Bitcoin plunged after a major crypto exchange was accused of using client money to hide $850 million of missing cash

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  • Bitcoin plunged after cryptocurrency exchange Bitfinex drained at least $700 million from the reserves backing its digital coin, Tether, to cover up $850 million in missing funds, according to a lawsuit filed by the New York Attorney General.
  • The attorney general’s office accused it of “ongoing fraud” and engaging in “undisclosed, conflicted transactions to cover Bitfinex’s losses by transferring money out of Tether reserve funds.”
  • Bitfinex said the claims were “written in bad faith and riddled with false assertions” and pledged to fight the order.
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Bitcoin plunged as much as 5% after a major cryptocurrency was accused of pulling $700 million from the reserves backing its digital coin to cover up $850 million in missing funds.

According to a lawsuit filed by the New York Attorney General, Hong Kong-based iFinex, which operates the Bitfinex exchange and popular cryptocurrency Tether, has been mixing client funds.

The attorney general’s office alleges that iFinex combined client funds with its own capital to hide the fact that cash went missing last year, which was never publicly disclosed.

Crypto markets lost as much as $10 billion late Thursday, CoinDesk found.

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The attorney general’s office is working to expose “ongoing fraud being carried out by Bitfinex and Tether,” according to the lawsuit.

It accuses the pair of engaging in “undisclosed, conflicted transactions to cover Bitfinex’s losses by transferring money out of Tether reserve funds.”

Bitfinex transferred $850 million to Panama-based payment processor Crypto Capital to handle customer withdrawals last year, according to the lawsuit.

The company began having “extreme difficulty” fulfilling client withdrawal requests by the middle of 2018, as Crypto Capital refused to process requests and failed to return any funds to Bitfinex, the lawsuit states. To mask the shortfall, Bitfinex tapped Tether’s reserves to the tune of $700 million.

The attorney general’s office have obtained a court order instructing iFinex to cease transfers from Tether’s reserves to Bitfinex’s accounts, suspend dividends and other payouts to executives, and hand over documents, according to the lawsuit.

Bitfinex said the lawsuit’s claims were “written in bad faith and riddled with false assertions” and pledged to fight the order, in a statement on its website. “Both Bitfinex and Tether are financially strong – full stop,” it added.

The company also said the $850 million wasn’t lost by Crypto Capital but had been “seized and safeguarded,” and it was working to reclaim the funds.

“The New York Attorney General’s office should focus its efforts on trying to aid and support our recovery efforts,” it added.

Tether’s market value has soared from $10 million at the start of 2017 to $2.8 billion, according to the Wall Street Journal. About 80% of all bitcoin trading is done in Tether, according to data from CryptoCompare cited by the Journal.

The attorney general’s office made other notable claims in its lawsuit. It accused iFinex of failing to sign a contract or formal agreement with Crypto Capital, relying on payment processors owned by Bitfinex and Tether executives and other associates, and allowing several traders in New York and other states to continue using Bitfinex’s platform despite stating it would no longer serve US customers.