.forbes.com/sites/michaeldelcastillo/2019/04/16/b...](https://www.forbes.com/sites/michaeldelcastillo/2019/04/16/blockchain-
goes-to-work/#470a6e552a40)

It is hard finding legal and useful. There's a lot of legal but not that great
like gambling.

------
Animats
So why hasn't the bottom fallen out of Tether yet?

~~~
nostrademons
Tether functions as sort of the reserve currency of crypto. Many exchanges
don't even offer fiat money or banking connections - to use them, you have to
send Bitcoin in from another exchange or a personal wallet, then you can
convert it into Tether or other altcoins. People who are "getting out of
crypto" by selling Bitcoins because they think the price is gonna drop
oftentimes are actually buying Tethers. When 80% of crypto trading is
denominated in your currency, there isn't really a bottom _to_ fall to.

To actually exit Tether, most of these people would have to _buy_ Bitcoins or
another cryptocurrency accepted by most exchanges, register for the account
verification processes there (every exchange that handles fiat money has the
same KYC procedures as banks, i.e. take a picture of yourself and your
driver's license and wait a couple days while an employee manually verifies
it), transfer your Bitcoin to the other exchange, sell it to USD, and then
move it out to a bank account. That takes time and a lot of hassle. We'd
expect to see a _rise_ in the price of BTC at USDT-based exchanges as Tether
holders need to convert to Bitcoin to get out, along with a fall in BTC at
fiat exchanges as they sell that Bitcoin. To some extent this is happening
(Coinbase Pro's BTC price is almost $100 less than Tether-only exchanges like
Binance or Bitfinex), but it's less severe than I would expect from a true run
on the bank. Most Tether holders probably figure they'll take their chances
because the hassle of getting out is worse than the possibility of losing
their investment.

Reserve currencies can go _a long_ time before people finally run for the
exits. The US dollar hasn't been backed by anything since 1971 and is still
ticking strong.

~~~
abakker
>The US dollar hasn't been backed by anything since 1971 and is still ticking
strong.

I think you might be overstating. The US dollar is not backed by an _asset_
because it _is an asset_. At this point, the dollar is backed by the
government, the government's authority, its military power, and the future
value of its debt. That is not gold, but it is not nothing either.

~~~
nostrademons
By the same token, cryptocurrencies are backed by the computing networks
underlying them, the potential future usage of these computing networks, and
by your ability to buy guns, drugs, and hacks with them. This is also not gold
(although you _can_ buy gold-backed cryptocurrency: see Digix), but not
nothing either. That's why cryptocurrency evangelists harp on adoption and new
use-cases: the value of _any_ currency is primarily set by what you can spend
it on. Right now you can spend Bitcoin on a lot fewer things than US Dollars,
but your personal profit potential from holding a currency derives from the
_rate of increase_ in adoption, not its current level, and Bitcoin has a lot
of room to grow while the dollar has virtually none.

Tether intrinsically has none of these, but because of its adoption by many
exchanges, it's convertible into other currencies that have more intrinsic
value. So as long as it remains convertible, it will continue to have value.

~~~
marvinalone
USD is backed (among other things) by the government accepting taxes in it. If
you don't pay, they will come to your house with guns and take you away. This
creates a demand for USD that is completely unlike any demand for crypto.

~~~
conanbatt
Again this weird argument. If the USD were valued due to its tax-demand,
raising taxes would increase the value of the dollar!

Also the gov creates more supply to the dollar than the tax demand always, so
its not really clear. And most taxation is a percentage of income or value
measured in dollars itself.

This argument never clicked for me: where is it coming from?

~~~
rocqua
The argument is not that this is controls the USD value. Instead, the argument
is that this gives an intrinsic base value to the USD. This base value means
people have some reason to hold USD, which causes them to make other
transactions in USD. The actual current value from USD comes from the other
transactions, but that is not intrinsic to USD. Instead, it is an emergent
property.

The intrinsic value of USD is consoling, because it prevents the value of USD
dropping to 0, hence there will always be a possibility of the emergent value
reappearing.

------
tim333
The other interesting speculation with Bitfinex is they may have used Tether
money to manipulate the Bitcoin price. I wonder if we will get more info
there.

