Quadriga’s trustee hires blockchain analytics firm

The search for what happened to QuadrigaCX’s missing money is a never-ending one. 

In the latest twist, Ernst & Young, the trustee in the Canadian crypto exchange’s bankruptcy case, hired an analytics firm to probe the blockchain for additional clues on where it all went. 

Miller Thomson, the law firm representing Quadriga’s former users, sent out a letter to Quadriga creditors on Friday, letting them know that on August 17, EY retained Kroll Associates “to conduct further analysis on a subset of transaction data.” 

The decision was guided in part by the “official committee,” a subset of Quadriga users who represent the exchange’s former users as a whole. The group has been working with EY since February collecting and reviewing proposals from third-party cryptocurrency­ asset tracing firms, Miller Thomson said.

Kroll, a division of New York-based financial consultancy firm Duff & Phelps, will not be tackling the project alone, however. It is joining forces with Coinfirm, a London-based blockchain analytics firm.

Kroll will receive up to $50,000 USD for their efforts. And EY has provided a contractual indemnity of up to $150,000 USD—three times the professional fees—to protect Kroll from any lawsuits or negligence claims. 

Crypto Capital

In its letter, Miller Thomson also noted that it appears Crypto Capital is not holding any of Quadriga’s money. 

Recall that back in January, Miller Thomson reached out to creditors asking for help in identifying if Quadriga had used the Panamanian third-party processor to funnel cash in and out of the exchange.

Crypto Capital is of interest because it is tied to crypto exchange Bitfinex, which is allegedly missing some $850 million. (I guess the hope was that some additional Quadriga money might have been tied up in all of that mess—and there would be more to reclaim.)

Disbursement of funds

So far, EY has located $35 million (CA$46 million ) to pay out to creditors. The amount represents a fraction of the total $190 million (CA$246 million) that went missing when the exchange went belly up early last year. 

As of May, EY has received 16,959 claims from the 76,000 or so users who held funds on the exchange when it collapsed.

Two things have to happen before those claims can be filled. The first is that EY has to review each claim individually, and that takes time and money.

But the bigger holdup by far is that the Canada Revenue Agency needs to complete its audit of Quadriga’s tax liabilities, said Miller Thomson.  

In March, the CRA collected a vast trove of documents from EY, and there’s no telling how long that will take to dig through, especially given current circumstances.  

“The CRA did not confirm a timeline of when the CRA Audit will be completed given the COVID­19 pandemic,” the law firm said.

 

Judge reschedules Reggie Fowler’s trial for next year

reggie-fowler-1Reginald Fowler stood before a New York judge Thursday and pleaded not guilty to wire fraud. The new charge brought the total counts against him to five. An irked-looking judge agreed to move the trial date, originally set for next month, to Jan. 11. (Court doc.)

The wire fraud charge was added in a superseding indictment on Feb. 21. The Arizona businessman and ex-NFL owner had already pleaded not guilty to the four prior counts, which had to do with bank fraud and illegal money transmitting. He was looking at a trial date of April 28.

However, with the new charge piled on, Fowler’s lawyer James McGovern wanted more time to prepare. Matthew Lee of Inner City Press, live-tweeted Fowler’s arraignment in court today.  

“The trial is scheduled. Mr. Fowler did not plead guilty. Now he wants an adjournment of the trial,” said U.S. Attorney Jessica Fender, according to Lee’s account. 

Judge Carter granted the adjournment and offered Oct. 28 as a new date for the trial. But Fender turned it down saying her colleague was unavailable at that time.

“Really? A prosecutor not being available is not grounds under the Speedy Trial Act,” said Judge Carter.

Finally, a new date of early next year was settled upon — and the judge appeared irritated with the government, Lee told me.

The law moves slow

Nothing is happening fast in this case. But the right to a speedy trial isn’t for the benefit of the public — it’s for the benefit of the defendant, who can waive it. And since Fowler is free on $5 million bail while he awaits trial, he can afford to do that. After all, he could find himself behind bars for many years after the trial.

Fowler was originally indicted on April 30, 2019, along with Israeli woman Ravid Yosef, who remains at large. The pair allegedly ran a shadow banking service on behalf of Crypto Capital Corp, a Panamanian payment processor that counted Bitfinex and the failed QuadrigaCX cryptocurrency exchanges as customers.

A plea deal would have seen three out of four charges against Fowler dropped. The deal was conditioned upon him forfeiting $371 million* allegedly tied up in some 50 bank accounts, but he wouldn’t—or couldn’t—agree to that.

After Fowler turned down the plea deal, federal prosecutors heaped on the newest charge of wire fraud. The fifth count was no surprise. In a court transcript filed in October 2019, Assistant U.S. Attorney Sebastian Swett told Judge Carter:

“We have told defense counsel that, notwithstanding the plea negotiations, we are still investigating this matter, and, should we not reach a resolution, we will likely supersede with additional charges.”

Fowler, who resides in Chandler, Ariz., will likely go about his daily life until next year when his trial begins. Is he rattled by any of this? Who knows. This is a man who has plenty of experience dealing with lawyers and judges. In 2005, ESPN reported that he had been sued 36 times.

Updated (3/7/20) to add names of attorneys.

*Updated (3/5/20 at 11:30 p.m ET) to note that Fowler’s proposed plea deal was based on him forfeiting $371 million, not $371,000 as previously stated.

Reggie Fowler allegedly funded sports league with ill-gotten gains

A superseding indictment filed with the SDNY court Thursday includes a new charge of wire fraud for ex-Minnesota Viking co-owner Reginald Fowler.

Fowler, who is living in Chandler, Ariz., while free on $5 million in bail, currently faces four other charges related to bank fraud and operating an illegal money transmitting business, so this makes for count number five.

According to federal prosecutors, from June 2018 to February 2019, Fowler obtained money through “false and fraudulent pretenses” to fund a professional sports league in connection with his ownership stake in the league.

imagesWhat sports league would that be? The indictment does not tell us. But Fowler invested $25 million in the Alliance of American Football — an attempt to form a new football league — right before its inaugural season and shortly before his arrest on April 30, 2019.

The league ran into problems after withdrawals from Fowler’s domestic and foreign accounts were “held up around Christmas,” freezing a principal source of the league’s funding.

Shortly before then, the Department of Justice froze five U.S. bank accounts—three of them were Fowler’s personal accounts and two were held under Global Trading Solutions LLC, a shell company that he set up.

Global Trading Solutions LLC has been directly linked to Crypto Capital Corp., a Panamanian shadow bank used by Bitfinex and the failed Canadian crypto exchange QuadrigaCX.

