The two companies are accused of violating a number of laws when Tether dipped into the U.S. dollar reserve backing its USDt stablecoin to loan a desperate Bitfinex up to $700 million, after the exchange lost $850 million to an alleged scam artist.
On July 29, New York State Supreme Court Judge Joel M. Cohen gave himself another 90 days to decide whether the case can be heard in a New York courtroom, The Block reported. In doing so, he also extended an injunction prohibiting Tether from loaning Bitfinex any more money, though also allowing the two firms to continue operating as normal. But, he also kept an injunction preventing James’ office from demanding evidence from iFinex on anything but the matter of jurisdiction
At issue is whether has the jurisdiction to investigate the case at all, as the two companies, owned by Hong Kong-based iFinex, claim they do no business in New York or with New Yorkers.
James’ office claims Tether and Bitfinex had a conflict of interest and committed fraud as well as breaking state securities law with the loan, which was not disclosed until the lawsuit was filed on April 25. Until the disclosure, the only notice customers had that the Tether stablecoin was no longer backed 1-to-1 by a reserve of U.S. dollars was a vaguely worded and unpublicized notice on its website. At the time, Tether were used in 73% of all bitcoin trades, according to CryptoCompare. That number is now down below 70%.
Bitfinex told the court it stopped doing business in New York on January 30, 2017. In a July 8 filing, New York Assistant Attorney General Brian Whitehurst told the court that “[c]ontrary to Respondents’ statements to the Court that ‘[t]hey have steered clear of New York (and of the United States)’ their ties to New York are many and deep… In fact, documents suggest that Respondents assisted certain [large professional trading firms] in establishing foreign shell entities to become the nominal account holders—a work-around of Respondents’ purported ‘ban.’”
Whitehurst argued that Bitfinex and Tether did business with Mike Novogratz’s New York-based Galaxy Digital merchant bank, as well as several commercial banks.
On July 22, attorneys for Tether and Bitfinex replied that the Attorney General’s office “tries to confuse matters by referring to isolated instances where Respondents’ foreign customers have shareholders or other personnel in New York. But in those circumstances, Respondents’ counterparties—the ones with which Respondents actually transacted business—are the foreign entities.”
While iFinex attorneys had sought a complete dismissal, no news is probably good news, as in a May 16 ruling, Judge Cohen wrote that the Attorney General’s case had “a likelihood of success on the merits,” as far as the loan violating New York’s securities law.
Updated August 20 to reflect amount loaned by Tether to Bitfinex.