The news of a scandal involving crypto exchange Bitfinex has rocked the Bitcoin and other crypto market, sending shock waves that have lead to the tumbling of crypto prices just when the market was set to fully recover from the crypto winter.
According to the New York State Attorney General Letitia James, Bitfinex engaged in fraud by mismanaging customer’s funds amounting to $900 million.
Following the law suit, the AG has since obtained a court order to have iFinex Inc. barred from conducting business within the state of New York. IFinex Inc is the operator of both Tether and the Bitfinex Bitcoin exchange.
$850 Million To Hide Loss
Apparently, Bitfinex transferred about $850 million to a firm named Crypto Capital Corp based in Panama. However, the exchange didn’t get the money back as agreed with the firm.
The situation turned dire when the exchange started received a lot of withdrawal requests from customers and couldn’t process them because there was no money to give out.
After a period of dilly dallying and lying to customers, the exchange had to get some money somehow, so it granted itself access to the Tether reserves amounting to $900 million to service the withdrawal requests.
This, in itself, is what the justice system terms as fraud since the exchange gained access to the customer’s funds without their knowing or consent.
No Public Audits
Since there was no public audit of the exchange’s financial books, customers were kept in the dark about the misappropriation of their money.
In fact, as the court heard, Bitfinex had no binding contract with Crypto Capital Corp when it transferred the $850 million. Were there an audit, the exchange would have been inclined to reveal the information to customers.
The news of the fraud case against Bitfinex has affected the crypto market. Within hours of the announcement, Bitcoin fell from almost $5,600 down to around $5,400. Other cryptos followed suit.
What’s even more interesting is an excerpt from a conversation between Bitfinex CEO and a Crypto Capital Corp (CCC) representative back in October 2018 as the exchange struggled to get its money back.
The CEO was worried that Bitcoin’s price could plummet to $1,000 if the situation wasn’t solved quickly. A few months later, the crypto market started hurting badly, a situation that was compounded by the hash wars between Bitcoin Cash and Bitcoin SV in November 2018.