------
stefan_
Doesn't sound like the $850M went missing, more like someone cashed out.
Unless hiring a company to do what you say your company is doing, then handing
it all your funds immediately, allows any other conclusion.

~~~
FireBeyond
I'm not sure how you came to this conclusion. Bitfinex sent $850M to allow
withdrawals to be paid, but very few, if any, were. Witness communications
like "you said this would be resolved, but that was a month ago, and not a
single wire transfer has taken place".

------
jpmattia
> _The attorney general said Bitfinex’s problems began in 2018, when it handed
> over $850 million to third-party payments processor Crypto Capital Corp. to
> handle customers-withdrawal requests. Over the months that followed, Panama-
> based Crypto Capital failed to process the orders, the attorney general
> said._

For all the noise about Tether being insolvent, it turns out that it was
completely solvent? Then in 2018, Bitfinex got taken by Crypto Capital and
raided the Tether reserves for $850M backing the Tether issuance?

So if I'm reading this right: The holders of tether are now screwed and should
be converting to bitcoin/litecoin/etc asap.

~~~
dragonwriter
> For all the noise about Tether being insolvent, it turns out that it was
> completely solvent?

I don't think this says that; it says that the ~$2bn in tether had at least
$700 million in actual backing, because at least that much was transferred out
of it's backing.

It still could have been insufficiently backed to start with.

~~~
jpmattia
To repeat the other reply:

The primary suspicion about tether was lack of solvency, and the [edit: CFTC]
subpoena went out in late 2017. It would not have taken more than some weeks
to determine if the assets were not present.

It's pretty hard to imagine the AG sat on tether insolvency for 18 months.

~~~
dragonwriter
> The primary suspicion about tether was lack of solvency, and the subpoena
> went out in late 2017

Per the court filing, the investigation of Bitfinex and Tether began in 2018
and the subpoena went out on November 27, 2018.

~~~
jpmattia
We're apparently talking about two different subpoenas.

CFTC subpoenaed Tether back in 2017: See eg
[https://webcache.googleusercontent.com/search?q=cache:4hW_8L...](https://webcache.googleusercontent.com/search?q=cache:4hW_8LK03JcJ:https://www.bloomberg.com/news/articles/2018-01-30/crypto-
exchange-bitfinex-tether-said-to-get-subpoenaed-by-
cftc+&cd=1&hl=en&ct=clnk&gl=us)

~~~
dragonwriter
So...the CFTC isn't a State of New York agency, so what does this have to do
with the reading into a New York AG action that Tether must have been solvent
otherwise the AG wouldn't have sat on information since then?

(Also, the CFTC and US DoJ investigations were still active at least as
recently as November of 2018, which doesn't sound like they found that things
were A-OK, more like they were—and presumably still are—trying to nail down
the details and responsibility/liability issues surrounding identified
irregularities.)

~~~
jpmattia
> _So...the CFTC isn 't a State of New York agency, so what does this have to
> do with the reading into a New York AG action that Tether must have been
> solvent otherwise the AG wouldn't have sat on information since then?_

Because it's pretty hard to imagine the CFTC would not have communicated with
the NY AG if they had the info about Tether's insolvency. Also hard to imagine
NY AG not contacting CFTC before filing.

> _(Also, the CFTC and US DoJ investigations were still active at least as
> recently as November of 2018, which doesn 't sound like they found that
> things were A-OK, more like they were—and presumably still are—trying to
> nail down the details and responsibility/liability issues surrounding
> identified irregularities.)_

Again, with regard to insolvency, it's pretty hard to imagine CFTC would allow
Tether to continue operations for more than a year if they had evidence of
insolvency.

~~~
dragonwriter
> Because it's pretty hard to imagine the CFTC would not have communicated
> with the NY AG if they had the info about Tether's insolvency

It's also pretty hard to imagine that, in filing their own case, the NY AG
would reveal sensitive information about a still-active federal investigation,
but that's your apparent theory.

> it's pretty hard to imagine CFTC would allow Tether to continue operations
> for more than a year if they had evidence of insolvency.

It's pretty easy to imagine that of taking action would in any endanger the
ongoing DoJ criminal investigation that it would hold back; it's worth noting
that the ongoing law enforcement investigation exemption was among the
exemptions CFTC cited in June of last year in declining to provide documents
in response to an FOIA request about the Tether-related subpoena.

------
bravoetch
Isn't this the same exchange that got hacked, and socialized the losses
throughout their customer accounts? They've been shady on many fronts for a
long time.

------
shiado
Anybody who read about the connection between Tether and Bitfinex when the
paradise papers came out saw this coming.