Due to money problems, the AAF collapsed on April 2, 2019, and filed for Chapter 7 bankruptcy two weeks later. The league claimed assets of $11.3 million and liabilities of $48.3 million and held just $536,160.68 in cash.

After forgoing a plea deal last month, Fowler is set to go trial on all five counts on April 28.

Did you enjoy this story? Support me and my writing by becoming a patron.  

Documents point to QuadrigaCX using payment processor Crypto Capital

Last month, Miller Thomson, the law firm representing Quadriga’s former users, asked creditors for help in identifying if the failed Canadian exchange had used Crypto Capital Corp, a payment processor that is allegedly missing some $850 million

In a letter posted on its website on Jan. 22, the law firm said that it had received information that Quadriga had used a “Panamanian shadow bank” in the final quarter of its operation—presumably, that means September thru December 2018, since the exchange went belly up in January 2019.

Specifically, the law firm asked creditors to forward any emails or financial statements with names of people or companies linked to Crypto Capital. It offered a lengthy list that included Global Trading Solutions LLC and Global Trade Solutions AG.

The former was a shell company in Chandler, Ariz., set up on Feb. 14, 2018, by Reggie Fowler, one of the individuals alleged to have connections to Crypto Capital. The latter was the Swiss parent company of Crypto Capital. (The firm was cited as a parent company on Crypto Capital’s website.)

Screen Shot 2020-02-13 at 8.14.16 AM

Also, in a December 2018 letter published on this blog, Crypto Capital boss Ivan Molina wrote that “Global Trade Solutions AG and related entities” were being denied banking in the U.S., Europe and elsewhere as a result of financial crimes investigations. Molina was arrested for money laundering last year.

What about GTS Germany?

Global Trade Solutions Gmbh is not on Miller Thomson’s list. I can’t find it on any legal or court docs either, but someone posted on Reddit a year ago that they had received their Crypto Capital withdrawals from the company. 

The sole officer for Global Trade Solutions Gmbh is Ralf Hülsmann, who started on June 15, 2016. Researcher Robert-Jan den Haan found the German public registry for the company, and it is clearly associated with Spiral Global Trade Solutions AG, which is directly linked to Fowler.

Spiral Inc. is a holding company Fowler set up in 1989. At one time it held more than 100 businesses. He also owns Spiral Volleyball.

Screen Shot 2020-02-12 at 11.15.44 PM

Links to Quadriga

Two documents recently shared by individuals on Telegram claiming to be Quadriga creditors show funds sent to Global Trade Solutions Gmbh

On June 28, 2018, one creditor wired $50,000 CAD from the Royal Bank of Canada in Toronto to an account at Deutsche Bank in Germany belonging to Global Trade Solutions Gmbh.

“I should have followed my gut feelings when I was at the bank making this wire transfer,” the user told me. “I just had a very shady feeling.”

Screen Shot 2020-02-11 at 6.54.47 PM

Another creditor shared the following document on Telegram. Similarly, it shows funds being sent to a Global Trade Solutions Gmbh account at Deutsche Bank. The transfer appears to be going out from a bank in Toronto, but there is no date on it.

Screen Shot 2020-02-11 at 8.01.17 PM

Other evidence

There is other evidence to support Quadriga using Crypto Capital. At one time, the payment processor listed Quadriga on its website as a client. Gerald Cotten, the exchange’s now-deceased founder also admitted to using it in the past.

In an email to Bloomberg News on May 17, 2018, he wrote: “Crypto Capital is one such company that we have/do use. In general it works well, though there are occasionally hiccups.”

Assuming Quadriga did use Crypto Capital, the only question that remains is, was the payment processor holding any Quadriga funds when the exchange went belly up? (Remember, Quadriga didn’t keep any books, so it’s up to Miller Thomson and court-appointed trustee Ernst & Young to piece things together.) And if so, is there any chance in hell of getting those funds back?

(Read my complete Quadriga timeline to dig in deeper.)


Updated on Feb. 19 to add Ralf Hülsmann and link to someone on Reddit who said they received CCC withdrawals via Global Trade Solutions Gmbh. 

Updated on Feb. 13 to fix typo — Global Trade Solutions AG, not Global Trading Solutions AG — add a screenshot from Crypto Capital’s website and mention missing $850 million.

 

Reginald Fowler, man tied to missing Bitfinex funds, out on $5M bail

Screen Shot 2019-05-02 at 1.33.58 PMReginald Fowler, the ex-NFL owner arrested in connection with operating a “shadow bank” that processed hundreds of millions of dollars of unregulated transactions on behalf of crypto exchanges, is out on $5 million bail.  

The U.S. Government previously argued that Fowler should be detained without bail. The government thought he was too much of a flight risk due to his overseas connections and access to bank accounts around the world. But for the time being, at least, Fowler is a free man, albeit, with restrictions.

Order and letter

The order setting conditions of release was filed with the District Court for the District of Arizona on May 9. A letter of motion, submitted by U.S. Attorney Geoffrey Berman and addressed to Judge Andrew Carter of the District Court of Southern New York, was entered on May 8.

Copies of the letter went to James McGovern and Michael Hefter, partners at law firm Hogan Lovells in New York. Presumably, these are Fowler’s defense attorneys. Fowler’s arraignment is set for 4:30 p.m. on May 15 at the Southern District Court of New York. 

Fowler was arrested in Arizona on April 30. The bond is being posted in New York, because the District of Arizona does not include secured bonds in bail packages. 

According to conditions set forth in the bond, Fowler cannot travel outside of the Southern District of New York, the Eastern District of New York, and Arizona. He also had to surrender his travel documents and his passport. 

The properties and the wealthy friends

Fowler’s $5 million personal recognizance bond is secured by two unnamed “financially responsible” co-signers and the following properties: 

  • 3965 Bayamon Street, Las Vegas, Nevada
  • 8337 Brittany Harbor Drive, Las Vegas, Nevada
  • 4670 Slippery Rock Drive, Fort Worth, Texas
  • 4417 Chaparral Creek Drive, Fort Worth, Texas
  • 8821 Friendswood Drive, Fort Worth, Texas

A quick look on Zillow indicates the properties are cheap investment houses, worth perhaps $1.5 million in total, if that. This would mean that the additional $3.5 million is secured by Fowler’s wealthy friends, whoever they are.

The LLC on the five properties is Eligibility LLC, 4939 Ray Road, #4-349 Chandler, Arizona 85226. The mailing address points to a UPS store, so it is basically a P.O. Box.

Global Trading Solutions LLC, a company linked to Fowler’s shadow banking operation, had the same mailing address for a time, but the address was later changed.

Indictment

On April 11, Fowler and Ravid Yosef, an Israeli woman who lived in Los Angeles and is still at large, were indicted on charges of bank fraud. Fowler was also charged with operating an unlicensed money services business. 

