Open Letter from Bitfinex CEO [I received via email]

[Quickseller]

I received the following email from bitfinex, and would like to share it with the crypto community:

Dear Bitfinex trader,

By now, you may be aware of the events of the last 48 hours, but I want to personally give you an update on what has happened and how we are proceeding as a business.

On Wednesday, April 24th, the New York Attorney General’s office filed a petition and related documents in the NY State Supreme Court in Manhattan concerning Bitfinex and Tether. We believe the petition was based on understandings and materials received by the New York Attorney General’s office both from us and from other sources. Indeed, we had, until just yesterday, been co-operating fully with the New York authorities in their inquiries into and about our business. The petition and other materials were filed without notice to us or a chance to respond to them.

The materials, which do not constitute a civil or criminal complaint are, in our view, filled with inaccuracies and false assertions. In particular, we want to assure you that the allegation that we have “lost” $850 million is categorically false. We have been advised that these amounts – whether in whole or in substantial part – are, in fact, seized and safeguarded in several jurisdictions, including Poland, Portugal, the United Kingdom, and the United States. We are actively working to exercise our rights and remedies to cause those funds to be released. We are confident in our ability to make clear, coherent, and convincing arguments to recover those funds. And rest assured that we will vigorously challenge the false assertions made by the New York Attorney General’s office in their filing.

I am here to tell you that we are good actors in the digital token space, and we always act with you, the customer, as our first priority. We have always taken our legal obligations very seriously, and will continue to do so. We continue to co-operate with regulators worldwide as they seek to learn more about our business. But we will not allow that spirit of co-operation and goodwill to be used to threaten our customers.

In the days ahead, you may have questions that arise, and we encourage you to share them with me or other members of the senior management team. We will update you as and when we can and we will address as many of your concerns and questions as we can.

We have been humbled and encouraged by the support we have seen from our customers and wider community in the face of these allegations. We are here to assure you we’re as strong as ever, we are not going anywhere, and we’re unwaveringly committed to you.

Thanks and best regards,
Jean Louis van der Velde
CEO

[1714025593]

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[vit05]

are, in fact, seized and safeguarded in several jurisdictions, including Poland, Portugal, the United Kingdom, and the United States.

It would be very easy for them to prove what they are saying. I do not know American law. But perhaps they could even sue the New York Attorney on false charges of crime.

[CryptoBry]

are, in fact, seized and safeguarded in several jurisdictions, including Poland, Portugal, the United Kingdom, and the United States.

It would be very easy for them to prove what they are saying. I do not know American law. But perhaps they could even sue the New York Attorney on false charges of crime.

Yes, Bitfinex can do that so they can clear their name which is implicated on this case. However, as a business that can be the last resort as you don't want to enraged any officials of the government as they have the powder to intentionally make doing business hard for you. The best thing to do is communicate with the government office or the New York Attorney General seeking clarification and have the opportunity to present their side of the story with corresponding proofs for the matter.

[rijaljun]

Waiting others to confirm this email. Anyone here have the same thought as mine that this issue is made intentionally to dump Bitcoin price so some people can grab some Bitcoin aat low price to join the bullish market? I hope this issue will be clear as soon as possible and Bitcoin market will be back to positive chart.

Tether has always been a fractional reserve scam with no 3rd party verification of actual US dollars backing all tether issued.

Anyone that believes those scum bags, is in for a very rude awaking.

https://steemit.com/bitshares/@docmastery/bitfinex-and-tether-scam-theory

I personally think that Tether is likely a goverment game and decide not to believe that coin. But Bitfinex is a good exchange and maybe just a one of Tether's victims.

[pooya87]

~
I personally think that Tether is likely a goverment game and decide not to believe that coin. But Bitfinex is a good exchange and maybe just a one of Tether's victims.

the company which created Tether is the same company that created Bitfinex so basically Bitfinex owns Tether, how can they be victim of something they created themselves?!
and i somewhat agree with what you quoted, Tether has always been shady and in my opinion it is a disaster waiting to happen specially to altcoins that have been using Tether mostly for whenever they want to be traded with "fiat".

[CryptopreneurBrainboss]

I strongly believe it's high time exchanges starts delisting tether one after another or they all do it at the same time. It did happen to BSV, delisting USDT shouldn't be an issue as we now have more decentralized Stablecoins that actually have the interest of the community at hand. I appreciate tether for serving the community when we needed a  Stablecoins but their transaction aren't transparent enough and don't think they'll change their ways of operation anything soon. The rate of shady activities coming from both tether and bitfinex is painting the industry red (bad). Sure they'll always have an excuse until they don't anymore and by then it will already be late. I do have a feeling though most of this scam accusations news are intentionally published during a certain time frame to create FUD but from the look of things the community is getting matured that's why this news no longer have strong effects on the price of bitcoin.

