Bitfinex Loses Appeal must stand trial over misusing $850 million user funds

The Martin Act authorizes the Attorney General to investigate securities or commodities fraud (as those terms are defined by the Act) “within or from” New York.

By · Jul 10, 2020 . 9min read

Bitfinex, a cryptocurrency exchange loses an appeal it instituted to shield itself against trial by New York Attorney General’s office (NYAG) accusing Bitfinex of misusing $850 million user funds on its exchange.

It had filed a motion against NYAG challenging it over its jurisdictional powers of prosecuting it by since it is headquartered in Hong Kong but registered in the British Virgin Islands.

New York’s Supreme Court ruled against its appeal in its’ judgement dated 9th July 2020. This is a massive blow to the tethered series of events the Tether issuer faces.

NYAG, the petitioner against Bitfinex began its investigation as a result of her concern that Bitfinex lacked sufficient liquidity to permit customers to redeem tether at the represented value in November 2018.

With Bitfinex seeing it stood no chance it sought to dismiss the case entirely based on the NYAG lacking in Jurisdiction to prosecute the case.

By April 30, 2019, Bitfinex had filed to modify or vacate the ex parte order. But the Supreme Court denied the motion by order entered on August 19, 2019, which the former appeal.

Bitfinex argues that the Supreme Court lacked specific personal jurisdiction over them. Because NYAG failed to demonstrate a sufficient connection between its activity in New York and the activities she is investigating.

Many would argue Bitfinex ‘s attempt to nudge with NYAG’s office is just foolhardy bravery, especially with the heavy laurels NYAG has under its belt in matters like this.

Series of Ironclad Evidence Even Bitfinex Cannot Deny

According to documents obtained the NYAG’s office,

iFinex is the legal name it uses to operate Bitfinex as its trading platform. It admits that it permitted New York-based customers to trade tether on the Bitfinex platform until January 30, 2017. Respondent Tether Holdings did not expressly prohibit redemption of tether by New York-based customers until November 27, 2018.

Bitfinex continued to allow New York-based customers to trade tether on its platform as recently as May 14, 2019. Clearly in violation of the ex parts order filed by the petitioner.

It also does not deny its former executive lived and conducted business on its behalf while living in New York. This, until at least early 2018.

Supreme Court Cites Several Precedents backing NYAG’s Position

The Supreme Court receiving Bitfinex’s appeal challenging its position against the NYAG’s jurisdictional reach cites relevant judicial precedents.

“proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted”

(Deutsche Bank Sec., Inc. v Montana Bd. of Invs., 7 NY3d 65, 71 [2006]

This is just one of them, it continued;

It is “rare” for personal jurisdiction to be
permitted under the long-arm statute and prohibited by due process considerations

(Rushaid v Pictet & Cie., 28 NY3d 316, 331
[2016]

The Supreme Court solidified the petitioner’s claim another citing notable precedent. Due to NYAG’s claim that Bitfinex lacked sufficient liquidity to permit customers to redeem tether it could well act;

Moreover, “[w]here the purpose of the proceeding is to protect the citizens of the State from potentially dangerous consequences, less is required
than might otherwise be the case

(Matter of La Belle Creole Intl., S. A. v Attorney-General of the State of N.Y., 10 NY2d 192, 198 [1961])

Ruling on its verdict, the court stated that

“Petitioner may properly investigate a foreign entity
if she “has a reasonable basis for believing that [it] has violated a New York statute” as The Martin Act authorizes the Attorney General to investigate securities or commodities fraud (as those terms are defined by the Act) “within or from” New York.

All these are against the backdrop of Bitfinex hack of 2017. It may have unofficially continued to move against the hacker(s) especially with the latest revelation of 39 ethereum addressed banned from transferring Tether which was widely rumoured to be an inhouse job.

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