Fowler’s company—or one of his companies—was Global Trading Solutions LLC, which provided services for Global Trade Solutions AG, the Switzerland-based parent company of Crypto Capital Corp.

Cryptocurrency exchanges used Crypto Capital as an intermediary to wire cash to their customers. The firm is allegedly withholding $851 million on behalf of Bitfinex, a crypto exchange that is currently being sued by the New York Attorney General.  

# # #

Thanks to Nic Weaver for locating the court documents. He spends his beer money on PACER, so you don’t have to.

News: More Bitfinex drama, Crypto Capital, a dodgy football businessman and a relationship coach

There is so much going on now with Bitfinex. My eyes are burning and my head hurts from reading piles of court docs. Here is a rundown of all the latest—and then some.

The New York Attorney General (NYAG) is suing Bitfinex and Tether, saying tethers (USDT) are not fully backed—after $850 million funneled through third-party payment processor Crypto Capital has gone missing.  

Screen Shot 2019-05-04 at 2.10.08 PMIt’s still not clear where all that money went. Bitfinex says the funds were “seized and safeguarded” by government authorities in Portugal, Poland and the U.S. The NYAG says the money was lost. It wants Bitfinex to stop dipping into Tether’s reserves and to handover a mountain of documents.

In response to the NYAG’s ex parte order, Tether general counsel Stuart Hoegner filed an affidavit accompanied by a motion to vacate from outside counsel Zoe Phillips of Morgan Lewis. Hoegner admits $2.8 billion worth of tethers are only 74% backed, but claims “Tether is not at risk.” Morgan says New York has no jurisdiction over Tether or Bitfinex. Meanwhile, the NYAG has filed an opposition. It wants Bitfinex to stop messing around.

Football businessman Reggie Fowler and “co-conspirator” Ravid Yosef were charged with running a “shadow banking” service for crypto exchanges. This all loops back to Crypto Capital, which Bitfinex and Tether were using to solve their banking woes.    

In an odd twist, the cryptocurrency saga is crossing over into the sports world. Fowler was the original main investor in the Alliance of American Football (AAF), an attempt to create a new football league. The league filed for bankruptcy last month—after Fowler was unable to deliver, because the DoJ had frozen his bank accounts last fall.  

The US government thinks Fowler is a flight risk and wants him held without bail. The FBI has also found a “Master US Workbook,” detailing the operations of a massive “cryptocurrency scheme.” They found it with email subpoenas, which sounds like it was being kept on a Google Drive?

Yosef is still at large. She appears to have split her time between Tel Aviv and Los Angeles. This is her LinkedIn profile. She works as a relationship coach and looks to be the sister of Crypto Capital’s Oz Yosef (aka “Ozzie Joseph”), who was likely the “Oz” chatting with “Merlin” documented in NYAG’s suit against Bitfinex.  

All eyes are on Tether right now. Bloomberg reveals the Commodity and Futures Trading Commission (CFTC) has been investigating whether Tether actually had a stockpile of cash to support the currency. The DoJ is also looking into issues raised by the NYAG.

Meanwhile, bitcoin is selling for a $300 to $400 premium on Bitfinex — a sign that traders are willing to pay more for bitcoin, so they can dump their tethers and get their funds off the exchange. This isn’t the first time we’ve seen this sort of thing. Bitcoin sold at a premium on Mt. Gox and QuadrigaCX before those exchanges collapsed.

Bitfinex is still in the ring, but it needs cash. The exchange is now trying to cover its Tether shortfalls by raising money via—of all things—a token sale. It plans to raise $1 billion in an initial exchange offering (IEO) by selling its LEO token. CoinDesk wrote a story on it, and even linked to my Tether timeline.

Did a sex-trafficking site sparked the Crypto Capital investigation? Also, Decrypt’s Tim Copeland takes a look at the payment processor’s dark past.

Tether wants to move tethers from Omni to the Tron blockchain. Tron planned to offer a 20% incentive to Omni USDT holders to convert to Tron USDT on Huobi and OkEx exchanges. But given the “recent news” about Bitfinex and Tether, it is delaying the rewards program.  

Kara Haas has an article on AccountingWeb and a Twitter thread on the potential accounting implications of Tether’s definition of “reserves.”

Coinbase is bidding adieu to yet another executive. Earn.com founder Balaji Srinivasan, who served as the exchange’s CTO for a year, is leaving. It looks like his departure comes after he served the minimum agreed period with Coinbase. 

Elsewhere, BreakerMag is shutting down. The crypto publication had a lot of good stories in its short life, including this unforgettable one by Laurie Penny, who survived a bitcoin cruise to tell about it. David Gerard wrote an obituary for the magazine.

The Los Angeles Ballet is suing MovieCoin, accusing the film finance startup of trying to pay a $200,000 pledge in worthless tokens—you can’t run a ballet on shit coins.

Police in Germany and Finland have shut down two dark markets, Wall Street Market and Valhalla. And a mystery Git ransomware is wiping Git repository commits and replacing them with a ransom note demanding Bitcoin, as this Redditor details.

# # #

 

New York Attorney General: Bitfinex is hiding $850 million in losses

Screen Shot 2019-04-26 at 7.04.55 AMAccording to an April 24 court filing, New York State Attorney General Letitia James has alleged that crypto exchange Bitfinex lost $850 million and then tried to pull the wool over people’s eyes by dipping into Tether’s reserves.  

Tether issues a dollar-pegged stable coin of the same name. According to the Office of the Attorney General (OAG), Bitfinex has so far siphoned $700 million from Tether funds, meaning that tethers are not fully backed. Given that tether is an essential source of liquidity in the crypto markets—currently, there are 2.8 billion tethers in circulation—this is not good news for bitcoin. 

I’ve updated my Bitfinex/Tether timeline to bring you up to speed on the full history of these companies’ past shenanigans. Bitfinex and Tether are operated by the same individuals, and their parent company is Hong-Kong based iFinex. I recommend reading  the entire 23-page court document. It reveals a lot about what has been going on under the covers at Tether/Bitfinex. I’ll try and summarize.

What happened

Bitfinex was allowing people from New York to trade on its platform. This is not supposed to happen. Effective August 8, 2015, any virtual currency company that wants to do business in New York State needs to have a BitLicense. This led the OAG to launch an investigation into Bitfinex and Tether in 2018.

Banking has been an ongoing struggle for Bitfinex since April 2017, when it was cut off by correspondent bank Wells Fargo and its main banks in Taiwan. At different periods, Bitfinex has turned to Puerto Rico’s Noble Bank, Bahamas’ Deltec Bank, and more recently, HSBC, through a private account with Global Trading Solutions LLC.   