[BitFinnese]

I am never a fan of tether due to their claim that I really don't believe.

Previous terms:

100% Backed
Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.

then changes to this term

100% Backed
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.

They are not consistent and seems they are not able to support the tether price anytime soon.

Tether has always been a fractional reserve scam with no 3rd party verification of actual US dollars backing all tether issued.

Anyone that believes those scum bags, is in for a very rude awaking.

https://steemit.com/bitshares/@docmastery/bitfinex-and-tether-scam-theory

I always think that.

The materials, which do not constitute a civil or criminal complaint are, in our view, filled with inaccuracies and false assertions. In particular, we want to assure you that the allegation that we have “lost” $850 million is categorically false. We have been advised that these amounts – whether in whole or in substantial part – are, in fact, seized and safeguarded in several jurisdictions, including Poland, Portugal, the United Kingdom, and the United States. We are actively working to exercise our rights and remedies to cause those funds to be released. We are confident in our ability to make clear, coherent, and convincing arguments to recover those funds. And rest assured that we will vigorously challenge the false assertions made by the New York Attorney General’s office in their filing.

This will hurt, I feel bad for people whose funds are seized by the government.  Government sure know how to rob people in a broad daylight.  I hope Bitfinex recovers this funds.

[Haunebu]

are, in fact, seized and safeguarded in several jurisdictions, including Poland, Portugal, the United Kingdom, and the United States.

It would be very easy for them to prove what they are saying. I do not know American law. But perhaps they could even sue the New York Attorney on false charges of crime.

I don't think it is that simple. This case is more complicated than you think. Bitfinex seems like it is screwed currently. Honestly, I don't get why people still invest in Tether even after all the shady controversies surrounding it from a long period of time.

I never invested in any stablecoin and have no interest in investing in any of them in the future.

[Genemind]

I just hope that tether isn't experiencing the same thing as Bsv because we all know the effect of every scandal and issues in a coin and in exchange.
I think Bitfinex would do everything to defend themselves because if not, it would really be a big loss for them and I'm sure that they have to surpass a lot of conflicts regarding this matter.

[Kakmakr]

I personally believe this is a storm in a cup scenario. The US regulators are up in arms with a transaction that were made between a BitFinex account at Deltec  Bank and Crypto Capital Corp at the same Bank and also Tether. <A $625 million transaction>    They are saying that this was done without notice to the investors.  

We will see if this amounts to something or if this is just a witch hunt done by the US authorities because large amounts of money is shifted between customers at the same Bank. <One reason why centralized authorities linked to Banks are a bad idea!!!!>

[coinycoiny]

This is how it works.

1. You had btc, or some other altcoin, you sold it at some point because you thought the market was going down and stuck it in tether because you think you can move it between exchanges for free or whatever.

2. Bitfinex then sell your crypto on to whoever, probably in return for dollars.

3. End result, bifinex now sitting on a nice pile of dollars, don't have to pay interest or anything. Now, then either choose to invest it carefully and make 1-2% a year or

4. Take a bet that bitcoin will go up big time in the future, so when they sell they make a massive profit, and can pay back the owner of tether coins without any problems.

This is what happened in the last btc high, all was good until the price crashed, now we have no idea what crptos are held by bitfinex to pay out to tether holders. In theory they might have enough dollars and crypto to pay out, but if you start selling large amounts of crypto, you actually get a lot less than the price quoted at this moment in time.

Of course the owners will be very aware that the chance of everything going titsup is quite high, so maybe they've already taken large amounts of cash out for their retirement fund just in case.

My advice would be to get out all your money now while you can and move everything from bitfinex asap.

Maybe it will all turn out ok, but do you really want to be the one to take that bet?

No smoke without fire, and at the moment this is def smokey.

[rijaljun]

~
I personally think that Tether is likely a goverment game and decide not to believe that coin. But Bitfinex is a good exchange and maybe just a one of Tether's victims.

the company which created Tether is the same company that created Bitfinex so basically Bitfinex owns Tether, how can they be victim of something they created themselves?!
and i somewhat agree with what you quoted, Tether has always been shady and in my opinion it is a disaster waiting to happen specially to altcoins that have been using Tether mostly for whenever they want to be traded with "fiat".

Bitfinex created Tether under govt regulation, don't you think the govt can play or actually is backing up all of this, then the govt betrayed Bitfinex and taking advantages from it. Tether creation is pretty controversial as Bitcoin was invented to avoid using fiat, why do we need a decentralize fiat-currency?

