What Bitfinex, Tether and US Regulators Didn’t Share – An Overview


  • Companies cannot come to an agreement with regulators

  • The versions of the conflict between organizations and regulators do not match

  • A large amount of funds involved in the conflict

International consortium of news organizations developing transparency standards.

For several years, one of the most high-profile stories of the digital asset market has been the dispute between the popular digital asset exchange Bitfinex, its sister cryptocurrency Tether (USDT), and American regulators. To understand what happened and at what stage the conflict is, the editors of BeInCrypto decided to collect a complete chronology of events.

How Bitfinex and Tether are related

Bitfinex and the most popular stablecoin Stablecoins – literally translated from English “stable” coins – continue to gain popularity in the digital asset market. With … More of the digital asset market – Tether – have become one of the most scandalous projects in the crypto space. Despite the fact that the business of the trading platform and the coin are closely related, its representatives have long denied this information..  

The fact that Bitfinex and Tether are really related to each other became known in December 2017. This information was confirmed by the representative of the projects Ron Torossian (Ronn Torossian). It turned out that the same people are at the head of Bitfinex and Tether. Over time, the project team members stopped hiding it.

Twitter screen of Bitfinex and Tether CTO Paolo Ardoino

Probably, the increased attention of the crypto community to this issue prompted the companies to reveal their cards. The problem was exacerbated by an anonymous blogger who devoted his work to exposing the gray, in his opinion, schemes of the trading platform. The recognition was also preceded by the publication of the so-called “Panama Papers” (Paradise Papers), in which journalists presented evidence of the participation of Tether and Bitfinex in offshore schemes related to money laundering.

What’s wrong with Tether

One of the problems with Tether, from the perspective of industry experts, is the lack of a full audit. According to early statements from the project representatives, each USDT is backed by US dollars in a 1: 1 ratio. The amount of the US national currency in Tether accounts must match the number of stablecoins issued in circulation.

Screenshot from the official Tether website, which states that 1 USDT is always equal to 1 US dollar

It is noteworthy that in March 2019, the information on the official Tether website changed. The project representatives changed the announcement to something else. The new publication states that each USDT is backed by the company’s reserves. The latter can include fiat currencies, debentures and other assets. 

Screenshot from the official Tether website. An updated version of the stablecoin collateral

Crypto community members drew attention to the fact that the Tether team changed the USDT collateral without any warning. As a result, users who bought stablecoin on the previous conditions were actually deceived.

Also, the cryptocurrency has not escaped accusations of market manipulation. In the summer of 2018, researchers at the University of Texas at Austin, John M. Griffin and Amin Shams, came to the conclusion that Tether was being used to pressure the bitcoin price. In their opinion, the release of new batches of stablecoins and large transfers of USDT can be used to pump cryptocurrencies.. 

Tether’s position in the cryptocurrency capitalization rating. Source: CoinMarketCap

Bitfinex problems

The trading platform is also notorious. In addition to participation in offshore schemes, proven in the Panama Papers, the exchange does not have a high level of security. In August 2016, about 120 thousand BTC were stolen from the platform. Of these, only 0.02% of the amount was returned.

Recently, the team of the trading platform announced an award for the heads of the attackers. It is noteworthy that the latter, throughout the entire time since theft, periodically transferred the received bitcoins with impunity. The attempt to find the hackers with financial incentives likely reflects Bitfinex’s desire to end the incident and the constant reminders of it in the form of fraudulent..

Bitfinex offers up to ~ $ 400M reward for return of 2016 stolen BTC https://t.co/04GrHoKZdQ

– Bitfinex (@bitfinex) August 4, 2020

Also, the platform “became famous” for periodic exits offline at the most inappropriate moments and strange operations with its cold wallet.

Remember the Tether Lawsuit | Get ready!

What Tether and Bitfinex have not shared with regulators

On April 25, 2019, a publication appeared on the official website of the New York prosecutor’s office accusing Bitfinex of concealing the loss of $ 850 million in user funds at the expense of Tether stablecoins. The document was drawn up by the state attorney general, Laetitia James.

According to the investigation, the exchange operator, iFinex Inc., was involved in concealing the loss of funds. The representatives of the regulators considered the refusal to inform the clients of the trading platform about the replacement of assets “misleading users.” In connection with the revealed facts of violations, the operator was prohibited from operating in New York. Also, regulators limited iFinex and Bitfinex access to Tether funds. 

Where is the money, Bitfinex?