Meanwhile, Bitfinex and Tether have had to rely on third-party payment processors to handle customer fiat deposits and withdrawals—a fact that the companies have never been completely up front about.

Since 2014, Bitfinex has sent $1 billion through Panama-based Crypto Capital Corp. Bitfinex also told the OAG that it had used a number of other third-party payment processors, including “various companies owned by Bitfinex/Tether executives,” as well as other “friends of Bitfinex” — meaning human-being friends of Bitfinex employees willing to use their bank accounts to transfer money to Bitfinex clients.

This is basically Bitfinex setting up shell companies and playing cat and mouse with the banks—and it sounds an awful lot like what Canadian crypto exchange QuadrigaCX was doing before it went belly up in January. (Quadriga also used Crypto Capital, but the payment processor is not holding any Quadriga funds.)

By mid-2018 Bitfinex customers were complaining they were unable to withdraw fiat from the exchange. This is apparently because Crypto Capital, which held “all or almost all” of Bitfinex funds, failed to process customer withdrawal requests. Crypto Capital told Bitfinex that the reason the $851 million could not be returned was because the funds were seized by government authorities in Portugal, Poland and the U.S.

Bitfinex did not believe this explanation. “Based on statements made by counsel for Respondents to AG attorneys… Respondents do not believe Crypto Capital’s representations that the funds have been seized,” the court document states.

(This is not in the court docs, but this is the letter Crypto Capital shared with its customers in December 2018. Global Trade Solutions AGnot the same company as Global Trading Solutions LLC—is the parent company of Crypto Capital.)

In communication logs from April 2018 to early 2019 shared with the OAG, a senior Bitfinex executive “Merlin” repeatedly beseeched an individual at Crypto Capital, “Oz,” to return funds. Merlin writes: “Please understand, all this could be extremely dangerous for everybody, the entire crypto community. BTC could tank to below $1K if we don’t act quickly.” A Crypto Capital customer that asked not to be named told me that Merlin is Bitfinex CFO Giancarlo Devasini

Borrowing money from Tether

Rather then admit it was insolvent, Bitfinex/Tether tried to cover up the problem. According to the court docs, in November 2018, Tether transferred $625 million in an account at Deltec in the Bahamas to Bitfinex. In return, Bitfinex caused $625 million to be transferred from an account at Crypto Capital to Tether’s Crypto Capital account.

Essentially, Bitfinex tries to create the money by doing a one-for-one transfer of real money at Deltec for funds that don’t actually exist at Crypto Capital. Once they realized that this was probably a terrible idea, they re-papered the transfer as a loan.

Bitfinex then borrowed $900 million from its Tether bank accounts. The loan is secured with shares in iFinex stock. In case you didn’t quite follow that, Bitfinex and Tether are basically the same company, so you can think of this as Bitfinex borrowing money from itself—and then backing the loan with shares of itself.

According to the OAG, “The transaction documents were signed on behalf of Bitfinex and Tether by the same two individuals.”

OAG is fed up with the nonsense. It has obtained a court order against iFinex. Under the court order, Bitfinex and Tether are to cease making any claim to the dollar reserves held by Tether. iFinex is also required to turn over documents and information, as the OAG continues its probe.

The court has also ordered that iFinex identify all New York and US customers of Bitfinex whose funds were provided to Crypto Capital and the amount of any outstanding funds—and provide a weekly report evidencing any issuance or redemption of tethers. 

Bitfinex responds

Bitfinex has issued a response (archive), stating that the OAG court filings “were written in bad faith and are riddled with false assertions.” It claims the $850 million are not lost but have been “seized and safeguarded.” 

The exchange continues to deny any problem. It writes:

“Both Bitfinex and Tether are financially strong—full stop. And both Bitfinex and Tether are committed to fighting this gross overreach by the New York Attorney General’s office against companies that are good corporate citizens and strong supporters of law enforcement.”  

What does this mean?

It means Bitfinex is in real trouble. The New York’s Attorney General is one of the most powerful in the nation. That should worry Bitfinex.  

New York law allows the attorney general to seek restitution and damages. On top of that, there is also the Martin Act, a 1921 statute designed to protect investors. The Act vests the attorney general with wide-ranging enforcement powers. Under the Act, the attorney general can issue subpoenas to compel attendance of witnesses and production of documents. Those called in for questioning do not have a right to counsel.

The attorney general‘s decision to conduct an investigation is not reviewable by courts. As Stephen Palley, partner at Anderson Kill, points out, the iFinex action arises out of a Martin Act investigation and “Violations of the Martin Act can be civil and criminal.”

Finally, if $850 million is really missing, not just stuck somewhere, bitcoin is in real trouble, too. Tether could lose its peg and drop substantially below $1. Remarkably, tether’s peg seems to be holding steady now.  

Since the news broke, the price of bitcoin has dropped several hundred dollars. A valiant effort is being made to pump the price back up, and it’s working, sort of—for now.  

Screen Shot 2019-04-26 at 6.54.29 AM

 

The curious case of Tether: a complete timeline of events

Stablecoins—virtual currencies pegged to another asset, usually, the U.S. dollar—screen shot 2019-01-15 at 2.22.13 pmbring liquidity to crypto exchanges, especially those that lack ties to traditional banking. To put it more simply, if you are a crypto exchange and you don’t have access to real dollars, stablecoins are the next best thing.

Today, there are lots of stablecoins to choose from. But by far the most popular and widely traded is tether (USDT), issued by a company of the same name. Of the three stablecoin models, Tether follows the I.O.U. model, where virtual coins are supposed to represent actual money and be redeemable at any time. It all sounds well and good, but for one thing: How do we know that tether is fully backed? 

[Update: This story was originally published in January 2019. As of May 2020, there are nearly $9 billion worth of tether circulating in the bitcoin ecosystem.]

Currently, there are 1.9 billion tether in circulation. That means, there should be a corresponding $1.9 billion tucked away in one or more bank accounts somewhere. Bitfinex, the crypto exchange closely linked to Tether, claims the money exists, but has yet to provide an official audit to support those claims. (We have seen snapshots of bank account balances at certain points in time, but these are not real audits.) 

More troubling still, the issuance of tether correlates with the rapid run up in price of bitcoin from April 2017 to December 2018 when bitcoin peaked at nearly $20,000. If authorities were to step in and freeze the bank accounts underlying tether, it is hard to guess what impact that could have on crypto markets at large. 

A timeline of events reveals a full picture of the controversy surrounding Tether and Bitfinex, and provides a reference for anyone interested in researching the topic. 

[An version of this timeline originally appeared in Bitcoin Magazine in February 2018. What follows is a more detailed and up-to-date version.]

