NY AG Asks Court for New Order to Make Bitfinex Turn Over Tether Loan Documents

UPDATE: New York Judge Joel M. Cohen has scheduled a conference for next Thursday between the New York Attorney General’s office and counsel representing Bitfinex and Tether. Parties can file a three-page letter detailing their positions by Sept. 14.

The New York Attorney General’s office (NYAG) wants Tether and Bitfinex to immediately turn over documents detailing a $900 million line of credit the first entity extended to the second, according to a new filing with a public court system.

The NYAG’s office began a formal inquiry into Bitfinex and Tether in April 2019, when it alleged Bitfinex had lost access to more than $850 million in customer and corporate funds and covered up the shortfall by borrowing from Tether, with which it shares executives and corporate owners. The NYAG won a ruling that ordered the companies to turn over information pertaining to the extension of credit and the firms’ relationship. The respondents appealed, but lost the appeal in July.

“In the time since the [appeals court’s] ruling, the parties attempted to resolve this matter, unsuccessfully,” the filing, dated Sept. 8 (or exactly 61 days from when the appeals court ruled) said.

NYAG’s inquiry into Bitfinex and Tether, currently the largest stablecoin issuer, revealed there was a period in which the U.S. dollar-pegged USDT stablecoin was only about 74% backed by reserves. Tether later said its token was fully backed, but didn’t specify what makes up its reserves.  

The NYAG’s office is now hoping to meet with New York Judge Joel Cohen, who is overseeing the case, and to argue for a new order with a strict 60-day deadline for the crypto companies to turn over the documents.

Read more: New York Attorney General Calls Bitfinex’s Legal Stance ‘Deeply Perverse’ in New Filing

“At the conference we seek, the OAG [Office of the Attorney General] will request that the Court order the immediate production of documents and information by Respondents as required under the April 24, 2019 Order … to be completed no later than sixty (60) days from the date of the requested order,” the filing said. “The OAG will also request that the Court extend the injunction previously entered in this matter for an additional ninety (90) days.”

The injunction in question prohibits Tether from lending any more funds to Bitfinex.

“Despite our best efforts, we were not able to reach an agreement. While we continue to be willing to discuss a potential resolution, we will file our response to the proposed next steps in due course. We will continue to pursue a fair and reasonable process,” Bitfinex and Tether General Counsel Stuart Hoegner said in a statement sent by a spokesperson.

This follows a July statement where he said, “We will respect the court’s order.”

For its part, Bitfinex has sought subpoenas against various banks to try and recover its missing customer funds, which it held with Crypto Capital, an unlicensed “shadow bank” whose operator, Reginald Fowler, was arrested last year and is awaiting trial.

Crypto Capital’s holdings, which apparently included some of Bitfinex’s funds, were seized by U.S., U.K. and Polish authorities, and Bitfinex has yet to recover any of these funds.

Read the full letter below:

UPDATE (Sept. 9, 21:10 UTC): This article has been updated with a statement from Bitfinex and Tether. A judge scheduled a conference on Wednesday.