In the latest on the ongoing legal dispute between the New York Attorney General (NYAG), cryptocurrency exchange Bitfinex and stablecoin issuer Tether, the New York Supreme Court has modified an April 24, 2019, preliminary injunction and now Bitfinex is allowed to continue using the Tether reserves that were loaned to it to maintain its ordinary course of business, such as paying employees and consultants. But Bitfinex may not withdraw any further funds from the Tether reserve and must comply with all document requests pursuant to the NYAG investigation. This modified preliminary injunction went into effect on May 16, 2019, and will last for 90 days.
History of the Dispute
On April 24, 2019, the Office of the Supreme Court of the State of New York, Commercial Division granted an order submitted by the Office of the Attorney General (OAG) requiring Bitfinex/Tether to provide information under the Martin Act. The Court granted a preliminary injunction restricting Bitfinex/Tether from further violating the Martin Act including engaging in “fraudulent, deceptive, or illegal acts,” and “employing any device, scheme, or artifice to defraud or obtain money or property by means of false pretense, representation, or promise.”
Bitfinex/Tether objected that the OAG gave no warning, despite being in close communication with them, and pleaded to the court to modify the order. There was a hearing on May 6, 2019, and the court found that Bitfinex/Tether needed to produce some more evidence but agreed the preliminary injunction should also be modified.
The primary concern raised by the court is that, on February 21, 2019, the OAG learned that Bitfinex was contemplating a transaction that would allow Bitfinex to draw upon Tether’s cash reserves on an as-needed basis. The OAG had serious concerns about the viability of Bitfinex and whether any money it “borrowed” could ever be repaid to the Tether reserves.