Timeline

2012 — iFinex Inc., the company that is to become the parent company for Bitfinex and Tether, is founded in Hong Kong.

2013 — Bitfinex incorporates in Hong Kong. The exchange is run by CSO Phil Potter, CEO Jan Ludovicus van der Velde and CFO Giancarlo Devasini. Potter used to work at Morgan Stanley in New York in the 1990s, but lost the job after bragging about his opulent lifestyle to the New York Times. And in 1996, Devasini was caught pirating and selling a substantial volume of Microsoft Software

July 9, 2014 Brock Pierce, Bitcoin Foundation director and former Disney child actor, launches Realcoin, a dollar-backed stablecoin. Realcoin is built on a Bitcoin second-layer protocol called Mastercoin (now Omni). Pierce was one of the founding members of the Mastercoin Foundation before resigning in July 2014. He founded Realcoin along with Mastercoin CTO Craig Sellars and ad-industry entrepreneur Reeve Collins

September 5, 2014 Appleby, an offshore law firm, helps Bitfinex operators Phil Potter and Giancarlo Devasini set up Tether Holdings Limited in the British Virgin Islands.

September 8, 2014 — Tether Limited registers in Hong Kong.  

October 6, 2014 — The first tethers are issued, according to the Omni block explorer.

November 20, 2014 — Realcoin rebrands as “Tether” and officially launches in private beta. The company hides its full relationship with Bitfinex. A press release (archive) lists Bitfinex as a “partner.” In explaining the name change, project co-founder Reeve Collins tells CoinDesk the firm wanted to avoid association with altcoins. 

February 25, 2015 Tether begins trading, according to data from CoinMarketCap.

May 18, 2015 — Tether issues 200,000 tethers, bringing the total supply to 450,000.

May 22, 2015 Bitfinex is hit with its first hack. The exchange claims it lost 1,500 bitcoin (worth $400,000 at the time) when its hot wallets are breached. The amount represents 0.05 percent of the company’s total holdings. Bitfinex says it will absorb the losses.  

December 1, 2015 — Tether issues 500,000 USDT, bringing the total supply to roughly 950,000. (The price of bitcoin has remained stable throughout most of 2015, but climbs from $250 in October to about $460 in December.)

June 2, 2016 The U.S. Commodity Futures Trading Commission fines Bitfinex $75,000 for offering illegal off-exchange financed retail commodity transactions in bitcoin and other cryptocurrencies and for failing to register as a Futures Commission Merchant as required by the Commodity Exchange Act. In response, Bitfinex moves its crypto funds from an omnibus account into multisig wallets protected by BitGo.

August 2, 2016 —Bitfinex claims it has been hacked again, when 120,000 bitcoin, worth about $72 million, vanish. This is one of the largest hacks in bitcoin’s history, second only to Mt. Gox. Bitfinex never reveals the full details of the breach.

(Chapter 8 of David Gerard’s book “Attack of the 50-Foot Blockchain” offers an in-depth explanation of the hack.)  

August 6, 2016  This time, Bitfinex is unable to absorb the losses. The exchange announces a 36% haircut for almost all of its customers. It even takes funds from those who were not holding any bitcoin at the time of the hack. In return, customers receive an I.O.U. in the form of BFX tokens, initially valued at $1 each.

August 10, 2016 — Zane Tacket, Bitfinex community director, writes on Reddit (archive) that Bitfinex is offering a bounty of 5% (worth up to $3.6 million) for any information leading to recovery of the stolen funds. Also on this day, Bitfinex resumes trading and withdrawals on its platform after having been shut down for a week after the heist.  

August 17, 2016 Bitfinex announces it is engaging Ledger Labs, the blockchain forensic firm founded by Ethereum creator Vitalik Buterin, to investigate its recent breach. Bitfinex hires Ledger to do a computer security audit, but it leads customers into believing Ledger is going to perform a financial audit as well. A financial audit is key to knowing whether Bitfinex was even solvent at the time of the hack.   

In a blog post (archive) Bitfinex writes:

“We are also in the process of engaging Ledger Labs to perform an audit of our complete balance sheet for both cryptocurrency and fiat assets and liabilities.”  

A footnote added to the blog post on April 5, 2017 makes a correction:

“Ledger Labs has not been engaged to perform a financial audit of Bitfinex. When in initial discussions with Ledger Labs in August 2016, we had initially understood that they could offer this service to us…. We are in the process of engaging a reputable, third party accounting firm to audit our balance sheet, but this continues to take longer than anticipated and than we would want. We apologize for any confusion in this matter.”

October 12, 2016 — Bitfinex tries to reach out to the hacker by offering secure communication channels. In a blog post (archive), titled “Message to the individual responsible for the Bitfinex security incident of August 2, 2016,” Bitfinex writes “We would like to have the opportunity to securely communicate with you. It might be possible to reach a mutually agreeable arrangement in exchange for an enormous bug bounty.” It is not clear why a hacker would be interested in such an offer. 

October 13, 2016 — Bitfinex announces (archive) that its largest BFX token holders have agreed to exchange over 20 million BFX tokens for equity shares of iFinex. You can hardly blame Bitfinex customers for taking the bait. Many have already watched BFX tokens drop far below $1. One Redditor even reported the price dropping to $0.30.

As a way to incentivize BFX holders to convert, Bitfinex creates yet another new token: a tradable Recovery Rights Token (RRT). According to the exchange, if any of the stolen bitcoins are recovered, any excess of funds after all BFX tokens have been redeemed will be distributed to RRT token holders.

The incentive looks like this: If you convert your BFX to iFinex shares before October 7, you get one RRT for each BFX token converted. Convert between October 8 and November 1, and you get half an RRT for each BFX token converted. After that, you get 1/4 of an RRT per BFX token converted. No further RTTs are given after November 30.

December 31, 2016 — In the year 2016, Tether issued 6 million USDT, six times what it issued the prior year. 

March 31, 2017 Wells Fargo cuts off services to Bitfinex and Tether, according to court documents in a lawsuit that Bitfinex later files against the bank. Bitfinex is not a direct customer of Wells Fargo, but rather a customer of four Taiwan-based banks that use Wells Fargo as an intermediate to facilitate wire transfers.  

April 3, 2017 — In a blog post (archive), Bitfinex announces plans to redeem any outstanding BFX tokens. “After these redemptions, no BFX tokens will remain outstanding; they will all be destroyed,” the exchange says.

Meanwhile, Potter reveals in an audio that all of the remaining BFX tokens have been converted to tethers. Effectively, this means that none of the victims of the Bitfinex hack in August 2016 got back any of their original funds. Instead, they were all compensated with BFX tokens, RRT tokens and tethers in a trail of tokens that is difficult to follow. 