[TruBitMil]

We all become MF Global eventually, Tether edition


YESTERDAY By: Izabella Kaminska

We were about to bring readers news, courtesy of anonymous blogger Bitfinexed (who has been tirelessly warning everyone about the Bitfinex exchange, and its stablecoin Tether), that Tether had mutated even further into a conventional banking structure...

But then news broke Thursday night that the New York attorney-general's office, which has been investigating the group since 2018, had obtained a court order directing Bitfinex's parent company to suspend making transactions from Tether accounts into Bitfinex accounts for the purpose of masking a loss somewhere in the order of a $850m due to a suspected fraud by a partner processor.

The documentation that accompanies the court order contains some pretty stunning stuff. Like this, from a Bitfinex employee -- codename Merlin -- on August 15th last year, to his counterpart at a Panama-based entity called Crypto Capital Corp, which we go into more detail about further down (and which also, according to Decrypt, just happened to provide payment processing for Quadriga XS, the Canadian exchange whose founder "died" with the keys to about $140m of customer money):

Please understand this could be extremely dangerous for everybody, the entire crypto community. BTC could tank to below $1k if we don't act quickly.
Bitfinex shenanigans
It has long been speculated that all manner of shenanigans may have been occurring at Bitfinex, not least because crypto exchanges tend to operate in the opaque world of offshore unregulated structures, and are often managed by people with little to no core financial experience. Such opacity offers huge temptation with respect to wrongly taking advantage of customer flow information for prop trading purposes or for dipping into customer deposits for proprietary purposes without customer approval. Or just losing funds in other careless ways.

Separately, it has also long been understood that Bitfinex's KYC and AML-light attitude towards the sourcing of fiat and crypto funds has been posing the group a major banking challenge. With most reputable banks not keen to risk relations with the outfit, the group has instead been playing a game of whack-a-mole in its efforts to maintain gateways into the fiat system. Whenever the gateways close, the search for a new banking partner begins and with it the capacity of customers to both withdraw and deposit new sums of fiat is restricted. This leads to major discrepancies in the prices of cryptocurrencies quoted on Bitfinex versus other more regulated exchanges.

You can read the full claim by the office of the attorney-general (OAG) here.

But the key points are as follows.

Number one: According to the OAG, the multiple arms of Bitfinex, iFinex, BFXNA, BFXWW are operated by the same small group of executives and employees, and registered in the famously opaque British Virgin Islands. They do not have a New York Department of Financial Services license to engage in virtual currency business in New York.

BVI-incorporated Tether Holdings Limited is the holding company of Tether Limited. Tether Operations Limited and Tether Interanational Limited are believed to be incorporated in Hong Kong. None of these entities carry an NY virtual currency business license. The OAG believes the Tether entities are owned and operated by the same small group of executives and employees who operate the Bitfinex entities. Some of their employees are believed to reside in New York. The ultimate majority owner of both the Tether entities and iFinex is an entity named Digfinex Inc.

Number two: At various times throughout 2017 and 2018 both Bitfinex and Tether held accounts at two New York-based banks, Signature Bank and Metropolitan Commercial Bank.

Number three: According to the OAG, the Bitfinex model — like most banking models — relies on having sufficient US dollar deposits on hand to fill withdrawal orders submitted by traders.

Number four: In 2017 and 2018, the Bitfinex group started to limit access to its services for US individuals and enterprises, unless the entities maintained an offshore incorporation registration. These sorts of investors are known as Eligible Contract Participants (ECPs). But the OAG suspects that the Bitfinex groups still allowed US and New-York-based ECPs to transact on the platform, as well as New-York based individuals.

Moving on to Tether...
Tether has long maintained that every dollar's worth of Tether in circulation is matched by a dollar they hold securely in a reserve somewhere in the world. And yet, much of the crypto world has long speculated that there is not sufficient proof that this is really the case. Even when auditors' reports were supposedly made available publicly to reassure customers, these failed to convince due to the fact they never qualified fully as formal audits.

We have long argued this renders Tether a type of MMF, and/or shadow banking entity.

More recently, however, our blogging friend Bitfinexed noticed that the description of how Tether manages its reserves had changed on their website. Rather than just backing all Tethers with dollar deposits, the group's website now maintained that from “time to time” the funds would be backed by “assets and receivables from loans made by Tether to third parties, which may include affiliated entities”.


