The New York Attorney General (NYAG) recently filed a strongly worded brief to the Supreme Court of the State of New York, arguing in detail why it has authority to investigate Bitfinex and calling their appeal arguments “backward,” “forfeited,” and “meritless.”
Previously, Bitfinex has attempted two failed court appeals to halt the investigation. In the brief, dated Dec. 4, the NYAG highlights a fundamental misconception that pervades the company's appeal arguments—Bitfinex is basing the legitimacy of the investigation upon evidence that the office has not and could not have obtained due to the company's non-cooperation. This is "backward" logic, the regulator states in the brief.
The NYAG first made the allegation in April, when it accused Bitfinex of illicitly using the reserves of the stablecoin Tether—which were meant to be backed one-to-one by U.S. dollars—to fill a financial hole of $850 million.
The proposed transaction caused the NYAG “immediate and serious concern,” the brief says, since it showed that Bitfinex would need hundreds of millions of dollars to continue operating, which was in stark contrast to its public representations to investors. As a result, the NYAG obtained a GBL §354 order against Bitfinex which would prevent Tether from further draining its cash reserves and require owners of Bitfinex to hand in core documents.
However, according to the brief, Bitfinex immediately vacated corporate accounts to avoid complying with the order and have refused to produce any document. Moreover, when the exchange disclosed to the NYAG the proposed transaction in February, it hid the fact that Tether had already transferred $625 million to Bitfinex.
In the Dec. 4 document, the NYAG urged the Supreme Court to stand by its denial of Bitfinex's appeal motions and support investigators with the ongoing case.
"Eight months have now passed since Supreme Court issued the § 354 order, and respondents continue to evade producing the core materials that would establish (or disprove) their liability," the NYAG states. "No principle of law or rule of procedure allows a subject of an investigation to refuse to comply with that investigation in the face of a lawful court order."