Bitfinex and Tether Face Investigation over proven $ 850 million shortage

The markets for cryptocurrency broke down Thursday night after New York's attorney general accused the owners of a prominent swap, Bitfinex, of using illegal transactions to mask $ 850 million in missing funds.

According to a 23-page legal filing, Bitfinex ruled reserves of a so-called stable name Tether, a digital currency supported by one-to-one after US dollars, to pay out customers requiring withdrawals from the exchange.

The news led Bitcoin to fall almost 6% to around $ 5,100, and raise issues of Tether's viability, which many investors use as a surrogate for dollars to move in and out of different cryptographic curves.

The lawyer's filing states that the funds that rapeseed from Tether amount to $ 850 million. According to Chad Cascarilla, who is the leader of a company called Paxos that makes a rival stablecoin, the figure will represent at least 27% in Tethers dollar reserves.

Instead of the US dollar, $ 850 million is supported by a revolving Exchange Bitfinex credit line. But as Thursday's filing explains, Bitfinex looks to have borrowed that amount to cover a lack of itself.

The filing also reproduces messages written by a Bitfinex director in August, requesting capital from a Panamanian payment processor to which it had transferred funds.

"The situation looks bad. We have more than 500 outlets waiting, and they keep coming in … [T] lots of money is parked with you and we are currently on a very thin ice cream", read a message from a Bitfinex manager who used the name Merlin. "

Merlin also warns his contact," Oz ", that the situation posed a serious threat to the larger crypto industry, and that Bitcoin" could think "to under $ 1[ads1],000 if they did not trade quickly.

Exactly the identity of the Panamanian The payment processor, Crypto Capital, is unclear, according to the lawyer, Bitfinex, which is incorporated into the British Virgin Islands, relied on a shady network of money agents, including "human families of Bitfinex employees who were willing to use the bank accounts to transfer money to Bitfinex. clients. "

Bitfinex did not immediately respond to a claim for allegations.

The filing also states that Bitfinex's banking arrangements were heavily strained in March 2017 after Wells Fargo told the company that it would no longer facilitate transfers between Bitfinex and Tether

Bitfinex's operations, including its connections to Tether, have long been the subject of rumors and controversy While the leaders have argued that the two units are operated at arm's length, the attorney general challenges this claim and points out that the same people appear to control both.

In their filing, the lawyer describes a survey that has been under way for several months, seeking many documents to know if New York investors are exposed to ongoing fraud by Bitfinex and Tether.

The lawyer's general assembly is civil in nature, but as the office regularly collaborates with the FBI and other federal agencies, it is possible – if the alleged facts are true – that criminal charges could be forthcoming.

Meanwhile, law enforcement seems to investigate stablecoins closer. According to the research company Chainalysis, the company recently responded to police requests by adding four stablecoins tracking software, including Tether.

The fallout for investors from all this remains to be seen. Cascarilla, of Paxos, noted that most of those exposed to Tether are in Asia, adding that a crisis of confidence in the currency could lead to short-term liquidity problems in the crypto market. He also said the episode points to the need for crypto investors to rely on exchanges and stablecoins that comply with US regulations.

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