The New York State Attorney General has brought a lawsuit against iFinex Inc (Bitfinex) and their “stablecoin” Tether (USDT) for fraud.

Just after 4 PM EST, NY Attorney General Letitia James announced that Bitfinex and Tether are being sued for fraud. A probe conducted by the AG found that the company had been using Tether to cover an $850 million worth of missing funds that had gone missing sometime in 2018.

The lawsuit highlights efforts made by iFinex Inc to hide their missing funds’ problem in order to prevent unwanted attention. In addition, the company had partnered with Crypto Capital and had been commingling both customer funds and their own capital totaling to about $1 billion.

The reason for the exchange doing this, according to the AG, was because they began to struggle with their withdrawals due to draining customer funds and most likely stolen by Crypto Capital.

The result of this press release is that cryptocurrency markets lost about $12 billion (at the lowest point, so far), Bitcoin dipped to a low around $5,100, and somehow USDT is still trading around $.99 (briefly dipped below $.98).

On October 15, 2018, Bitfinex Communications Director made the following statement:

“Fiat withdrawals are currently processing, both old and new, but the backlog which is being worked through means that a few users, unfortunately, continue to experience these delays for a little while longer. Unfortunately, I am unable to provide a clearer estimate as to when you will receive your withdrawal, but I can assure you that fiat withdrawals are processing and that your specific transaction is being monitored closely.”

The official Bitfinex statement made the following assertions:

-All cryptocurrency and fiat withdrawals are, and have been, processing as usual without the slightest interference;

-All fiat (USD, GBP, JPY, EUR) withdrawals are processing, and have been, as usual;

-Fiat deposits have been temporarily paused for certain user groups.

While saying that, internally they were having issues meeting their customer’s withdrawal demands and they knew it. While speaking to one external partner, a senior executive said that “this news could crash the Bitcoin market below $1,000 if they don’t act quickly.” Their “fix” was to co-mingle their funds along with customer funds which is clearly illegal.

“Please understand all this could be extremely dangerous for everybody, the entire crypto community. BTC could tank to below 1k if we don’t act quickly.” -Bitfinex Senior Executive


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