Topic: [2019-05-21] Bitfinex Argues Why Judge Should Dismiss NYAG Case in Latest Case (Read 673 times)

blacklisting outputs has worked before for tether because it's so centralized. most outstanding USDT is held by a handful of exchanges, so its relatively easy to achieve consensus change, at least if done quickly.

in november 2017 an attacker managed to steal $31 million in USDT from the tether treasury. tether successfully hard forked to blacklist the outputs: https://www.trustnodes.com/2017/11/21/tether-allegedly-hacked-30-million-hardforks-blacklist

the whole debacle shined light on how much control tether has over the ledger. they could easily reverse transactions involving third parties if they wanted to.

This alone is already pointing out how flawed Tether is. They started by claiming that EVERY token is backed by the fiat currency it is pegged to, and now they changed their terms to make it appear that they never claimed to do.

That doesn't work here. It would require you to roll back the Bitcoin blockchain.... Good luck with that. Tether also can't freeze or reverse your transactions. In other words, tokens that are stolen are stolen for ever.

What you can do is blacklist the address of the hacker and hope the rest of the ecosystem follows that, but even this measure hasn't always been effective looking back at how hackers have successfully spent or sold their coins.

Tether claims that most of their tokens are backed up with real assets (either US Dollar or other assets that are denominated in USD). Since most of these assets are stored in the form of fiat currency (that too in physical form) I don't understand how can some hacker exploit the situation. And in case some hacker steals the tokens, then they can just reverse the transaction just like what ETH did after the DAO robbery.

But the real risk comes from the incidents such as the current lawsuit with the NYAG. There is a real possibility of their assets getting frozen or even confiscated by the authorities. In such cases, the tokens will no longer be fully backed up by the real assets and a large proportion of the users will try to sell their tokens or move to other stablecoins.

@gentlemand. How would the hackers exploit it? Tether is centralized. It can declare that they will not honor the value of the tokens of any wallet in anytime they want.

If that security fails they'd still be landed with a large bill if someone managed to exploit it for even a short period of time. Then again knowing them they'll probably issue a token and tell the victims to buy it.

@squatter. However, Tether is centralized and backed with assets in their vaults. USDT and CNHT might not need the security that the bitcoin and the Ethereum blockchains offer, I reckon.

Most people are just sending it between exchange accounts anyway, so full node security is a moot point. ETH is still highly secure from the perspective of POW, which is why everyone is still building on it.

Imagine relying on TRON or EOS to secure hundreds of millions of $ in value.

Weird. I assumed Tether just sits there and moves around on exchange databases. I had no idea there was anywhere near that throughput.

Considering all the other stablecoins seem to run on ETH too you'd think they would've thought this through adding another one. I find it v strange that all of these dollars are depending on a clunker of a chain that no normal person can run.

@gentlemand. Only 2 days after I mentioned it, some worries about Tether's congestion of the Ethereum blockchain has begun.

I predict that Tether might transfer to another blockchain or Vitalik might rush Ethereum 2.0 and create a broken platform. This might be good news for Ethereum Classic hehe.



Tether transactions are currently clogging up the Ethereum Network reigniting the debate over gas limits. The issue might become further exacerbated with Tether’s latest stablecoin launch — a Chinese yuan-pegged ERC-20 token which will run on Ethereum’s blockchain.

There are complaints on Reddit from Ethereum users about delays in their transactions. According to reports, Tether transactions are the reason for the buildup of unconfirmed transactions on the network.
Trustnodes reports that Tether is using up close to half of the computing potential on the network. Data from CoinMarketCap shows daily ETH trading at about $6.5 billion but Tether’s USDT stablecoin transfers top $16 billion per day.

There is however, no clear reason for the sudden strain being put on the network by Tether transactions. Back in 2018, the network could handle more 1.4 million on-chain transactions per day but now is becoming congested with 50 percent of the transaction load.

In July 2019, Binance did state that they would drop Omni-based USDT in favor of the ERC20 USDT counterpart. Tether accounts for a significant portion of the global cryptocurrency trade, providing liquidity for exchanges who otherwise cannot transact in U.S. dollars.