April 5, 2017 — Two days after announcing it has “paid off” all its debt to customers, Bitfinex files a lawsuit against Wells Fargo for interrupting its wire transfers. Tether is listed as a plaintiff. In addition to an injunction order, Bitfinex seeks more than $75,000 in damages. (See here for a complete list of documents associated with the lawsuit.)

April 10, 2017 A pseudonymous character known as “Bitfinex’eddebuts online. In a relentless series of tweets, he begins accusing Bitfinex of creating tethers out of thin air to pay off debts. At this point, the number of USDT in circulation is 55 million, and the price of bitcoin has begun a steep ascent that will continue to the end of the year.

April 11, 2017 — Bitfinex withdraws the lawsuit against Wells Fargo. In an audio, Potter admits the lawsuit was frivolous, stating the company was only hoping to “buy time.”

April 17, 2017 — Following a notice about wire delays, Bitfinex announces (archive) it has been shut off by its four main Taiwanese banks: Hwatai Commercial Bank, KGI Bank, First Commercial Bank, and Taishin Bank. Bitfinex is now left to move between a series of banks in other countries without telling its customers where it is keeping its reserves.

In an audio, Bitfinex CSO Phil Potter tries to calm customers by telling them that Bitfinex effectively deals with this sort of thing by setting up shell accounts and tricking banks.

“We’ve had banking hiccups in the past, we’ve just always been able to route around it or deal with it, open up new accounts, or what have you…shift to a new corporate entity, lots of cat and mouse tricks.” 

Around this time, Bitfinex also begins to rely increasingly upon Crypto Capital, a third-party payment processor based in Panama. 

April 24, 2017 — Tether’s dollar peg is maintained via market making and instilling confidence in the value of the coin. Amidst reports that Bitfinex had been cut off from Wells Fargo and shut off from Taiwanese banks, USDT temporarily dips to $0.91.  

May 5, 2017 After finally clarifying (archive) to customers that it only engaged Ledger Labs for a security audit—not a financial audit—Bitfinex hires accounting firm Friedman LLP to complete a comprehensive balance sheet audit. “A third-party audit is important to all Bitfinex stakeholders, and we’re thrilled that Friedman will be helping us achieve this goal,” Bitfinex writes in a blog post (archive).

August 5, 2017 — Bitfinex’ed publishes his first blog post “Meet ‘Spoofy.’ How a Single Entity Dominates the Price of Bitcoin.” The post explains how an illegal form of market manipulation known as spoofing works. In it, a video shows a Bitfinex trader putting up a large order of bitcoin just long enough to push up the price of bitcoin.  

This is not the first time a crypto exchange has manipulated the price of bitcoin. Mt. Gox, the now-defunct Tokyo exchange that handled 70% of all bitcoin transactions before it collapsed in 2014, also manipulated its markets. Former Mt. Gox CEO Mark Karpeles admitted in court to operating a “Willy Bot.” An academic paper titled “The Willy Report” shows how the bots were responsible for much of bitcoin’s 2013 price rise.

September 28, 2017 — Friedman LLP issues a report alleging that Tether’s US dollar balances ($443 million) match the amount of tethers in circulation at the time. Falling short of an audit, the report does not disclose the names or the locations of banks. 

According to the report, “FLLP did not evaluate the terms of the above bank accounts and makes no representations about the Client’s ability to access funds from the accounts or whether the funds are committed for purposes other than Tether token redemptions.”

August 7, 2017 — In a  blog post (archive), Bitfinex announces that over the next 90 days, it will gradually discontinue services to its U.S. customers. Effective almost immediately, U.S. citizens are no longer able to trade Ethereum-based ERC20 tokens, which are commonly associated with initial coin offerings (ICOs).

The news follows regulatory crackdowns in the U.S. (The previous month, the U.S. Securities and Exchange Commission issued an investigative report that deemed that tokens issued by the DAO—an investor-directed fund built on top of Ethereum that crashed spectacularly—were securities.) 

November 7, 2017 Leaked documents dubbed “The Paradise Papers” reveal Bitfinex and Tether are run by the same individuals. Up until now, Tether and Bitfinex insisted the two operations were separate, though they were widely suspected to be the same.

November 19, 2017 Tether is hacked when 31 million tether are moved from the Tether treasury wallet into an unauthorized Bitcoin address. Tether initiates a hard fork to prevent those funds from being spent.

After this hack, Tether notes on its website (archive) that redemption of USDT for real dollars is no longer possible via the Tether website. (It is worth noting that there is no record of anyone having redeemed their USDT for dollars at any point before this either.)

Tether writes:

“Until we are able to migrate to the new platform, the purchase or sale of Tether will not be possible directly through tether.to. For the time being, though, we invite you to use the services of any one of a dozen global exchanges to acquire or dispose of Tethers for either USD or other cryptocurrencies. Such exchanges and other qualified corporate customers can contact Tether directly to arrange for creation and redemption. Sadly, however, we cannot create or redeem tether for any U.S.-based customers at this time.”

November 30, 2017 — Bitfinex hires 5W, a scrappy New-York public relations firm led by Ronn Torossian. 5W promptly issues a press release saying that an “audit” from Friedman LLP is forthcoming. The agency also tells journalists they can view Bitfinex’s bank accounts if they sign an non-disclosure agreement first. No journalist takes the bait.

December 4, 2017 Bitfinex hires law firm Steptoe & Johnson and threatens legal action against critics. The exchange does not specify who exactly those critics are, but the obvious target is Bitfinex’ed, the cynical blogger, who continues to accuse Bitfinex of manipulating markets and printing more tether than it can redeem.

December 6, 2017 The U.S. Commodity and Futures Trading Commission subpoenas Bitfinex and Tether, Bloomberg reports. The actual documents are not made public.   

December 16, 2017 — The price of bitcoin reaches an all-time high of nearly $20,000, marking the end of a spectacular run-up. A year prior, one bitcoin was only $780.

December 21, 2017 Without making any formal announcement, Bitfinex appears to suddenly close all new account registrations. Those trying to register for a new account are asked for a mysterious referral code, but no referral code seems to exist.

December 31, 2017 — In the year 2017, Tether issued roughly 1.4 billion USDT.

January 3, 2018— A change to Tether’s legal terms of service (archive) states: “Beginning on January 1, 2018, Tether Tokens will no longer be issued to U.S. Persons.”

January 12, 2018 After a month of being closed to new registrations, Bitfinex announces it is reopening its doors, but now requires new customers to deposit $10,000 in fiat or crypto before they can trade. Bitfinex does not officially say this, but customers also can no longer make fiat withdrawals of less than $10,000 either. 

January 27, 2018 — Tether parts ways with accounting firm Friedman LLP. There is no official announcement—Friedman simply deletes all mention of Bitfinex from its web site, including past press releases.

