For a long time, stablecoins have been under suspicion by many people within the crypto industry. Tether, in particular, has been accused of being a tool to manipulate the price of bitcoin as well as not being fully backed up with fiat currency as they had always claimed. Even though they constantly denied these rumors, an investigation was opened by the New York Attorney General’s office in 2019 and the findings from the investigation shows that Tether only backed up 73 percent of their tokens with fiat currency and not 100 percent and more importantly, that they had given Bitfinex access to their reserves to aid the coverup of $850 million in losses that the company had sustained.
Previously, New York judge Joel Cohen had ruled that Bitfinex had to release documents that pertained to the cover upof $850 million in losses. However, another New York Court has overruled that ruling and has stated that Bitfinex does not need to handover any documents pertaining to the cover up on this ruling was made by justices David Friedman, Peter Tom, Troy Webber, Ellen Gesmer and Jeffrey Oing.
The Bitfinex Coverup
The investigation was opened in April 2019 against iFinex, the parent company of Bitfinex as well as Bitfinex themselves and Tether in which they were accused of defrauding investors by covering up their significant losses with the help of Tether.
“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds,” said Attorney General Letitia James.
The judges also stated that her office had a court order which revealed that Bitfinex had never revealed the losses to the investors but instead got access to cash reserves of up to $900 million from Tether which they used to cover up their lack of ability to process investor withdrawals. Despite all of this, it seems more documents from the cover up will not be made public at this time due to the new ruling ruling. Despite the scandal, Tether has continued to trade actively within the crypto market and Bitfinex is also still active.