Bitfinex has argued that its customers might suffer if access to its Tether funds are cut, lawyers for the troubled exchange said Sunday. Bitfinex’s legal team are in the midst of a battle to cancel, or at least favorably modify, the preliminary injunction secured by the New York Attorney General (NYAG) at the end of April, in which they were accused of illegally using USDT to plug an $850 million gap in their finances. They also state that the action has had a negative impact on their business, with 30,000 BTC and over a million ETH withdrawn by customers since the filing, which equates to some $330 million taken off their books.
Bitfinex Alleges Market-wide Damage
The preliminary injunction in question, filed under a state law called the Martin Act, requires Bitfinex and Tether to turn over all documents pertaining to a $625 million transfer and a $900 million line of credit extended by Tether to its sister company after Bitfinex lost access to $850 million held by its payment processor, Crypto Capital. Bitfinex is doubly concerned because the injunction also prevents Bitfinex from drawing further credit from Tether, which it claims it needs to do in order to honor customer withdrawals. Part of Bitfinex’s appeal is the negative impact the case is having on the markets as a whole, pointing to the fact that “dozens of cryptocurrencies” lost a combined $10 billion within an hour of the order being made public on April 24. What they don’t state is that the market has not only recovered but actually risen by $10 billion from its pre-announcement level, illustrating that the markets don’t seem to be as concerned by Bitfinex’s troubles as they might want it to be.
Actions Don’t Constitute Fraud, says Bitfinex
Bitfinex’s lawyers also argued that the two of the NYAG’s allegations, the failure to disclose the $850 million-dollar loss and engaging in an “undisclosed, conflicted” transaction, did not amount to fraud as the NYAG claims. They Martin Act, they say, only covers fraudulent conduct in relation to securities or commodities, of which USDT tokens are neither. A headache for Bitfinex however is that the NYAG’s request for the Bitfinex/Tether documentation to be turned over is perfectly legal according to state law, and that Bitfinex’s request that the motion be vacated or modified would essentially be akin to asking the judge to create a new law. The NYAG has yet to respond to Bitfinex’s arguments, but we should hear those today as the case continues.