New York’s Supreme Court has rejected Bitfinex and Tether’s appeal in the ongoing dispute over $850 million in lost funds

A New York court today rejected the request from cryptocurrency exchange Bitfinex to crack down on an investigation by the state’s Attorney General, which allegedly used Bitfinex to use Tether to cover the flaw nearly 1 billion dollars. Despite Bitfinex’s protestations, the court said that it does have jurisdiction, as does the NYAG.

new-yorks-supreme-court-has-rejected-bitfinex-and-tethers-appeal-in-the-ongoing-dispute-over-850-million-in-lost-funds

A court denied Bitfinex appeal to dismiss a case brought against it by the New York Attorney General

Tether had initially been reserved that its US-dollar pegged stablecoin was backed by US dollar reserves — for every USDT token, it had one US dollar in its bank account. But, in April 2020, New York Attorney General Letitia James argued that USDT is not a one-on-one backed by US dollar reserves. Tether later admitted that its reserve was only supported 74% in US dollars.

Why don’t they support 100%? NYAG alleges that, when Crypto Capital was frozen and its directors arrested, Bitfinex lent Tether to replace the money.

Stuart Hoegner, Bitfinex’s General Counsel, stated:

“We have read the decision issued today by the Appellate Division of the New York Supreme Court, First Department. As we have at all times in this process, we will respect the court’s order. We have no further comment on this matter at this time.”

Bitfinex had used Tether’s cash reserves as its corporate slush fund, and that the reserves are being used to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals.

However, Bitfinex denied these allegations and asked to scrap the investigation. Bitfinex could not be reached for further comments. But a New York state appeals court today rejected Bitfinex’s motion to dismiss the case for several reasons.

First, the court rejected Bitfinex’s argument as follows. Before the criticism of Tether was not a security, the court did not have jurisdiction over them, and the court rejected this:

“Tether constitutes a security under the Martin Act, the act under which the court has jurisdiction.”

Second, the court dismissed Bitfinex’s argument that the NYAG’s investigation wasn’t related to New York state. The court disagreed, citing a case concerning Deutsche Bank in which proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York. Several New Yorkers have used Tether, so its argument doesn’t hold up, said the court.

Accordingly, the court denied Bitfinex’s motion to dismiss:

“Editor’s Note: This article has been updated to include a comment from Stuart Hoegner, General Counsel for Bitfinex.”

Attorney General James stated:

“Today’s decision validates our office’s ability to use its broad and comprehensive investigative powers to protect New Yorkers. Not even virtual currencies are above the law. We are pleased with the court’s decision, and will continue to protect the interest of investors in the marketplace.”

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