New York Attorney General to Bitfinex and Tether: ‘Delays Must Stop’

Bitfinex and Tether shouldn’t need more than two months to produce documents about USDT issuances and past operations in New York first ordered 17 months ago, an NYAG lawyer argued in a letter Monday.

AccessTimeIconSep 15, 2020 at 1:15 a.m. UTC
Updated Sep 14, 2021 at 9:55 a.m. UTC
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The New York Attorney General’s office is losing patience with Bitfinex and Tether.

NYAG Senior Enforcement Counsel John Castiglione filed a letter Monday ahead of a conference involving the regulator and the two cryptocurrency firms arguing it is time they complied with a 17-month-old document production order detailing financial information within the next two months. 

For their part, counsel representing the two firms argue the order is too broad and the scope should be limited first.

“As of this filing, the 354 Order has been in place for seventeen months. In that time, Respondents have produced ‘jurisdictional’ documents (as directed by this Court) but failed to produce the core information called for in the Order. The delays must stop, and Respondents should be directed to comply promptly,” Castiglione said.

New York State Supreme Court Justice Joel M. Cohen scheduled the hearing for this Thursday, after receiving a request from the New York Attorney General’s (NYAG) office last week complaining that Bitfinex and Tether had yet to turn over any documents. 

According to Castiglione, the NYAG is requesting all documents be submitted within 60 days and an injunction preventing Tether from loaning funds to Bitfinex be extended a further 90 days. Charles Michael, an attorney with Steptoe and Johnson LLP representing Bitfinex, opposed any extension of the injunction in his own letter.

“The allegedly concealed facts have been out in the open for 17 months, during which consumers have been free to redeem their tethers without restriction,” he wrote. “Instead, they have chosen to buy, with tethers’ market cap growing six-fold (to over $14 billion).”

In his view, the fact that Tether’s market cap has increased this dramatically indicates market confidence in the dollar-pegged cryptocurrency, and negates the justification for the injunction.

"Consumers are well protected today, and do not need [the Attorney General's] injunction. The loan transaction supposedly impairing tether’s reserves was over 25% of tether's backing at the time of the injunction, but, thanks to Bitfinex’s repayments and tether's growth, the balance now is less than 4% of tether's backing,” Michael wrote.

He added that tether’s assets exceed the amount of USDT issued by $160 million.

17 months

It has indeed been a long journey. The case began in April 2019, when the Attorney General’s office said Bitfinex had lost access to close to $1 billion in customer funds, and borrowed from Tether’s reserves. The stablecoin issuer shares corporate owners and executives with Bitfinex, though in various legal filings counsel for the companies said the loan and a subsequent line of credit were negotiated independently of each other. 

The NYAG won an injunction preventing Tether from sending any more funds to Bitfinex, and Cohen ordered the firms to share all documentation about the deals, as well as documents about tether issuances, among other concerns.

Bitfinex and Tether appealed the ruling, but lost the appeal in July. Earlier this month, the NYAG’s office asked to schedule Thursday’s conference to request a new production order with a strict timeline. 

Monday’s letter provided more information. The NYAG wants Bitfinex and Tether to produce purchase information for tether, U.S. dollar withdrawal requests, tax documents and account information within one week. 

Within a month, the NYAG wants communications about Tether’s loans, loans to third parties and a list of U.S. or New York customers who had funds on Crypto Capital, and within 60 days it wants “full production” of information related to a November 2018 subpoena, a February 2019 letter and jurisdictional documents. 

The original production order from 2019 called for the materials to be ready within a month, Castiglione said.

“Most of the materials called for are core business documents that should exist and be readily accessible: order and trade information, client lists, lists of bank accounts and their balances, tax returns, and other similar material,” the letter said, adding that, “the 354 Order is well over a year old and the appeal was decided two months ago.”

Michael wrote that some of the requests would require Bitfinex or Tether to “generate reports, accountings or answer questions” that do not currently exist.

‘Extensive ties’

The NYAG also preemptively stated its opposition to any narrowing of the judge’s order, noting that “respondents have stated they will move this court” to do so. According to Castiglione, the court’s role in the case is limited beyond the orders already signed, and the production demand is well within the NYAG’s authority under the Martin Act, the law it’s using to conduct its inquiry into Bitfinex.

Michael’s opposition letter wrote that the court could limit the scope to avoid unduly burdening the respondents, in this case Bitfinex and Tether. The court itself has already said that any “unreasonable or not terribly relevant” requests can be opposed. 

Bitfinex is arguing that a request for all documents about all tether transactions is overbroad. Michael likened it to “asking GM for all documents about cars.” The NYAG is also looking for documents outside its jurisdiction, he claimed. 

In his brief, Michael wrote that the proposed timeline should be denied. Instead, he proposed a 30-day period for the two parties to discuss the scope of the request, saying Bitfinex and Tether would produce documents “not subject to dispute” in the meantime.

He seemingly pushed back against the NYAG’s claims that insufficient documents have been produced, writing that the crypto firms have produced more than 70,000 documents so far.

“Bitfinex and Tether also voluntarily produced extensive information to OAG, even while the First Department stay was in effect, including via two multihour presentations and a series of other communications aimed at answering directly the questions OAG indicated it was most interested in having answered,” Michael wrote.

He also noted that Bitfinex and Tether announced a ban on all New York customers nearly three years ago. 

Castiglione, in contrast, wrote that an investigation into Tether and tether is proper, “given their [respondents] extensive ties to the state.” 

In his view, the appeals court’s ruling in the NYAG’s favor suggested the regulator could find additional information that would reveal further violations of the law.


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