A Tether spokesperson tells CoinDesk: “Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame.”  

January 31, 2018 — As the price of bitcoin plummets, tether issuance takes on a rapid, frenzied pace. In January, Tether issues 850 million USDT, more than any single month prior. Of this, roughly 250 million were created during a mid-month bitcoin price crash.

February 2018 — an ex-NFL owner named Reginald Fowler registers a company called Global Trading Solutions LLC. He goes on to set up bank accounts under the company’s name at HSBC. (Pay attention to these names. They are about to become very important.)

March 28, 2018 — Bitfinex weighs a move to Switzerland. Bitfinex CEO Jean-Louis van der Velde tells Swiss news outlet Handelszeitung, “We are looking for a new home for Bitfinex and the parent company iFinex, where we want to merge the operations previously spread over several locations.”

February 20, 2018 — Dutch bank ING confirms Bitfinex has an account there. Two members of parliament in the Netherlands lodge questions for the finance minister after Dutch news site Follow The Money first disclosed the relationship on February 14.

May 23, 2018 — Phil Potter steps down from his role as Bitfinex chief strategy officer. “As Bitfinex pivots away from the U.S., I felt that, as a U.S. person, it was time for me to rethink my position as a member of the executive team,” he says in a statement.

May 24, 2018 — Bloomberg confirms previous speculations that Bitfinex has been banking at Puerto Rico’s Noble Bank since 2017. Tether founder Brock Pierce is a cofounder of Noble Bank, along with John Betts, a former Wall Street executive.

These individuals had past dealings. In 2014, Betts led a group called Sunlot Holdings to try and acquire the failed Mt. Gox exchange. Pierce, along with former FBI director Louis Freeh were also involved in that effort. (Freeh’s name will appear again on this timeline.)

May 24, 2018 — The U.S. Justice Department launches a criminal probe into bitcoin markets. The focus is on practices like spoofing and wash trading, where a trader simultaneously buys and sells assets to increase trading volume. The criminal probe will bring in other agencies, including the CFTC.

June 1, 2018 — Looking to reassure its customers, Bitfinex hires Freeh Sporkin & Sullivan (FSS), a law firm co-founded by Louis Freeh (yes, the same Freeh who held an advisory role at Sunlot Holdings) to confirm that Tether has $2.55 billion in its banks, enough to cover the USDT in circulation at the time.

FSS is not an accounting firm and this is in no way an official audit. Furthermore, there may be a conflict of interest here. Eugene Sullivan, senior partner at FSS, is also an advisor to Noble Bank, where Bitfinex/Tether does its banking.

“The bottom line is an audit cannot be obtained,” Stuart Hoegner, Bitfinex and Tether’s general counsel, tells Bloomberg. “The big four firms are anathema to that level of risk…. We’ve gone for what we think is the next best thing.”

June 25, 2018 — Bolstering suspicions that tether is being used to prop up the price of bitcoin, two researchers—John Griffin and Amin Shams—at the University of Austin, Texas, release a paper titled “Is Bitcoin Really Un-Tethered?” The two write:

“Using algorithms to analyze the blockchain data, we find that purchases with tether are timed following market downturns and result in sizable increases in bitcoin prices.” 

June 27, 2018 — Several Bitfinex customers report delayed and rejected wire deposits. A representative of Bitfinex named “Garbis” takes to Reddit (archive) to explain that the situation was caused by a change in banking relations.

October 1, 2018 — Reports circulate that Noble Bank is up for sale, as a result of having lost several of its big customers, including Bitfinex and Tether. (I don’t know this for sure, but my guess is that Noble’s custodial bank in New York likely told Noble to end its relationship with Bitfinex.)  

October 6, 2018 — According to a report in The Block, Bitfinex appears to be banking at HSBC—a bank that has previously been fined $1.9 billion in 2012 for money laundering—under the shell account “Global Trading Solutions.”  

October 7, 2018 — Bitfinex pushes back on claims that it is insolvent. “Bitfinex is not insolvent, and a constant stream of Medium articles claiming otherwise is not going to change this,” Bitfinex writes in a blog post (archive). As proof, it publishes three bitcoin cold wallet addresses that collectively hold about $1.5 billion in assets.

October 10, 2018 — Four days after reports comes out that Bitfinex is banking at HSBC, Bitfinex temporarily suspends all cash deposits, suggesting that the exchange is once again on the hunt for a new reserve bank.  

October 14, 2018 — Amid concerns over Tether’s solvency and the company’s ability to establish banking relationships, tether’s peg slips again, this time to $0.92, according to CoinMarketCap, which aggregates prices from major exchanges. On a single crypto exchange Kraken, tether momentarily slips to $0.85.  

October 16, 2018 — Tether appears to be holding reserves at Bahamas’ Deltec Bank. According to earlier rumors, the bank account was set up by Daniel Kelman, a crypto lawyer who was actively involved in trying to free the remaining Mt. Gox funds.

Further, Bitfinex appears to be banking through the Bank of Communications under “Prosperity Revenue Merchandising,” a shell company created June 5, 2018. The Hong Kong bank is owned in part by HSBC and uses Citibank as an intermediate to send deposits to Deltec in the Bahamas.

October 24, 2018 — In a blog post (archive), Tether announces it has “redeemed a significant amount of USDT” and will now burn 500 million USDT, representing those redemptions. According to the firm, the remaining 446 million USDT in its treasury will be used as a “preparatory measures for future USDT issuances.”

November 1, 2018 — Tether confirms it is banking with the Deltec in the Bahamas and provides an attestation letter from the bank that the account holds $1.8 billion, enough to cover the amount of tether in circulation at the time. The attestation has a mysterious squiggly signature at the bottom with no name attached to it. 

November 30, 2018 — Recall that in May 2017, the U.S. Department of Justice together with the U.S. Commodity and Exchange Commission (CFTC) began looking into illegal manipulation of bitcoin prices. And then in December 2017, the CFTC subpoenaed both Tether and Bitfinex. Now federal prosecutors have supposedly “homed in on suspicions that a tangled web involving Bitcoin, Tether and crypto exchange Bitfinex might have been used to illegally move prices,” according to Bloomberg

November 27, 2018 — In a blog post (archive), Tether says its customers can once again redeem tether for actual dollars. But again, there are no reports or evidence of anyone having been able to redeem tether ever. 

December, 18, 2018 — Bloomberg reports it has seen Tether bank statements from accounts at Puerto Rico’s Noble Bank and the Bank of Montreal, taken over four separate months. The article suggests that Tether held sufficient dollars to back the tether tokens on the market. But again this is not a real audit. What stands out is that $61 million in the Bank of Montreal is listed under Stuart Hoegner, the firm’s general counsel.

