Two US investors have been able to buy Bitfinex's LEO tokens legally, thanks to the participation of a third-party and a domicile loophole.
Seattle-based Arrington XRP Capital and LA-based Arca both told Coindesk that they had invested in LEO tokens, despite the claim by Bitfinex that it banned trading with US individuals in August 2017 and with US institutional investors a year later.
The legality of the token purchases could prove pivotal to Bitfinex's defense in a lawsuit it is facing from the office of the New York Attorney General (NYAG), which alleges the British Virgin Islands-registered exchange traded in the state for longer than it claimed.
New York Attorney General's Case
The NYAG alleges that Bitfinex used the dollar reserves of its affiliate Tether to fill an $850 million hole in its finances following the launch of the LEO token. The Leo white paper specified that US residents would be banned from participation in the initial exchange offering and from secondary purchase of the tokens over the Bitfinex exchange.
A pillar of Bitfinex's defense is that because it had already stopped trading in New York at the time of the allegations, the NYAG could not claim jurisdiction over the case.
So the revelation that US citizens have been able to legally trade in Bitfinex products could have a bearing on the case.
Arrington and Arca's Loophole
Arrington XRP Capital, although based in Seattle, is registered in the Cayman Islands. Partner Michael Arrington told Coindesk that he purchased the LEO tokens through a third party. He added that he'd tried to buy them direct from Bitfinex, but that it was "strict in not selling to Americans". He added:
We hit a brick wall trying to do it directly.
Meanwhile, Jeff Dorman, chief investment officer at British Virgin Islands-registered Arca, admitted on Twitter this month to purchasing LEO. While Dorman is also a US citizen, he too legally obtained the tokens via a third party, an Arca spokesperson told Coindesk.
Bitfinex Fights Back
On Monday, Bitfinex filed fresh claims that NYAG's allegations contained a "number of inaccurate and misleading assertions".
Stuart Hoegner, general counsel to Bitfinex and Tether filed court papers on Monday stating:
Under Bitfinex’s and Tether’s Terms of Service, Eligible Contract Participants (“ECPs”) that transact with Bitfinex or Tether must be foreign entities. Although those foreign entities may have shareholders or personnel who reside in, or otherwise have contact with, the United States or New York, Bitfinex’s and Tether’s customers are the foreign entities themselves … Bitfinex and Tether do not transact with any New York ECPs.
Hoegner appealed to the court to dismiss the case on the grounds that the NYAG failed to serve mandatory papers to Bitfinex.