Tether launches blistering counterattack on “false” attorney general report
Turns out Tether and Bitfinex have really good lawyers.
Various companies in the cryptocurrency world have suggested that the New York Office of the Attorney General (OAG) has what might be described as an attitude problem.
As Kraken previously said in an open letter to the OAG:
"Whether you think you have us by the balls or not, approaching us with some basic respect and having a conversation is always going to make the interaction smoother and help you get what you want faster than storming in with your 'or else' list of demands."
Tether's lawyers may be harbouring similar thoughts.
Note that references to "Tether" here broadly refer to both Bitfinex and Tether, given that they're being jointly represented and are caught up in this together.
"The OAG obtained the April 24, 2019 Order based on filings that suggested, falsely, a lack of cooperation from Bitfinex and Tether," Tether attorney Jason Weinstein wrote in an affirmation. "The correspondence shows that, in reality, Counsel proactively and voluntarily disclosed the existence of the contemplated loan transaction, and then promptly produced the deal documents after it happened."
It goes into a lot more detail around the exact series of events leading up to that letter than the OAG does.
This is important for two reasons.
First, because the OAG Order is essentially a demand that Tether and Bitfinex hand over a bunch of documents and stop doing what they're doing until the OAG completes its investigation. Needless to say, that would be bad for business. The Order was ordered based on the "fact" that Tether is being super unhelpful and is obviously up to something. So if Tether can prove that it's actually being helpful and cooperative, it's more likely to remain in operation.
Second, because it looks like Tether's attorneys have actually been working really hard to accommodate the OAG demands, only for the OAG to downplay all their efforts and paint them with a lazy, vaguely incompetent brush. So now it's probably at least a little bit personal.
The juicy details
Assuming the Tether response is factually accurate, it looks like the OAG order was definitely a little on the skimpy side, and that Tether has certainly not been as recalcitrant as the OAG made it out to be.
There are three highlights in 2018 worth mentioning.
1. The OAG omits Tether's explanation of different communications platforms
Tether says it explained to the OAG that it might have trouble providing all the communications given "the companies' use of decentralised, encrypted communication platforms and applications, among other more common modes of communication."
You'd think this would be relevant, but it wasn't mentioned in the OAG order at all.
2. Tether explains why it wanted the orders issued by subpoena
Tether says it requested that the OAG's requests for information be issued by subpoena rather than letter "for data and privacy protection reasons," and that it explained this reasoning to the OAG. But the OAG order doesn't mention this, and instead seems to vaguely insinuate that Tether's request for subpoenas was probably some kind of delaying action.
3. The OAG completely leaves out several months of work
A third highlight, and a biggie, is that Tether talks about what happened between December 2018 and February 2019. It's significant given how different each version of events is.
The OAG's version is as follows:
- The OAG handed out the subpoenas in November and Tether quickly coughed up a bunch of documents
- The OAG contacted Tether again on 21 December to request a meeting and a presentation of information
- Tether got back to the OAG, but pushed the meeting all the way back to February
- Absolutely nothing of note happened between December and that next meeting in February
- During the presentation in February, Tether lays bare its struggles with payment providers and other sordid details, including plans for a line of credit from Tether to Bitfinex to help cover the missing $850 million.
But the following is what happened according to Tether:
- The OAG handed out the subpoenas in November and Tether quickly coughed up a bunch of documents
- Tether had a conference call on 13 December in which it requested more specificity from the OAG's requests, and said it aimed to have the answers by 28 December. But during the call, the OAG delayed and said they'd talk about it later, but never did
- Tether coughed up a whole lot more documents on 14 December
- The OAG contacted Tether again on 21 December to request a meeting, but Tether was actually the one who suggested the presentation
- There was a lot of back-and-forth regarding the meeting and presentation over the following week, during which the OAG flip-flopped on what they wanted and when they wanted it
- Throughout the rest of December, through January and right up until that meeting in February, the OAG kept requesting more information, which Tether promptly provided
- During the presentation in February, Tether outlines some tiny issues with payment providers and other fun facts, including plans for a line of credit from Tether to Bitfinex to help cover the missing $850 million.
