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Bitfinex says its so-called “New York customers” are foreign entities

Posted: 23 July 2019 4:45 pm
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One of the reasons Bitfinex left the USA in 2017 was to avoid exactly this kind of headache, it says.

Bitfinex/Tether and the New York Office of the Attorney General (OAG) are currently engaged in a high stakes ping-pong match. Here's a recap of the match so far.

Ping Pong
OAG alleges that Bitfinex misled customers with claims that Tether is fully backed and argued that due to Bitfinex's recalcitrance, it should be ordered to slow its operations. Bitfinex argues that OAG's allegations were misleading and incorrect, said it had been cooperating fully with the OAG investigation and that a slow-down would be unreasonably disruptive to its business.
The umpire (the court) agrees to take some of the bite out of the OAG request. Bitfinex argues that the case should be dismissed on the grounds that it was not serving New York customers and that Tether is not a security or commodity and that therefore the case is not in the OAG's jurisdiction.
OAG counter-argues that the Bitfinex motion to dismiss is just a delay tactic, that Tether is a security and presents documents that allegedly prove that Bitfinex was serving NY customers. Bitfinex argues that the allegedly New York-based customers are now New York-based entities, that Tether is still not a commodity or a security and that many of the examples provided by the OAG fail to connect Bitfinex's services rendered to the crux of OAG's Tether-related allegations.

Allegations

"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 explains.

"Bitfinex and Tether have no ability to control who the shareholders or personnel of ECPs are at any point in time," it adds.

Similarly, the issues at the crux of the ping-pong match – the temporarily mislaid millions that saw Bitfinex allegedly pull a line of credit from Tether's backing – took place outside New York, and any claims of Tether being fully backed were also made by an entity that was not at the time based in New York.

So as the argument runs, if Bitfinex had nothing to do with New York, and its customers were not based in New York, why is the New York OAG involved?

The parties are due back in court on 29 July.

Regulatory headaches

"The Companies [Bitfinex and Tether] were careful... to avoid doing any business with United States customers," Bitfinex says. "One reason was a concern about a highly uncertain regulatory environment, particularly given that entering the US market could open the Companies to regulation by 50 different states with different agendas. This proceeding is a perfect example of what the Companies, at the cost of losing significant potential business, had intentionally tried to avoid."

In its farewell USA announcement, dated August 2017, Bitfinex said as much.

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Disclosure: The author holds BNB and BTC at the time of writing.

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