Data from Ethereum network monitoring platform Etherscan shows Tether pushing through more than 100,000 on-chain transactions in a little under an eight-hour period.

With the launch of a new yuan-pegged Tether stablecoin running on Ethereum, the network may become even more clogged. Tether in recent months has proven to be a useful conduit for trade between Russia and China.

Source https://btcmanager.com/tether-transactions-ethereum-network/?q=/tether-transactions-ethereum-network/&q=/tether-transactions-ethereum-network/

This is something I've always been curious about.

I'll guess that the prime factor is that it's almost entirely a creature of crypto exchanges and very few people redeem dollars through it. If people were turning up all over the world trying to buy houses and yachts with Tether that would get them springing into action in double time.

The places that do tout their stablecoin as easily redeemed for dollars and are looking into using it for commerce are several times more uptight than the most anal bank.

I'm honestly surprised it hasn't been raided yet with so many factors pointing at not only manipulation, but also excessive issuance of non-backed Tether tokens.

Governments in the past have been pretty swift with shutting down any attempt of centralized entities creating a new monetary system allowing people to circumvent traditional currencies, but they are sleeping on this one big time. How many Tether does there need to be in circulation for them to finally wake up? $100 billion?

People don't even care anymore about the backing as they started valuing it a dollar a pop regardless of what they think about it.

I presume both P2P traders and miners in China have been fully expecting to get hammered for several years. It's just a question of when it happens rather than if and they've planned accordingly. Beyond that there's really not much else they have left to throw at it.

They cracked down on exchanges, but they left the P2P/OTC markets and mining sector alone. Considering the periodic rumors about mining being banned, it seems like they could do a lot worse.


Tethering a CNH pair shouldn't rock the boat too much. It's not controlled like the CNY. They aren't helping people evade capital controls since it's already on the offshore market.

@gentlemand. The skeptical me would say that this is Bitfinex's tactic of bringing themselves in trouble to create a reason to exit scam.

However, if I was an adviser for the PBOC, I would tell them to force 1 billion Chinese people to use CNHT everyday to congest the Ethereum blockchain and offer PBOC's digital coin as a solution hehehe.

It can't really get much more dire for crypto in China. They've done all they can. This could get rather more dire for Ifinex. You'd think at this stage they would be considering easing up a little rather than provoking the biggest authoritarian regime on the planet. I'd love to know what goes on in their unusual heads.

China is planning to roll out a state-backed coin soon, actually Bitfinex CNHT might actually assist China in having worldwide adoption of its state coin.

Same way people accepted USDT, Asians especially will adopt CNHT since China is a power house in Asia.

It appears that Bitfinex is ready to annoy another regulator. This time it is China's PBOC hehehe.

I shake my head at this and I am afraid that it might be the cause of something very bad for the cryptospace.



The Hong Kong company said in a short blog post that the new stablecoin, known as CNHT, would be pegged one-to-one to the offshore Chinese yuan. Like its popular stablecoin USDT, which is backed by the US dollar, CNHT would be issued as an ERC20 token atop the Ethereum blockchain.

The announcement follows years of debate about the correlation between the Chinese yuan and bitcoin. Many analysts believe that investors in China use bitcoin as a tool against state-imposed capital controls. And a depreciating value of yuan has prompted a majority of them to dump their yuan or yuan-based assets for bitcoin.

Tether appears to be cashing-in on the sentiment as worries over a gloomy economy – majorly led by the ongoing US-China trade dispute – sends investors fleeing towards safe-haven assets. CNHT promises to remove the necessity of exchanging yuan every time one feels the need to purchase or sell bitcoins. It could offer smooth liquidity between the two currencies, given investors trust Tether for maintaining that 1:1 stablecoin peg to yuan.