December 31, 2018 — In the year 2018, Tether issued more than 1 billion tether.

January 16, 2019 — Bitfinex opens a data center in Switzerland, according to Swiss news outlet Handelszeitung. The report states that previously, Bitfinex was relying on Amazon cloud servers.

February 25, 2019 — In a blog post (archive), Bitfinex claims the U.S. government has located 27.7 BTC (worth about $100,000) taken from Bitfinex in the August 2016 hack and returned the funds to Bitfinex. The exchange says it has converted those bitcoin into USD and distributed the money to its RRT token holders. What is odd here is that the U.S. Department of Justice hasn’t issued any statement about recovered bitcoin. And Bitfinex doesn’t share a transaction record to show it actually received the recovered funds. 

February 26, 2019 — Tether admits, for the first time, that it is operating a fractional reserve. An update on the company’s website reads:

“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”). Every tether is also 1-to-1 pegged to the dollar, so 1 USD₮ is always valued by Tether at 1 USD.”

Here is what the text read before:

“Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.”

The change is also updated in Tether’s legal section

April 9, 2019 — The $10,000 minimum equity requirement to start trading has been lifted. “We simply could not ignore the increasing level of requests for access to trade on Bitfinex from a wider cohort than our traditional customer base,” CEO Jean-Louis van der Velde says in a blog post (archive). Meanwhile, customers continue to complain that they are unable to get cash off of the exchange. And now some are saying they are having trouble getting their crypto off the exchange as well. 

April 11, 2019 — Bitfinex enables margin trading on tether. Margin pairs include BTC/USDT and ETH/USDT. 

On this same day, Reginald Fowler, an Arizona man, and Ravid Yosef, who lives in Los Angeles and Tel Aviv, are indicted in the US for charges related to bank fraud. The two were allegedly part of a scheme that involved setting up bank accounts under false pretenses to move money on behalf of series of cryptocurrency exchanges. (CoinDesk

April 17, 2019 — Tether goes live on the Tron network as a TRC-20 token, a standard used by the Tron blockchain for implementing tokens, similar to and compatible with Ethereum’s ERC-20 standard. You can view the issuance on Tronscan.

April 24, 2019 — The New York Attorney General’s (NYAG) office sues iFinex, the parent company of Bitfinex and Tether, saying that the company has been commingling client and corporate funds to cover up $850 million in missing funds. 

From 2014 to 2018, Bitfinex placed over $1 billion with Crypto Capital because it was unable to find a reputable bank to work with it. Crypto Capital then either lost, stole, or absconded with $850 million.

In order to fill the gap, Bitfinex dipped into Tether’s reserves for hundreds of millions of dollars. According to the NYAG, “Despite the sheer amount of money it handed over, Bitfinex never signed a contract or other agreement with Crypto Capital.” 

April 26, 2019 — In a response to OAG’s allegations, Bitfinex says the $850 million has not been lost, but rather “seized and safeguarded.” Meanwhile, according to CoinDesk, Zhao Dong, a Bitfinex shareholder, claims that Bitfinex CFO Giancarlo Devasini told him that the exchange just needs a few weeks to unfreeze the funds.

April 30, 2019 — In response to the NYAG’s ex parte order, Tether general counsel Stuart Hoegner files an affidavit accompanied by a motion to vacate from outside counsel Zoe Phillips of Morgan Lewis. Hoegner admits 2.8 billion worth are only 74% backed. Morgan says New York has no jurisdiction over Tether or Bitfinex’s actions. 

On this same day, Reginald Fowler is arrested in Chandler, Arizona.

May 2, 2019 — The U.S. Government wants Fowler held without bail due to flight risk. 

May 3, 2019 — The NYAG files an opposition to Bitfinex’s motion to vacate. Bitfinex follows two days later with a response to the opposition. In the memo, Bitfinex argues that “nothing in the Attorney General’s opposition papers justifies the ex parte order having been issued in the first place.” 

May 8, 2019 — iFinex has a new plan to raise $1 billion: a token sale. The company releases a white paper for a new LEO token. Each token is worth 1 USDT.

On this same day, Reginald Fowler, the man linked to $850 million in missing Bitfinex funds, is out on $5 million bail. He is required to give up his passport. Bail is posted in the Southern District of New York, where he is to appear for arraignment on May 15. His travel is restricted to parts of New York and Arizona. 

May 6, 2019 — New York Supreme Court judge Joel M. Cohen rules that the OAG’s ex parte order should remain in effect, at least in part. However, he thinks the injunction is “amorphous and endless.” He gives the two parties a week to work out a compromise and submit new proposals for what the scope of the injunction should be.

May 13, 2019 — Attorneys for the OAG and iFinex failed to come to a consensus on what Tether should be allowed to do with its holdings. They both submit separate proposals. iFinex is asking for a 45-day limit on the injunction and it wants Tether employees to get paid using Tether’s reserves. The OAG is not opposed to Tether’s employees being paid, but it wants Tether to to pay its employees using transaction fees—not reserves.

May 16, 2019 — Judge Cohen grants Bitfinex’s motion to modify a preliminary injunction. The preliminary injunction is limited to 90 days, and Tether is allowed to use its reserves to pay its employees. The judge holds that the Martin Act “does not provide a roving mandate to regulate commercial activity.” Bitfinex and Tether still have to handover documents that the OAG requested in its November 2018 investigative subpoena

May 21, 2019 — Bitfinex files a motion to dismiss the proceeding brought by the NYAG on the grounds that Bitfinex/Tether do not do business in NY, the Martin Act does not apply to its business and the Martin Act cannot be used to compel a foreign corporation to produce documents stored overseas. Bitfinex and Tether also sought an immediate stay of the NYAG’s document demands.

May 22, 2019 — Judge Joel M. Cohen of the New York Supreme Court grants Bitfinex’s motion for an immediate stay of the document demands. He issues an order requiring the companies to produce only documents relevant to the limited issue of whether there is personal jurisdiction over the companies in New York but staying the document order in all other respects. The NYAG has until July 8 to file a response. And the judge schedules a hearing on the motion to dismiss for July 29.

July 8, 2019 — The NYAG has filed its response

July 22, 2019 — iFinex files court docs arguing once again that Bitfinex/Tether are not doing any business in New York and tether is not a security. (Here is Bitfinex counsel Stuart Hoegner’s affidavit and an accompanying memorandum of law submitted by the company’s outside counsel). It all boils down to “yeah, but, no, but yeah.” 

# # #

I put a lot of work into maintaining this timeline. If you are an investigator or a reporter who has benefited from this work—or just another obsessed Bitfinex follower—please consider making a small donation via Patreon.