In disputing the New York State Attorney General’s claim that embattled cryptocurrency exchange Bitfinex and stablecoin-issuer Tether have lost $850 million, the CEO of the two firms’ parent company has raised a bigger question: why have four governments, including the U.S. and U.K., seized its money?
In an email sent to Bitfinex users on April 27, iFinex CEO Jean Louis van der Velde doubled down on assertions that the New York State Attorney General was not only wrong, but that she acted in bad faith as well. He also wrote that “we want to assure you that the allegation that we have ‘lost’ $850 million is categorically false.”
Specifically, van der Velde added, “[w]e have been advised that these amounts—whether in whole or in substantial part—are, in fact, seized and safeguarded in several jurisdictions, including Poland, Portugal, the United Kingdom, and the United States.”
He did not add any details about how or why the assets held at Panama-based Crypto Capital Corp. were seized by those jurisdictions, or if Attorney General Letitia James was wrong about their location at Crypto Capital Corp.
By press time, the New York Attorney General’s office had not returned a call seeking a response to van der Velde’s comments, or if it had any information about those funds being in those four jurisdictions, who seized them, and why—nor did Bitfinex reply to an email seeking the same information
The U.S. Department of Justice referred a question about seized funds back to the New York Attorney General’s office.
Still, the claim that the funds were seized was known to the New York Attorney General’s office before it issued its April 25 subpeona.
In paragraph 85 of the Attorney General’s filing, it quotes a letter from that said: “Crypto Capital’s principals have represented that the unavailable funds have been seized or otherwise restrained by governmental authorities in Poland, Portugal and the United States [at which time] the Companies [iFinex, Bitfinex and Tether] grew concerned that Crypto Capital’s principals may be engaged in a fraud.” No mention was made of the U.K. seizing funds at that time.
The Polish seizure might refer to an incident from April 2018, when €400 million was seized by Polish authorities “from an account reportedly affiliated with crypto exchange Bitfinex” in a case that suggested a link between a company owned by Crypto Capital Corp. and a Colombian drug cartel, according to an article by Cointelegraph. However, Cointelegraph noted at the time that Bitfinex had released a statement denying any connection to the seized funds.
In this weekend’s email about the allegedly missing $850 million, van der Velde wrote, “We are actively working to exercise our rights and remedies to cause those funds to be released. We are confident in our ability to make clear, coherent, and convincing arguments to recover those funds.”
Noting that the Attorney General had made no civil or criminal complaint, van der Velde said that the companies would “vigorously challenge the false assertions made by the New York Attorney General’s office in their filing.”
He added: “We continue to co-operate with regulators worldwide as they seek to learn more about our business. But we will not allow that spirit of co-operation and goodwill to be used to threaten our customers … we are good actors in the digital token space, and we always act with you, the customer, as our first priority.”
He concluded: “We are here to assure you we’re as strong as ever, we are not going anywhere, and we’re unwaveringly committed to you.”
Bitfinex and Tether are no strangers to controversy
On December 6, 2017, the Commodity Futures Trading Commission (CFTC) issued subpoenas to Bitfinex and Tether seeking to verify that they in fact had the US dollars in reserve that they claimed to have in a one-to-one ratio with each tether (USDT) stablecoin issued.
Then in June of 2018, a paper written by John Griffin and Amin Shams, academics at the University of Texas at Austin, “Is Bitcoin Really Un-Tethered?” argued that “Tether is used to provide price support and manipulate cryptocurrency prices.”
Specifically, the paper claimed that when Tether issues large batches of new USDT, almost all of it is moved to Bitfinex, and that between March 2017 and March 2018, these USDT coins were used to purchase Bitcoin (BTC) in ways that led to price increases. Just 87 of these purchases accounted for about half of the massive price increase of BTC in that time period, the paper argued.
In November 2018, Bloomberg reported that the U.S. Department of Justice had opened a criminal probe to investigate whether USDT was used to manipulate the price of Bitcoin, which went from $436.63 on March 1, 2017 to its all-time high of $19,758.20 on Dec. 17, 2017, and back down to $10,716.80 on March 1, 2018, according to CoinMarketcap.
The week that the CFTC issued its subpeona, there was a massive run-up in the price of Bitcoin. Over the first 24 hours, the price of Bitcoin jumped from $12,461.00 to $18,353.40 before falling back to $16,824.00 on Dec. 13.