Cryptocurrency exchange Bitfinex did business with New York-based customers and vendors as recently as this May, according to a filing made in State Supreme Court by the office of New York Attorney General Letitia James.
James has accused Bitfinex and its sister company, stable-coin-issuer Tether, of fraud and state securities law violations over a $625 million loan Tether gave Bitfinex after the exchange lost $850 million to fraud.
The two companies asked a judge to throw out the case, arguing they do not do business in New York, meaning James has no jurisdiction. They also contested James’ description of tether (USDt) as a security, which would invalidate the part of the suit brought under New York’s Martin Act.
“[E]ven a cursory examination of the facts gathered to date in the [Attorney General’s] investigation shows that Respondents have extensive and consistent contacts to New York,” Assistant Attorney General Brian Whitehurst argued in a July 8 filing. “Contrary 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.”
Bitfinex claimed it stopped doing business with New Yorkers after January 30, 2017. Whitehurst’s affirmation and 25 attached documents provided examples of business the exchange did in New York after that date, and even well after the loan was made in November 2018.
“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 added. “There is evidence that Respondents knew that those traders would continue to conduct their activity from New York.”
In the filing, Whitehurst argued that Bitfinex and Tether did a great deal of business with New York firms including Mike Novogratz’s Galaxy Digital merchant bank, as well as several commercial banks and even the accounting firm that certified tether (USDt) was backed 1-to-1 by U.S. dollars in 2017.
Among the evidence presented by Whitehurst was account login data showing that an unnamed trading firm that was a Bitfinex customer frequently traded from New York on an account that was opened as recently as December 18, 2018. The last New York-based trade from that account was made on May 14, 2019. That’s just seven days before Bitfinex and Tether’s general counsel, Stuart Hoegner, filed an affirmation with the court that said Bitfinex had not done business in New York since January 30, 2017.
The Attorney General’s evidence referring to Galaxy Digital is a trio of letters from the cryptocurrency merchant bank written on October 15, 2018, certifying that Galaxy Digital LP, Galaxy Benchmark Crypto Index Master Fund LP, and Galaxy Digital Trading Cayman LLC each had assets of at least $10 million. That is the amount required under U.S. law to qualify an investor to trade in futures not open to retail investors.
Whitehurst also pointed out that tether currently is used by the Poloniex exchange, which is owned by Circle, a firm regulated by the New York Department of Financial Services (DFS). It was also used by the Bittrex exchange, which Whitehurst said was open to New Yorkers until ordered to stop by DFS, he said.
Finally, Whitehurst’s filing claims that the New York Attorney General’s office found evidence of Bitfinex doing business with New Yorkers that it had not turned over, in violation of the court’s order to do so.
Therefore, Whitehurst concluded, the Attorney General’s office “respectfully requests that the Court deny Respondents’ Motion to Dismiss in its entirety [and] direct the immediate production of all materials called for.”