According to the attorney, the Bitfinex team transferred $ 850 million in user funds to the accounts of the Panamanian payment service Crypto Capital Corp. After the assets sent to the platform were replaced by Tether stablecoins. 

The Bitfinex team, in turn, hastened to present their own scenario. According to them, the $ 850 million in question was confiscated through the fault of Crypto Capital Corp. At the same time, the Bitfinex team confirmed the fact of a loan from Tether only $ 700 million. The balance, according to company representatives, was filled with other assets. 

At the time of the publication of the charges, according to the representatives of the exchange, the funds were under the control of regulators in Portugal, Poland and the United States. Subsequently, it turns out that the authorities found a connection between the assets and the activities of the Colombian drug cartel..

What is Tether and Why You Should Stay Away From It

According to the investigation, the head of Crypto Capital Corp., Ivan Manuel Molino Li, is guilty of freezing the exchange funds. The latter is suspected of laundering drug cartel money through Bitfinex. It is known that Ivan Manuel Molina Li was arrested in October 2019.

It is noteworthy that in the summer of 2019, despite the unfinished legal process, representatives of the trading platform began to pay off the debt to Tether. 

Bitfinex Repays $ 100M of Outstanding Loan Facility to Tether.https: //t.co/NIcUAehGtY

– Bitfinex (@bitfinex) July 2, 2019

What Bitfinex, Tether and US Regulators Didn't Share - An Overview

Territorial problems

The explanation of the situation by the Bitfinex team did not satisfy American regulators. In their opinion, the borrowing operation, which preceded the concealment of the loss of a large amount of funds, was carried out illegally. It is noteworthy that Bitfinex and Tether, despite the lack of appropriate permits, operated in New York. This fact empowered the state attorney’s office to bring illegal transactions charges against them..

Bitfinex representatives tried to dispute the information about the work in the New York territory, but they did not succeed, as the New York State Financial Services Authority (NYAG) team provided a lot of evidence..

NYDFS comes up with evidence on @bitfinex servicing NY based clients


Story incoming pic.twitter.com/NQ0nH7Ci6y

– Frank Chaparro (@fintechfrank) July 9, 2019

Theories about what happened

Crypto community members suggested that the Bitfinex team replaced the lost funds back in October 2018. During this period, platform users faced difficulties in withdrawing funds from the trading platform. Against the background of the problems, information appeared on the network about the exchange’s loss of solvency. The representatives of the marketplace had to publish a separate post refuting the presence of any difficulties.

It is noteworthy that during the same period, information appeared on the network about the problems of Noble Bank, which serviced Tether. According to media reports, the financial institution was one of the main custodians of stablecoins. In October 2018, a number of publications, with links to sources familiar with the situation, published articles about Noble Bank, which spoke about the deplorable state of the company. The connection of the trading platform with the bank was also proved by representatives of NYAG.

The Bitfinex team was quick to deny the information that the problems of a financial institution can in any way affect its business. At the same time, information appeared on the network about the possible start of cooperation between the company and the British bank HSBC. According to media reports, the latter has become a replacement for Noble Bank. 

Bitfinex believes that TCA Bancorp, a trust company, may be involved in the freeze case. According to the trading platform team, Crypto Capital used the organization to transfer funds. In particular, Bitfinex is confident that the trust company manager, Rondel Clyde Monroe, was involved in the operations.. 

The iFinex team, in turn, believes that representatives of Crypto Capital are to blame for the problem of tracking funds. The latter, according to the operator of the exchange, distributed funds to a number of financial organizations. These include SunTrust, Bank of America, Bank of Colorado, Citibank, Enterprise Bank, according to iFinex CFO Giancarlo Devasini. & Trust, HSBC, Stearns Bank, Wells Fargo, TD Bank and US Bank. 

Bitfinex And Tether Be Very CAREFUL

Proceedings are ongoing

In April 2020, the exchange operator asked the court to bring to the case representatives of a number of banks, to which, according to the company, Crypto Capital transferred Bitfinex money. During the pandemic, the proceedings of the parties were moved to a virtual plane. The next meeting, according to the New York attorney general’s office, will take place on September 17. 

One of the reasons why the proceedings of the parties dragged on is Bitfinex’s refusal to provide regulators with a number of documents..

The material will be supplemented.


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What Bitfinex, Tether and US Regulators Didn't Share - An Overview
What Bitfinex, Tether and US Regulators Didn't Share - An Overview
What Bitfinex, Tether and US Regulators Didn't Share - An Overview
What Bitfinex, Tether and US Regulators Didn't Share - An Overview

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