------
miguelmota
Tether was questionable since day one. They never really substantiated their
claim of full-backing through a real audit of their currency reserves. Tether
was the successor to Realcoin which was backed by Brock Pierce. Brock Pierce
is co-founder of EOS which had the 4 billion dollar ICO.

------
shrimpx
Next crypto bubble: people mass-bailing out tether by exchanging it for
Bitcoin, Litecoin, etc.

~~~
gzu
Yes people exchanging their worthless asset (tether) for bitcoin so they can
sell it for real USD.

BTC-USDT -> infinity BTC-USD -> much lower

------
village-idiot
About time. Bitfinex has been suspected of serious fraud for at least a year.

------
arisAlexis
which shouldn't in principle affect Bitcoin which is decentralized and
trustless if some third party private companies fail.

------
temp99990
And yet tether is still hovering near $1...

~~~
Scoundreller
Any existing peg can be maintained, until it can't.

------
sctb
Since the WSJ is hard-paywalled, we've updated the link from
[https://www.wsj.com/articles/bitfinex-used-tether-
reserves-t...](https://www.wsj.com/articles/bitfinex-used-tether-reserves-to-
mask-missing-850-million-probe-finds-11556227031). We're happy to update it
again if someone can suggest a better source!

~~~
mzs
WSJ isn't hard-paywalled though, just add "?mod=rsswn" to the end of the URL
and open in a private window, here try it for yourself:
[https://www.wsj.com/articles/bitfinex-used-tether-
reserves-t...](https://www.wsj.com/articles/bitfinex-used-tether-reserves-to-
mask-missing-850-million-probe-finds-11556227031?mod=rsswn)

------
seibelj
The article:

A cryptocurrency exchange that claims real dollars back its popular digital
coin Tether raided those reserves to cover up $850 million that went missing,
the New York Attorney General’s office said Thursday.

State Attorney General Letitia James said Hong Kong-based iFinex Inc., which
operates the Bitfinex cryptocurrency exchange and owns Tether Ltd., has been
commingling client and corporate funds to cover up the missing funds, which
occurred in mid-2018 and hadn’t been disclosed publicly.

The attorney general’s office said it has obtained a court order directing
iFinex to stop moving money from Tether’s reserves to Bitfinex’s bank
accounts, halt any dividends or other distributions to executives and turn
over documents and information. The coverup drained at least $700 million from
Tether’s reserves, according to the attorney general’s office.

Attorneys for iFinex didn’t immediately respond to a request for comment, and
representatives of Bitfinex and Tether weren’t immediately available.

The attorney general’s findings emerged from an investigation into
cryptocurrency exchanges that it launched in 2018 and is continuing. A report
in September warned that many exchanges lacked basic safeguards and left
consumers vulnerable to exploitation by market manipulators.

A so-called stablecoin, Tether is purportedly backed one-to-one by U.S.
dollars. Yet the firm has never released a public audit showing it has the
reserves to back the coins in circulation, leading many to question whether
the funds exist.

Tether has marketed the coin as a way to get both the safety of the dollar and
the speed and anonymity of a digital currency. Its market value has risen
steadily over the past two years, to $2.8 billion from about $10 million at
the beginning of 2017.

It has become a major source of liquidity in the cryptocurrency market. About
80% of all bitcoin trading is done in Tether, according to data from research
site CryptoCompare.

The attorney general said Bitfinex’s problems began in 2018, when it handed
over $850 million to third-party payments processor Crypto Capital Corp. to
handle customers-withdrawal requests. Over the months that followed, Panama-
based Crypto Capital failed to process the orders, the attorney general said.

Representatives of Crypto Capital weren’t immediately available for comment.

By November of that year, according to people close to the attorney general’s
investigation, Bitfinex determined that it had permanently lost access to the
$850 million. To hide the missing funds, Bitfinex and Tether engaged in a
series of maneuvers that drained Tether’s reserves, the people said.

A gap of that size would represent a major portion of Tether’s reserves.
Tether currently claims on its website that the coins it issues are backed by
reserves that include currency, cash equivalents and other assets and
receivables. The language was altered in March; it previously claimed the
reserves were 100% in currency.

~~~
keyle
This reads like 850M just went straight to some entity in Panama.

"Missing". Please.

Conveniently, in Panama too.

~~~
dragonwriter
> This reads like 850M just went straight to some entity in Panama

No, it was around $1bn, $851m is just what Bitfinex lost access to when the
entity spun out the “all the money we were holding for you got seized by
various governments so we can't handle your payouts” line.

------
peterlk
It's almost like unregulated financial institutions have a tendency to screw
over their customers... No one could have predicted this in the consistently
solvent, regulated, and trustworthy cryptocurrency market. It's too bad
bitfinex got ripped off by a surely unrelated entity. /s

Have we learned our lesson yet?