With this change, Tether had all but admitted that its Tether reserves were potentially being used as a slush fund for its own corporate purposes. But, equally, it had also de facto admitted that it was operating as an unlicensed bank, since the only entities usually allowed to lend out depositor funds to third parties without depositors knowing the full details of where the funds are going — while maintaining the promise of par value redemption to depositors — are licensed banking institutions.

The OAG's claim also noted the website change and provided an archived screenshot of it in the accompanying evidence.

The OAG then went on to outline the series of unsuccessful banking relationships Tether and Bitfinex were forced to pursue after Wells Fargo had suspended its relationship with the group due to concerns about its offshore and unregulated status. Eventually, the OAG notes, the group ended up being banked by a subsidiary of a New York-based entity named Noble Markets LLC.

Fascinatingly, the complaint also says that the Bitfinex group closed its accounts with Noble due to low interest rates and a lack of capacity to process a high volume of wire transfers to clients, among other reasons. (Alphaville has always warned that float management at par is really hard — especially in a low interest rate environment — not least because intermediation is not costless, and every transaction eats into the par you are supposedly protecting.)

Nonetheless, as the complaint also notes, as of 2019 Noble bank appeared to no longer be in operation anyway.

From thereon, the Bitfinex group began a banking relationship with a Bahamas-based entity called Deltec Bank & Trust Ltd. But, and this is important, at no point had Bitfinex/Tether ever explained to customers that they were also hugely dependent on third-party payment processors. One such processor was Panama-based Crypto Capital Corp. According to documents obtained by the OAG, by 2018 Bitfinex had placed more than $1bn dollars of co-mingled customer and corporate funds with Crypto Capital.

But this wasn't the only way Bitfinex/Tether was getting around its processing challenges, according to the OAG. They were also relying on companies (some owned by Bitfinex/Tether executives) as well as simple “friends” of Bitfinex -- meaning friends of Bitfinex employees who were willing to use their bank accounts to transfer money to clients who had requested withdrawals.

Long story short, by mid-2018 Bitfinex was having real trouble honouring withdrawal requests because Crypto Capital had failed to honour its agreements with Bitfinex/Tether.

By October 2018, due to the problems honouring withdrawal requests, rumours started to circulate that Bitfinex/Tether were insolvent, according to the OAG. This was denied by the group who claimed — in an echo of the famous Bear Stearns denial — that the rumours were a “targeted campaign based on nothing but fiction”.

This as the OAG notes, was not true. To the contrary Bitfinex employees had been writing distressed messages to Crypto Capital, in a bid to get the money out and processed, such as the quote at the top of this piece, as well as:

Is there any way we can get money from you? Tether or any other form? Apart with Crypto Capital we are running low on cash reserves.
And then:

Please help.

Eventually, Crypto Capital claimed they couldn't send the money because $851m of it had been seized by government authorities in Portugal, Poland and the United States. This, however, was also not true according to the OAG. To the contrary, the $851m was now missing and Bitfinex/Tether were yet to reveal the loss to their clients.

To deal with the lack of available liquidity, by February 2019 Bitfinex decided it would have to structure itself a loan from the Tether reserves -- something its counsel communicated to the OAG investigators. But in the course of further dialogue it emerged Bitfinex had already drawn on Tether's reserves to the tune of $625m in November 2018, via a transfer between the two entities' Bahamian bank accounts (albeit matched by a corresponding transfer from Bitfinex's Crypto Capital account to Tether's Crypto Capital account).

By late December 2018, however, the Bitfinex team had become concerned that the Crypto Capital sums had actually been lost to a fraud, rather than seized by authorities. It was at this point that the executives decided to engineer a secured revolving line of credit of up to $900m on commercially reasonable terms from Tether to Bitfinex. This was to be secured by 60,000,000 iFinex shares owned by DigFinex, a transaction which closed on March 19.

On March 27, executives initiated a transaction debiting $625m from Tether's Crypto Capital account and crediting the equivalent Bitfinex account. A few days later the bitcoin price finally began to challenge $5,000 per bitcoin again (chart courtesy of Coinbase):

Engaging in such transactions without a banking license is pushing the boundaries of legal financial activity. Doing so and not disclosing what you're doing to customers is positively not in the realms of compliant activity.

As OAG notes, the Bitfinex group have “only produced limited relevant information regarding the facts and circumstances of the $625m transfer and subsequent “line of credit” transaction. It is for this reason they have sought a court order restraining Bitfinex from making any further transfers of this kind.

Bitfinex contests the OAG's assertions, describing them as written in bad faith. The company posted the following on its website (our emphasis):

Earlier today, the New York Attorney General’s office released an order it obtained — without notice or a hearing — in an attempt to compel Bitfinex and Tether to provide certain documents and seeking certain injunctive relief.