With the launch of CNHT, Tether is attempting to take on China by its collars as the latter plans to go ahead with the launch of its PBoC-backed digital yuan. A source close to the Block said Tether’s little stunt could overall hamper the cryptocurrency industry in China, given the country’s regulators would do everything to curb CNHT’s growth.

Read in full https://bitcoinist.com/tether-launches-digital-yuan-before-pboc/

same owners and directors. and it's obvious that the owners see all bitfinex/tether funds as a giant slush fund to do whatever they see fit. the NYAG came after both of them for a reason. if tether goes down, bitfinex won't be far behind---and vice versa.


i certainly won't take the risk of holding tether. it's frustrating because the other stablecoins just don't have enough liquidity. the USDC market on binance is almost enough for me to get by, but they're kicking USA traders like me out next month.

I am more worried about Tether rather than Bitfinex, as I never had an account with the latter. In general, the situation looks precarious for the cryptocurrency exchanges, with increasing government surveillance and an uptick in the hacker activity. Tether has grown too big and too rapidly and now even its inventors are unable to control it.

@bryant.coleman. They will have no liquidity problems. They had an IEO for LEO tokens which raised $1 billion if bitcoin news media reporting is to be trusted hehe.

Also, I reckon exchanges do not want Tether to fail. If it fails, most of them might also fail. It is a Tethered world in the cryptospace.

https://coinmarketcap.com/currencies/bitcoin/#markets

No surprises there. I was expecting something like this. Now the big question is what will happen to the frozen funds (which according to Bitfinex is worth close to $600 million). It is going to be tough for Bitfinex. If the court battle drags on for a few years, then these funds will remain frozen and the exchange will start to suffer from liquidity issues. And the users are definitely going to blame them, as they were not exactly transparent in various deals. The most tragic outcome of this whole drama is that Tether is no longer regarded as a reliable cryptocurrency now, after they extended the line of credit to Bitfinex. How can you extend a loan using your backup funds?

https://www.theblockcrypto.com/2019/08/19/court-rules-it-has-jurisdiction-over-bitfinex-allowing-nyag-to-continue-investigation/

No dice for Bitfinex. The state court or whatever has ruled that they do have jurisdiction over Bitfinex so the investigation continues into their pesky conduct. What the US wants, the US gets.

@squatter. Any win for Bitfinex is a win for the whole cryptospace. However, some people might not take it that way yet hehehe.

Also, this Cohen might be giving up. There are more ICOs than he has time to investgate hehehe.



The Securities and Exchange Commision’s (SEC) chief of the Cyber Unit will step down in August, according to a statement.

Robert A. Cohen will abdicate his role as executive enforcer for the cyber division founded in 2017, after 15 years of SEC service.

Read in full https://www.coindesk.com/sec-cyber-unit-chief-that-pursued-actions-against-icos-kik-to-resign

New update on the Bitfinex/NYAG saga: Judge Punts on Decision in New York Case Against Bitfinex and Tether

The Attorney General's office came out firing in its last filing. I honestly thought the judge would quickly decide in the state's favor. It looked like they had established jurisdiction. Apparently, the judge isn't so sure about that:


If Bitfinex wins and has the case dismissed, it'll lend some credence to the idea that their policies re: US persons might hold up at the federal level as well.

it's possible neither one is lying. bitfinex has always been open about the fact that they allow foreign organized ECPs that might otherwise be defined as US persons. the prosecutors seem to be asserting that that these are still new york entities. i don't think any of us know new york law well enough to say one way or the other.

News update.

I am shaking my head in confusion. Who is lying? Who is telling the truth? I reckon they might be both lying. Bitfinex is looking for ambiguity to evade the law, the New York attorney general's office is looking for minor details to charge Bitfinex.


The latest filings in the New York Attorney General’s suit against iFinex see the exchange fighting against the OAG’s claims of New York jurisdiction. The filings uploaded today claim the OAG misled the court in its July 7 filings, making New York connections seem stronger than they are.

In the filings, the OAG claims Bitfinex had operations in New York when it loaned Tethers to a New York based trading firm and opened up an account with another to facilitate the transaction. Bitfinex said this is misleading, and the borrower is in fact a foreign entity, and the New York trading firm was only utilized to complete the transaction.