~~~
shawnz
What's the lesson? That cryptocurrencies have different risks than other kinds
of financial technologies? I think that is pretty commonly understood already.

~~~
csa
> That cryptocurrencies have different risks than other kinds of financial
> technologies?

These are known risks that have regulations that significantly reduce the
chance of them happening in regulated currency markets and banks.

Cryptos took the Wild West approach due to... something... and somehow think
that the scams that people have used in the past with banks will not be used
again with crypto.

SURPRISE!!!

~~~
shawnz
> somehow think that the scams that people have used in the past with banks
> will not be used again with crypto. SURPRISE!!!

But nobody thinks that. That's the point I was just making.

------
h1d
The usual blog when it comes to Bitfinex.

[https://medium.com/@bitfinexed](https://medium.com/@bitfinexed)

~~~
kbody
Alex Jones too... The majority of this blog is just conspiracy-p0rn.

Anyway, if you are really interested in actual related news and facts just
follow [https://www.theblockcrypto.com](https://www.theblockcrypto.com) or
similar.

------
ShorsHammer
Everyone agree's that tether should have a 1-to-1 backing.

The delicious irony in it all is that the money in your bank is backed by
about $0.10 for every dollar they owe savers.

I hope for the day when people expect the same of the banking system that
underpins the whole economy.

~~~
nlh
There's a huge difference: Yes, the bank only holds $0.10 in cash, but at
least in the US, the F.D.I.C. backs up every dollar in your bank account up to
$250,000. That's a major reason the reserve banking system functions.

If there were an F.D.I.C. for tether then I'm sure people would have different
expectations (and likewise, if there were no F.D.I.C. for the US banking
system).

~~~
nonbel
The FDIC is more a feel-good measure:

>"Currently, the Deposit Insurance Fund (DIF), which is a fund set aside to
cover the insurance obligations of the FDIC, has a required reserve ratio of
only 1.35%. And that is only after a decision was made in October of 2015 to
raise it, from its original level of 1.15%. Even more daunting, the DIF has
until 2020 to reach this new 1.35% required reserve level. This means that,
using the newly designated 1.35%, the DIF is only required by law to have
$3375 on hand for every $250,000 it is currently insuring. Feeling secure?
And, sadly, the reality is even less reassuring.

On a macro scale, the FDIC currently “insures” $10.8 trillion of deposits, yet
the DIF only has $52 billion of actual cash with which to insure that massive
amount of money. Quite a massive shortfall, and well below the measly 1.35%
that it is required by law to maintain."
[http://www.escapeartist.com/assetprotection/what-does-
fdic-i...](http://www.escapeartist.com/assetprotection/what-does-fdic-insured-
really-mean/)

In the end the fed can print the dollars too, at the expense of inflation...
but who knows what schemes they have come up with.

~~~
JumpCrisscross
> _The FDIC is more a feel-good measure_

No, it isn't. If the FDIC busts, the government would step in to back it up.
Moreover, the FDIC's oversight keeps bank failures to a tiny fraction of the
alternative, which we can now measure in the massive rates of fraud and
failure around cryptocurrencies.

~~~
nonbel
The FDIC and other schemes to intervene in the case of bad banks allows banks
to get so huge they can't be allowed to fail. Then everyone needs to pay for
the idiots who put their money into bad banks.

In fact, it becomes smart to put your money in these poorly run banks since
they will make more money on riskier activities but get bailed out when the
same fail...

Many people are dissatisfied with this situation.

~~~
JumpCrisscross
> _Many people are dissatisfied with this situation_

As am I. But the carnage in cryptocurrencies is a reminder that the _status
quo_ beats anarchy or random stabs in the dark.

A human tendency with inefficient systems is to throw out the baby with the
bathwater. There are reasonable discussions to be had around reforming and
renewing the FDIC to be more friendly to new entrants.

~~~
nonbel
>"As am I. But the carnage in cryptocurrencies is a reminder that the status
quo beats anarchy or random stabs in the dark."

The situation with bad cryptocurrency exchanges failing does not remind me of
that at all. It is far superior since only the people who leave their money in
the bad exchanges get punished.

Under your preferred system I get held hostage even though I can see clearly
something is wrong.

