Tether and Bitfinex staff hard at work getting documents in the case brought against them by New York Attorney General Letitia James (via Pixabay).

Bitfinex, Tether accused of stalling fraud investigation

The NY Attorney General’s office wants the exchange and stablecoin-issuer to keep giving it evidence while an appeals court decides whether to throw the case out

New York Attorney General Letitia James just demanded that embattled cryptocurrency exchange Bitfinex and stablecoin-issuer Tether keep searching for documents that will help her office prove the sister companies committed fraud.

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This, despite the fact that an appellate court judge just put a halt to her office’s discovery motions while it decides whether to throw the case out of court.

In the latest twist to the long-running saga, the attorney general’s office accused Bitfinex and Tether of running a stalling campaign against the investigation.

“There has been nothing but delay,” complained John D. Castiglione, James’ senior enforcement counsel, in the October 1 filing. “Respondents have been crystal clear that their litigation strategy is to delay this process as long as they can, by procedural maneuvers.”

Of course, Bitfinex and Tether have claimed that by the end of July  they’d already spent $500,000 just on the 60 lawyers producing documents for the investigation. They estimated the document production cost of a full case at $5 million.

The AG’s office poured scorn on this, claiming on August 1 that they had requested “information that any responsible trading platform or venue of exchange should have at its fingertips.”

James office is suing the firms over a loan of as much as $700 million that Tether secretly gave Bitfinex after it was robbed of $850 million by a con man in 2018. At issue is whether the attorney general has any standing to sue, as Bitfinex claims to have no New York clients.

The exchange, which was having trouble meeting client withdrawals, was bailed out when Tether secretly took the cash out of the U.S. dollar reserve that was supposedly backing its tether (USDt) stablecoin one-to-one. James said this amounted to fraud and violated New York securities law.

Castiglione’s October 1 filing cited what it said were previous instances of stonewalling document demands, as well as flat-out refusing to produce documents even when ordered to do so by the court. These included correspondence with the U.S. Commodity Futures Trading Commission (CFTC) and tax filings. It also refused to provide weekly reports of the amount of tethers purchased or redeemed, the identity of those clients and wallets, and how long the transfers took to perform.

“Unless the Court directs Respondents to collect these materials now, what will happen is predictable,” Castiglione told Judge Joel Cohen. “Respondents will, upon lifting of the stay, argue for more time to search and collect materials, file more motions challenging the scope of the [court’s document production order], and otherwise take whatever steps they believe will be tolerated by the Court to further delay the OAG’s investigation.”

Ordering Bitfinex and Tether to “get materials in order now… will ensure an orderly process and will facilitate the conclusion of the OAG’ s investigation,” he added.

Of course, that assume that the Appellate court does not toss the AG’s case altogether, in which case the work would be a waste of time and money.

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.