In addition to this, Bitfinex claims the OAG made similar misleading claims in the so-called Whitehurst Affirmation, which contains a list of Eligible Contract Participants (ECP) showing New York logins from a professional trading firm using Bitfinex. The exchange claims each login is linked to a foreign ECP rather than New York-based companies.

Read in full https://www.theblockcrypto.com/2019/07/22/bitfinex-asserts-nyag-made-misleading-claims-of-jurisdiction-in-new-case-filings/

I reckon money laundering would certainly be one of the violations. It might be real or implied but it would be the best chance the agency has to hand this case over to the FBI.

The mainstream news media would love this storyboard, bitcoin exchange used for money laundering to fund terrorism.

They are obviously good at hiding behind lots of shell companies. Their CFO once called it "banking like criminals." Their money isn't easily found and seized, and US regulators work very slowly, making cases over the course of years. They often like to make a big seizure when they drop indictments.

I don't think Bitfinex did that on purpose, but they won't complain about not having to buy back something that might not be backed at all by handing people over actual dollars. The distribution of Tether happens naturally.

Most of the Tether ends up being sent to exchanges such as Binance, Huobi and OKEx to buy Bitcoin and other coins with. These exchanges directly happen to be the biggest holders of Tether by far.

Once people have bought their Bitcoin those on the other side of the trade hold Tether but most likely have nothing to do with Bitfinex. This props up prices because people are always motivated to buy back Bitcoin at one point.

I often wonder about this too. Not a great deal makes sense about it all. You'd think the second it put its head above the parapet it would've been swatted flat but there it is being as ubiquitous as ever.

I suppose unlike something like Liberty Reserve it's remained a creature entirely within crypto exchanges with no attempt to become anything else. It's primarily a parking mechanism, not payment or extraction.

One of Bitfinex's cleverest moves has been to deprogram the majority from attempting to turn it into actual dollars. That's where the legit stablecoin issuers get problematic and uptight.

Exactly.

One of the main tools to combat the threat is to avoid using centralized entities that can be coerced by a government somewhere as this illustrates perfectly.   All of these centralized entities are either scams or are open to coercion by governments somewhere.  So in the long term very few (if any) are going to be safe. 

At some point, some time, somewhere, someone will end up forcing each of the entities to bend to their wills.  Or we will find that it was a scam from the start. 

The get to it part is where things get a bit weird. I honestly would have expected regulators to whoop Tether like a year or two ago already. How many alarm bells needs to ring before they stand up?

The SEC even approved the acquisition of Poloniex where Tether was allowed to be listed as fiat pair. If regulators were seriously considering to whoop Tether they would have forced Poloniex to drop Tether.

If that wasn't enough, we have people using Tether while they know it's shady but don't care because it provides a useful utility within crypto. Tether has survived so much shit that I don't see it bust at all.

Exactly. Tether works well until the regulators get to it

Tether is now several years old. You can't keep something like that up for this long without cracks showing at some point. The simplest explanation for this not happening is that Tether operates how they claim to operate.

The biggest threat to Tether has always been regulators as this is ably demonstrating.

here's an idea. maybe the NY prosecutors are just a pawn in a larger game. with this scathing filing, they have obviously established jurisdiction over bitfinex/tether. that gives them the right to compel lots and lots more documents pertinent to possible fraud, securities violations, violations of their previous settlement with the CFTC, etc etc etc.

even if NY can't shut them down or freeze their money, discovery in this case may hand the USA a federal case on a silver platter. and the USA likely can shut them down, seize servers, and freeze at least some of their money.

I do not know how it might occur. However, I reckon with the cryptospace finding many ways to avoid regulations most of the time, the regulators might be very determined in taking down one big fish to make a statement.

