Bitfinex and Tether say New York Attorney General risks making them unable to pay their bills

In seeking freedom to pay employees and contractors, Tether attorneys suggest the stablecoin issuer mixes reserve and operating funds

Embattled stablecoin issuer Tether told a judge this week that it was worried about its ability to pay its bills.

Tether Watch

Lawyers for iFinex, the parent company of Tether and cryptocurrency exchange Bitfinex, told the New York Supreme Court on Monday that the language of New York State Attorney General Letitia James’ proposed injunction on Tether using dollar reserves backing its USDT stablecoin could prevent it from making payroll or paying bills.

Bitfinex has said it has raised $1 billion from private investors this week in an initial exchange offering (IEO).

At issue is part of an injunction James’ office sought to prevent Tether from loaning its sister company, Bitfinex, any more money. On April 25, James obtained a preliminary injunction after Tether loaned Bitfinex some $700 million to help the exchange meet withdrawal requests. James said Bitfinex lost $850 million to fraud, while Bitfinex says the money has been seized by the U.S., Poland, and Portugal, and expects to get it back soon.

In his filing, Brian Whitehurst, assistant attorney general for the investor protection bureau, asked the court for three things: to prevent Tether from loaning any more money to Bitfinex; to prevent Tether from funneling reserve funds to company insiders; and to stop it from destroying any documents.

It is the language of the second part of the order that is in dispute. The iFinex attorneys want to make clear that the restriction on “making any distribution or dividend  to any principal, executive, employee, agent, investor, or associate of Bitfinex and Tether… shall not preclude payments in the ordinary course of business, including for payroll or payments to vendors, consultants, and/or contractors.”

Whitehurst said that any such payments should come from non-reserve funds, such as transaction fees.

“The intention here is to prevent the Tether cash reserves from being dissipated via transfers to  company insiders (as compensation, ‘payroll,’ or other euphemism),” Whitehurst added.

The iFinex attorneys say the company does not have “a separate account earmarked ‘non-reserve’ from which ordinary course expenses are paid. Money is fungible. Accordingly, determining whether payments are from reserves or not is fraught with ambiguity and would be a recipe for future conflict” with the Attorney General’s office.

It’s not clear if that means Tether comingles operating expenses with its reserve funds.

“[W]hile Tether does not anticipate that it will suddenly become unprofitable, [the Attorney General’s] language would potentially require the company to cut off salary and other ordinary course payments in any given period if, for whatever reason, there was insufficient profit,” the two sister companies’ attorneys told New York State Supreme Court Judge Joel Cohen in a May 13 filing.

The two sides are also fighting over whether the injunction should be for 45 days, or the 90 days the Attorney General’s office is asking for.

Updated Jan. 20, 2020 to correct New York Attorney General Letitia James’ name.

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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.