Cryptocurrency exchange Bitfinex and Tether have moved for a case dismissal of the suit pending against them by the New York Attorney General’s office.
According to court filings on May 21, the lawyers of Bitfinex and Tether–parent company to the eighth largest cryptocurrency by market capitalization and industry leading stablecoin USDT–are moving to dismiss their ongoing case with the NYAG. The court filings argue that the New York Supreme Court lacks jurisdiction over the pending case and alleged misconduct under consideration by the Attorney General’s office.
In particular, the motion highlights the fact that neither Tether or Bitfinex operate out of New York or specifically targeted and harmed clients in the state. The collective law group claims that the New York Supreme Court should hold no subject matter jurisdiction in the allegations being made, and cannot be appealed to do to the conflicting area of operations.
The court filing effectively calls out the office of the New York Attorney General’s office for initiating the special proceeding in the case as a way to “protect New York investors.’ However, given the seeming lack of jurisdiction involved, the law group finds that the NYAGs office targeted Bitfinex and Tether for wrongdoing, despite having no direct impact on the livelihood of New York investors–especially considering the cryptocurrency exchange Bitfinex does not allow New Yorkers to register and has not advertisement targeted to residents of the state. The filing also finds fault with the NYAG using the Martin Act, which governs securities and commodities and imparts investigative powers during situations of suspected fraud, as inappropriate given the current circumstances.
Since 2017, Tether has been the regular recipient of questioning by analysts and members of the community of cryptocurrency over their exact holdings and dollar backing of USDT. Historically, the stablecoin company claimed to back each USDT coin issued 1:1 with U.S. Dollars, which would amount to over $2.9 billion held in reserve for the current circulating supply. However, cryptocurrency investors have been skeptical over that claim, which was ultimately revealed to be only partially true. In early March, investigative crypto community members uncovered that Tether had quietly removed its claim to back each USDT with U.S. Dollars.
The plot thickened when it was revealed that cryptocurrency exchanged Bitfinex–who shares leadership positions with Tether–had borrowed over $800 million in Tether funds to cover losses incurred by the platform. The NYAG’s office responded by accusing Tether and Bitfinex of defrauding investors in Bitcoin, as the exchange was directly using assets that had been pledged in support of the valuation of USDT.
Earlier today Bitfinex revealed that Tether was invested in Bitcoin and other assets as a portion of its reserves backing the 1 USD pegged value of their stablecoin, which prompted New York Supreme Court Judge Joel M. Cohen to respond,
“Tether sounded to me like sort of the calm in the storm of cryptocurrency trading. And so if Tether is backed by bitcoin, how is that consistent? If some of your assets are in a volatile currency that Tether is supposed to somehow modulate, that seems like it’s playing into what they are saying.”
While Bitcoin prices hover around the $8000 mark, it remains to be seen how the blowback from USDT and Bitfinex will affect the market moving forward.