Bitfinex Must Face N.Y. Suit Over $800 Million in Lost Funds

The cryptocurrency exchange Bitfinex must face claims by New York state that it hid the loss of commingled client and corporate funds, a state appeals court ruled Thursday.

Companies connected to Bitfinex are accused by New York Attorney General Letitia James of hiding the loss of more than $800 million in client and corporate funds.

The companies have said the funds were deposited with a Panamanian company called Crypto Capital Corp. and then seized by government authorities in various countries. They have said they’re working to recover the funds.

Companies tied to Bitfinex also operate the stablecoin Tether, which serves as a conduit for trading in much of cryptocurrency market globally. The appeals court rejected the argument that Tether, with a market capitalization of more than $9 billion, is not a security or commodity, and said the court has jurisdiction over its issuer.

It also rejected the companies’ argument that since they are not based in the New York or cater to local traders, they shouldn’t be answerable to or have to produce certain documents for New York authorities. The court opinion said that New York traders had used Tether, and some of the companies’ staffers worked in New York.

Bitfinex Must Face N.Y. Suit Over $800 Million in Lost Funds

“The trial court properly rejected the attempts by respondents to limit petitioner’s lawful authority to protect New York residents,” the opinion said.

Bitfinex didn’t immediately return a request for comment.

“Today’s decision validates our office’s ability to use its broad and comprehensive investigative powers to protect New Yorkers,” James said in a statement. “Not even virtual currencies are above the law. We are pleased with the court’s decision, and will continue to protect the interest of investors in the marketplace.”

©2020 Bloomberg L.P.

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