I am not supporting the Attorney General of New York in any part. But Tether should be more transparent about its assets. They claim that every coin is backed one-to-one against USD or equivalent assets. But then they are saying that some of the backup is made of Bitcoin. How can a volatile asset such as Bitcoin be used to backup a stablecoin?

the AG's response was truly scathing and tether obviously violated NY laws......but i still don't understand what exactly the state of NY can/will do about it. the original court order was to stop bitfinex from raiding tether's reserves and to compel documents pertinent to their investigation.

so let's say they prove their case in court about lawbreaking in NY. what happens then? i've seen the feds take exchanges/brokers down before but never the state of NY....

News update.

It appears that Bitfinex might have broken some laws and regulations in the state of New York. The New York attorney general's office were given until July 8 to present a response after Bitfinex requested for a dismissal. They did and they appear very angry.

I speculate that this might end USDT and it might also end the bull market.



What the NYAG provided yesterday is comprehensive. Exhibits included in the latest filing appear to show that Bitfinex and Tether allowed New York investors—including the high profile Galaxy Digital CEO Mike Novogratz—to trade and redeem tethers until “early 2019,” when the investigation itself was well under way. (There was no immediate response from Galaxy Digital.) Tether and Bitfinex also allegedly opened accounts at several New York banks, housed most of their senior executives in the city, and engaged New York based accounting firms for audits.

Worse, the document alleges that the companies went to extraordinary lengths to accomodate their large New York investors, who apparently made up a considerable portion of the companies’ wealthiest customers. “In fact,” alleges the NYAG, Bitfinex and Tether assisted certain traders in “establishing foreign shell entities to become the nominal account holders—a work-around of Respondents’ purported ‘ban.’”

More damning is the allegation that the companies “loaned tethers to a New York trading firm.” As we reported last month, large “whales” can purchase high volumes of tethers directly, communicating their needs days in advance. Tether then creates these tethers, which it claims it only disperses once wire payments for each coin have come through. But if Tether indeed “loaned” tethers to investors, it suggests the enormous volumes of tethers that have attended almost every recent Bitcoin price surge represent not real dollars but debt—meaning tethers have, effectively, been minted out of thin air.

Read in full https://decrypt.co/7795/investigators-tether-loaned-usdt-to-investors-illegally-traded-in-new-york-ran-an-unregistered-securities-offering

NYAG response documents https://iapps.courts.state.ny.us/nyscef/ViewDocument?docIndex=/_PLUS_iqIuzGOBBoAaaiknE4Ag==

https://iapps.courts.state.ny.us/nyscef/ViewDocument?docIndex=5zXI_PLUS_H3eM0AalVVQRiqZag==

News update.

Bitfinex has begun paying their loan to Tether. I reckon what the New York attorney general's office should do is more gross overreach and find the money processor and its bank partners that held Bitfinex users' funds hehehe.


Bitfinex is pleased to announce that on July 1, 2019, it repaid $100,000,000 of the outstanding loan facility to Tether. Bitfinex made this payment in fiat wired to Tether’s bank account. This amount was not yet due to be paid to Tether under the facility, but Bitfinex has made the prepayment based upon its financial position at the end of the second quarter of 2019.

Also on July 1st, Bitfinex fully prepaid all interest accrued under the loan facility to Tether up to the end of day on June 30, 2019, also in fiat.

Source https://www.bitfinex.com/posts/394

@figmentofmyass. Agreed. This might also be good for the market if the cases against them were finally dropped hehehe.

@CryptoBry. I want Bitfinex to win. They did not exit scam and they did not steal from their users.

this is just a dog and pony show, a spectacle. the NYAG has no power to do anything, and bitfinex and tether's lawyers know it.

they won't be talking like this when the CFTC/DOJ hammer comes down though. the feds are deep into a criminal investigation re market manipulation and i would be surprised if that case turns out favorably for bitfinex.

"Only verified tether users can redeem USDT..."
Oh,so how Bitfinex is making it harder for the tether users to redeem their money.This is just one step closer to the exit scam.The gossips about the Tether reserve might be right.This is just a fractional reserve crypto bank scam that is coming to it's end.
They are using a part of the tether fiat reserve to buy bitcoin.This proves what a fraud tether actually is.