March was also a busy month.
The OAG side of the story
As the OAG tells it, the attorney general's office kept requesting information from Tether throughout March 2019, which resulted in Tether's lawyers metaphorically putting on a clown show, running around and bumping into each other with comically oversized shoes and honking noses, while making a bunch of half-assed excuses. On the few occasions where Tether's lawyers actually responded to requests for information, those responses either took the form of bad excuses or documents written in crayon on a restaurant place-mat.
"On March 11, 2019, respondents made a production of documents to OAG which primarily consist of, in the words of counsel for Respondents, 'tweets by Bitfinex and blog posts by Bitfinex and Tether,' all of which were already in the public domain," the OAG laments. "On March 19 2019, respondents made a production largely consisting of screenshots and picture files of previously-produced materials, none of which appeared relevant or even responsive to OAG's requests."
According to the OAG, Tether's lawyers failed to respond to requests for information, and provided absolutely no details of any note throughout the month, until 21 March when they disclosed for the first time that the line of credit transaction had already been closed.
The OAG would uncover some more nasty details after that, which was around when the OAG decided it was high time to take this clown car off the road. Then they wrote the order which catapulted all of this into the public eye.
The Tether side of the story
As Tether tells it, the OAG continued with its demands throughout the end of February and March, and Tether did its best to accommodate them. At no point did Tether's attorneys leave the OAG hanging, it maintains.
Some of the specific things Tether did during this period of time, it says, include the following:
- Engaging in a lot of back-and-forth discussions with the OAG and proffering a lot of the information it requested
- Laying out a timeline for presentations to the OAG in April. On 21 March, Tether and the OAG agreed to a presentation date of 8 April
- Explaining on 14 March that the line of credit transaction was expected to close soon and that information about it would be provided to the OAG in due course
- Responding to and correcting a letter from the OAG to Tether, which it says contained many false assertions. The OAG did not mention the existence of this letter
Tether kept providing information and making presentations to the OAG throughout March and April, it says, right up until the OAG's order suddenly arrived without warning.
The next date to watch: 6 May
The report detailed above, which highlights the discrepancies in the OAG report, is just one front of Tether's blistering counterattack against the OAG.
At the same time, Bitfinex general counsel Stuart Hoegner filed an affidavit which argued that the OAG had not successfully shown that Tether holders or Bitfinex users are at risk, and that it would need to present further documentation if it wanted to maintain its order.
And another lawyer for Tether, Zoe Phillips, pointed out that even with Bitfinex drawing a line of credit from Tether, it's still 74% collateralised and Tether holders are not at risk.
"Even if Bitfinex fully draws on the remaining amount of the line of credit, the reserves will still be just below $2 billion, representing approximately 68% percent of the current outstanding tethers," she notes.
And that's just Tether's liquid cash reserves. Once you add in its non-cash reserves, it still has more than enough to back every Tether in existence.
This counterattack has seen the New York Supreme Court order the OAG to demonstrate why its order should not be cancelled. This demonstration is due for 6 May. By then, it's probably going to be much clearer which way this entire Bitfinex and Tether affair will swing. That said, it seems to be going pretty well for Tether and Bitfinex so far. A multi-billion dollar company can afford some pretty good lawyers, it turns out.
Update 6 May: The New York Supreme Court has given both parties a week to try to hammer out a mutually acceptable revision. It's no clearer which way this entire Bitfinex and Tether affair will swing.
It may be yet another case of the OAG assuming the worst first and investigating later. Of course, in this case, everyone kind of assumed the worst of Tether and Bitfinex.
It's funny how every day that passes leaves some of the dodgiest-looking companies in crypto smelling more and more like roses.
Disclosure: The author holds BTC at the time of writing.