The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded. We are and have been actively working to exercise our rights and remedies and get those funds released. Sadly, the New York Attorney General’s office seems to be intent on undermining those efforts to the detriment of our customers.

Bitfinex and Tether have been fully co-operative with the New York Attorney General’s office, as both companies are with all regulators. The New York Attorney General’s office should focus its efforts on trying to aid and support our recovery efforts.

Both Bitfinex and Tether are financially strong — full stop. And both Bitfinex and Tether are committed to fighting this gross over-reach by the New York Attorney General’s office against companies that are good corporate citizens and strong supporters of law enforcement. Bitfinex and Tether will vigorously challenge this, and any and all other actions, by the New York Attorney General’s office.
The OAG might argue that whether the missing funds were seized or embezzled probably doesn't change the fact that Bitfinex/Tether had a duty to inform its clients of the issues.

What's fascinating about the group's reply -- something also indicated by the group's attempt to sue Wells Fargo for suspending their relationship with them -- is that it believes itself to be a victim of discriminating attitudes that seek to limit the company's legitimate trading activity.

Yet at no point does the group seem to acknowledge that all its banking challenges stem from a lack of regulated status and a known reputation for not conducting proper KYC or AML checks. One could ask: why won't a group that describes itself as a good corporate citizen and a strong supporter of law enforcement just bite the bullet and get regulated?

Source : https://ftalphaville.ft.com/2019/04/26/1556291388000/We-all-become-MF-Global-eventually--Tether-edition/

[gasparik87]

I would not like to see such an exchange as bitfinex suffered because of such attacks. If this happens, it is terrible to imagine what will happen to the market as a whole.

[Beerwizzard]

It feels like Bitfinex foresees some possible withdrawal problems and tries to warn users about that so that possible situation wouldn't look like an exit scam or that user funds would be locked like it was during issues with btc-e exchange.
The question is why is USDT is still keeping #1 in stable coin market with all its legal complains and other shady stuff with their audit. It seems like some other altcoin could overtake it million times.

[Pab]

Waiting others to confirm this email. Anyone here have the same thought as mine that this issue is made intentionally to dump Bitcoin price so some people can grab some Bitcoin aat low price to join the bullish market? I hope this issue will be clear as soon as possible and Bitcoin market will be back to positive chart.

Tether has always been a fractional reserve scam with no 3rd party verification of actual US dollars backing all tether issued.

Anyone that believes those scum bags, is in for a very rude awaking.

https://steemit.com/bitshares/@docmastery/bitfinex-and-tether-scam-theory

I personally think that Tether is likely a goverment game and decide not to believe that coin. But Bitfinex is a good exchange and maybe just a one of Tether's victims.

Tether is owned by Finex.Bitfinex and Tether is the same company
Reason of that email is to prevent from withdrawing funds from Finex
I don't know how withdrawing is going
For sure will be no problems in a case of whales but what about small traders
As i know all that case at court can take months or years if it will not turn in to criminal investigation

[kryptqnick]

I read a bit more in this story, and it looks suspicious to me. Before reading posts of this thread, I did not know that Tether is a product of the same people who own Bitfinex. I used to more or less trust the exchange, but Tether seemed like a risky thing to use since the very beginning. If they are accused of draining funds to cover losses, we can only hope that it's not true. If I had money on Bitfinex right now, I'd withdraw it just in case. After all, the allegations might turn out to be true, and there is no reason to risk funds over that.

[pooya87]

~
Reason of that email is to prevent from withdrawing funds from Finex
I don't know how withdrawing is going

you can see that (to some extent) by checking their cold storage addresses which you can actually find in the top rich list of bitcoin addresses. there has been some panic withdrawals when this news came out which was also accompanied by a small price drop but that was all temporary and small and has been over for days now.

[r1s2g3]

Since I started my crypto journey (Dec 2017) , I always read that Tether is a big scam. I am surprised why it took more than 18 months for government to act.

Bitfinex has 74m (Approx daily volume from coinmarketcap.com) *.003= .22million daily earning.

If they really scammed then I do not think it will be easier to them to show that missing $850 million.

[funchiestz]

are, in fact, seized and safeguarded in several jurisdictions, including Poland, Portugal, the United Kingdom, and the United States.

It would be very easy for them to prove what they are saying. I do not know American law. But perhaps they could even sue the New York Attorney on false charges of crime.

This has always been the case for a long time. But Tether and Bitfinex cannot be transparent at all. This raises the possibility that the claims are true. Bitfinex takes very dangerous steps. A possible wrong move not only makes them, but also puts the market in a very bad position.