This is getting interesting as the Bitfinex and Tether saga continues in the court. While I am not for the tendency of those in the government to overstretch its power and jurisdiction, I am for the trial of this cryptocurrency exchange for the sake of getting the bottom of the things that transpired beyond the eyes of the public. There are many questions that Bitfinex has to answer and they got to clear their name and reputation so we can continue on bestowing our trust and confidence on their business operation. I am sure that soon Bitfinex can win on this case and I am hoping that they learned enough lessons on this mess. The thing is that no one is above the law and one should always be transparent otherwise you are just causing the rust to eat into you.

https://www.coindesk.com/bitfinex-argues-why-judge-should-dismiss-nyag-case-in-latest-court-filings?utm_source=twitter&utm_medium=coindesk&utm_term=&utm_content=&utm_campaign=Organic%20

Bitfinex and Tether have asked a judge to dismiss the New York Attorney General’s (NYAG) case against the controversial cryptocurrency firms, claiming they have no customers in the state.

In new court filings Tuesday, lawyers for the two companies, which have overlapping owners and managers, also asked Judge Joel M. Cohen of the New York Supreme Court to stay the NYAG’s “onerous” request for documents from Bitfinex and Tether while he considers the motion.

The firms “have nothing to do with New York investors — the businesses do not allow New Yorkers on their platforms and do not advertise or otherwise do business here,” attorneys Jason Weinstein and David I. Miller wrote.

Further, the attorney general “has not identified, even in a general sense, any ‘victim’ in New York (or, it should be noted, anywhere else),” and the office is using a New York law, the Martin Act, that governs securities and commodities, of which Tether’s product, the stablecoin USDT, is neither, the lawyers argued.

Hence, the companies “respectfully request that the entire proceeding be dismissed for lack of personal and subject matter jurisdiction.”

In a separate affidavit, Stuart Hoegner, general counsel for both Bitfinex and Tether, wrote that both companies prohibit any U.S. residents, including New Yorkers, from transacting on their platforms, and that only verified Tether customers are allowed to redeem USDT for dollars, not just anyone who buys the stablecoin on the secondary market.

Backed by … bitcoin?

Separately, in a hearing last week, Miller let it slip that Tether had previously invested a portion of its reserves in bitcoin.

At some point before the NYAG obtained its preliminary injunction against the companies, “Tether actually did invest in instruments beyond cash and cash equivalents, including bitcoin, they bought bitcoin,” Miller told the court, according to a transcript of the May 16 hearing published Tuesday by crypto publication The Block. He later said it was “a small amount.”

It was a notable admission since until recently Tether has maintained that USDT was backed 1-for-1 with U.S. dollars (in February it updated its terms and conditions to say the collateral could include other assets, which later turned out to include a loan to Bitfinex). Even Judge Cohen sounded surprised.

“Tether sounded to me like sort of the calm in the storm of cryptocurrency trading,” he told Miller, according to the transcript. “And so if tether is backed by bitcoin, how is that consistent?”

One possible explanation is that the “small amount” is very small, and not really part of the backing. Alistair Milne, an investor in Bitfinex’s recent token sale, wrote on Twitter Tuesday afternoon that Tether holds less than 1 bitcoin simply to fund transactions on the Omni protocol, which runs on top of the original cryptocurrency’s blockchain.

To be precise, the company has 0.075 bitcoin, or about $600 worth, a speck compared to the $2.8 billion in tethers outstanding, according to an Omni Explorer link shared by Milne. Neither a spokesperson for Tether nor its attorney Miller had answered CoinDesk’s requests for comment by press time.

Late last month, the NYAG secured the preliminary injunction freezing Tether’s assets and asking for documents about a $625 million loan and a $900 million line of credit it offered to Bitfinex.

The crypto exchange needed the funds to continue processing customer withdrawals after losing access to some $850 million that is said to be held by Crypto Capital, a payment processor that is also in the cross-hairs of investigators.