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.
That's some serious bravado and optimism. Why the fuck would you ever move that much money at once? They should not have transferred a penny more than the monthly volume at a time. Was the volume $850 million a month? I seriously doubt it.
Conveniently, in Panama too.
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.