Bitfinex and Tether Request Courts Remove NYAG's Restrictions

Tether, Ltd., a Hong Kong-based firm that issues the USDT stablecoin, has asked a US court Judge to be more lenient by allowing it to use its cash reserves - while the New York Attorney General (NYAG) conducts its investigation.

At present, the NYAG is carefully examining the business operations of Tether Ltd. and cryptoasset exchange Bitfinex.

NYAG Is Seeking A 90-Day Injunction

As detailed in court papers, submitted on Monday (May 13th, 2019), the legal representatives of both parties have not been able to decide what Tether’s management should be allowed to do with its cash holdings and other company assets.

The NYAG does not want Tether Ltd. or “any affiliated entity” to use the stablecoin issuer’s funds while US prosecutors are conducting their investigation. The NYAG’s office is also pursuing a 90-day injunction against IFinex, Inc.

Court Order Filed To Prevent Bitfinex, Tether From Doing Business In New York

Meanwhile, the attorneys representing IFinex are seeking a 45-day injunction which includes allowing companies or individuals affiliated with Tether and Bitfinex to be able to redeem USDT.

On April 25th, 2019, the NYAG had issued a press release in which it mentioned that Attorney General Letitia James had obtained a court order against IFinex. The court order was filed in order to prevent both IFinex subsidiaries, Tether and Bitfinex, from operating in the state of New York.

The Office of the Attorney General (OAG) had confirmed that an investigation against IFinex regarding the alleged “fraud being carried out by Bitfinex and Tether” was ongoing. Attorney General James had stated (at that time):

Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.

Tether Ltd. Needs To Use Cash Reserves To Maintain Business Operations

Last week, a New York State Supreme Court Judge had ordered both parties to provide additional information related to the order.

On Monday (May 13th, 2019), attorneys representing IFinex submitted a letter to the court which noted that they would abide by certain changes made to the preliminary injunction. However, IFinex’s attorneys clarified that the would not be waiving their previous motion which involves completely vacating NYAG’s Ex Parte order.

Commenting on the matter, IFinex’s attorneys said: 

If [Tether Ltd.] simply held the proceeds in cash, the company would not earn the money required to fund its operations.

A letter from the OAG noted that “bona fide holders of Tether (USDT) should be able to redeem those tokens for cash, as Tether has long represented to the market...Further, the OAG’s proposed modifications do not restrain Tether from placing the reserves in legitimate interest-bearing or similar cash equivalent accounts, as the OAG understands Tether to have previously done.”

Tether’s Employees Must Not Be Paid With Company’s USDT Reserves

IFinex’s management also believes that there’s no legitimate reason why the NYAG should recommend or prevent Tether holders from redeeming USDT. Notably, IFinex’s legal team claims that NYAG’s statements and recommendations are a “gross overreach” as the OAG is not a regulatory authority.

According to statements issued by the NYAG, Tether’s employees should be paid for work they’ve done. However, the company must not pay salaries by using USDT reserves, the NYAG said.

Bitrue Hacked: $4.5 Million in XRP and ADA Stolen, User Funds Will Be Replaced

At around 17:00 UTC on June 26 or 01:00 on June 27 in Singapore, where digital asset exchange Bitrue is based, a security breach occurred, which resulted in a loss of $4.5 million in crypto from the exchange's hot wallets.

Bitrue, which was founded in 2018, has quickly become a favorite with members of the XRP community because of the high degree of enthusiasm, support, and transparency shown by its management towards XRP. One interesting fact about Bitrue is that it supported XRP as a base currency on the day that its trading platform was launched (19 July 2018). 

At press time (07:57 UTC on June 27), visitors to the Bitrue website are greeted with this message:

Bitrue Hack Announcement.png

Around 02:16 UTC on June 27, Bitrue issued an official statement (via a series of tweets) that explained what exactly had happened, how this impacted its users, and what it was going to do next:

  • At approximately 17:00 UTC on June 26, a hacker or group of hackers "exploited a vulnerability" in the exchange's "Risk Control team's 2nd review process" to "access the personal funds of about 90 Bitrue users."
  • The hackers "used what they learned from this breach" to steal around $4.5 million in crypto—more specifically 9.3 million XRP and 2.5 million Cardano (ADA)—from the exchange's hot wallets and moved these coins to various other exchanges.
  • Shortly after the security breach, this attack was detected and trading, withdrawals, and deposits were all suspended on Bitrue, and the three exchanges where the stolen funds were moved to—Huobi Global, Bittrex, and ChangeNOW—were alerted and asked to freeze "the affected funds and accounts." Bitrue has also "contacted the relevant authorities in Singapore to assist us in tracking down the culprit and retrieving the stolen funds."
  • Because initially it was not quite clear what exactly had happened, the message shown above (about "system maintenance") was posted on the Bitrue website... Bitrue wishes to apologize for "this miscommunication" with its users.
  • Bitrue wants to reassure its users that all "heir personal funds are insured, and anybody affected by this breach will have their funds replaced by us as soon as possible."
  • Bitrue is currently "conducting an emergency inspection of the exchange and hope to be live again as soon as possible with log in & trading functionality." As for withdrawals, they will be "offline for a slightly longer period" while the investigation continues.
  • The flow of stolen XRP can be tracked via the XRP Ledger tool at Bithomp: https://bithomp.com/explorer/rwSvajJ4ZNhjgzcfaJWkEuLh4VURTFHuka

In communication with CryptoGlobe, Bitrue's support team confirmed that:

  • all user funds are "insured up to a maximum value of 1 million USD per user"; and
  • "trading should be back up within a few hours, and at that time users who were affected will already have their lost funds back in their accounts"

A few hours ago, Bitrue CEO Curis Wang posted this message on Twitter:

UPDATE (08:15 on June 27): Bitrue has just released a statement to media outlets to provide further details about this incident:

  • Of the $4.5 million in stolen crypto, 50% was "moved to private wallets," and the other 50% was moved to five crypto exchanges: Huobi, Bittrex, ChangeNOW, Exmo.me, and Coinswitch.co. The first three have frozen the stolen funds that were moved there (worth around $1.35 million). 
  • "This frozen amount should be recoverable by Bitrue in the future after working with the authorities and exchanges."
  • "After recovering the frozen assets, the net loss will be $3.15 million USD." This total "includes $1.89 million USD lost from individual user accounts, and $1.26 million USD lost from Bitrue’s own hot wallet."
  • "The funds lost by user accounts were insured and will be replaced by Bitrue as soon as the exchange resumes service."
  • "Bitrue plans to re-enable log in and trading services by midnight (Singapore time) June 27, i.e. by 16:00 UTC on June 27.
  • "Withdrawals from the exchange will not be possible until the Bitrue team is confident that any security vulnerabilities have been addressed."
  • "Bitrue will continue the planned launch of the trading of their platform token, Bitrue Coin (BTR), on Sunday 30 June 2019."
  • "Bitrue will analyze their automated systems and manual processes to identify any potential vulnerabilities and patch them before they can be exploited."

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