Bitfinex and Tether have spent half a million dollars just on finding documents for the New York Attorney General's (NYAG) office, a new letter by its lawyers says.
In the letter filed with the New York Supreme Court Tuesday, attorneys Jason Weinstein and Charles Michael of Steptoe and Johnson LLP, and David Miller and Zoe Phillips of Morgan, Lewis and Bockius LLP, urged Judge Joel M. Cohen to rule against immediately compelling the crypto exchange and stablecoin issuer to produce all the documents the NYAG demanded.
"The Respondents have already spent well over $500,000 responding to just those portions of the document demands that were carved out from the stay," the letter says. "The companies and their personnel use more than 10 different communications platforms – several of which are encrypted and pose substantial collection and review challenges."
It goes on to add:
The parties argued in court on Monday, with Bitfinex and Tether claiming that the NYAG's office did not have the jurisdiction to compel the production of documents about a loan Tether made to Bitfinex, while the state's attorneys claimed that the documents were necessary for them to continue their investigation.
Cohen did not make a ruling, though he promised to make one "promptly" at the end of proceedings. He indicated that if he ruled in favor of the NYAG's office, a preliminary injunction preventing Tether from continuing to loan Bitfinex funds would be probably extended for 90 days, while if he ruled against, the injunction would be dismissed entirely.
If the judge does rule in favor of the NYAG's office, Bitfinex and Tether plan to immediately appeal and would seek a stay pending the final result, the letter states.
The attorneys argued that there are "significant and challenging legal issues," which would mean an appeal "would unquestionably have merit"; a ruling in favor of the NYAG's office would harm the respondents but a ruling the opposite way would have a "minimal, if any, impact" on the NYAG; a ruling in the respondents' favor would not necessarily delay the NYAG; and that it would serve the public interest.
The letter also argues that the line of credit Tether extended to Bitfinex, which is "at the heart of [the] injunction," is already being paid down. This month, Bitfinex announced it had paid $100 million back to Tether through a wire transfer.
The NYAG announced in April that it was investigating Bitfinex and Tether due to an alleged $850 million cover-up. The NYAG revealed that Bitfinex could not access the funds, which were being held by its payment processor Crypto Capital, and borrowed from stablecoin issuer Tether's reserves to ensure exchange customers could receive their funds.
However, the NYAG's office did not file a legal complaint, just an injunction that would compel Bitfinex and Tether to produce documents about the matter.
The ongoing legal battle is not preventing the NYAG's office from conducting its investigation, the letter states. Rather, the authorities have continued to look into Bitfinex and Tether's affairs, even while the legal battle played out in court. The letter added:
The letter also claimed that there are no victims of Bitfinex or Tether's actions. Tether customers who own USDT can continue to redeem them for U.S. dollars "on a one-to-one basis," the lawyers said.
In a statement, a spokesperson for the NYAG's office said "We are pleased with yesterday's hearing and look forward to hearing from the judge on the matters in question."
UPDATE (July 30, 2019, 22:35 UTC): This article has been updated with a statement from the NYAG's office.
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