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New York’s Attorney General Letitia James has accused the cryptocurrency exchange Bitfinex of participating in a crypto cover-up. The associated legal document states how Bitfinex lost $850 million to Crypto Capital, a cryptocurrency and blockchain firm based in Panama. Bitfinex was allegedly using Crypto Capital to “process payments”; however, they were unable to retrieve these funds once the transaction had taken place.
Attorney General Letitia James said:
“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.”
With Bitfinex being $850 poorer, the Attorney General alleges that the crypto exchange used Tether (USDT) cash reserves to pay customers withdrawing their funds. The investigation into Tether and Bitfinex is still ongoing by the Manhattan Supreme Court and the companies involved are required to “immediately cease further dissipation of the U.S. dollar assets which back “tether” tokens while the Office’s investigation continues”. Attorney General James is ordering that Bitfinex and Tether to cease their New York operations.
The companies involved are also barred from destroying, deleting or permitting orders to delete relevant documents and communications in order to protect the integrity of the investigation.
There has been controversy surrounding Tether for some time now. Tether (USDT) is a stablecoin backed by the US dollar at a 1:1 ratio. Tether’s website publicly stated this for most of its history, however in March, the website quietly changed its story, stating:
“Every Tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”). Every tether is also 1-to-1 pegged to the dollar, so 1 USD₮ is always valued by Tether at 1 USD.”
When Tether claimed that their stablecoin was backed by dollars, people were skeptical and only had Tether’s word to go on, this wasn’t satisfactory for most. The new statement proves that Tether hasn’t been transparent in its operations but it’s also still unsatisfactory to a lot of people. Tether is still guarded about exactly what is backing the stablecoin and how it works.
It’s possible that Tether updated their statement because of a probe launched by the US Justice Department into the stablecoin. Tether and Bitfinex were also accused by researchers at the University of Texas of using Tether to prop up the price of Bitcoin. The future is looking somewhat unstable for the stablecoin and its ally, Bitfinex.