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Bitfinex against America

This is the English translation of the Italian article written by Alberto de Luigi about Bifinex and the Tether situation.


Year 1921, State of New York. After the First World War, the Big Apple is now a financial capital of the world, able to contend for the primacy of London. In 1913 the Federal Reserve was born and began to print money. If previous years, alternated years of inflation and deflation, with an almost stable value of the dollar, during the war the annual rate of inflation of the dollar travelled galloping at 15 – 17%. To protect itself from inflation, to progress and to change social customs, investments and speculation in the stock and bond market became a common practice, a mass phenomenon.

The speculative wave brings with it even the baddest examples and public opinion, in a society now fickle to the media turmoil, is easily impressed by news of scams, ponzi schemes and financial cheats, so much so that it now seems incumbent on all institutions to remedy. It is said that there are “hustlers who would sell shares of the blue sky if they could”: people who would sell shares of the blue sky, if only they could. But scams and media resonance are not the only elements that push institutions to intervene: smaller bankers start lobbying, because they fear that current account holders will move more and more of their money from bank accounts to financial markets.

Thus, the so-called “blue-sky law”, laws that give exceptional powers to the Attorney General, with the aim of fighting fraud on financial activities, are spreading in various American states. It was 1921 and the Martin Act was enacted in the State of New York.

At first, the Martin Act was a milder law than other American blue-sky laws, but over the years it began to have more aggressive applications, especially thanks to the interpretations of the Supreme Court of 1926. It thus became an increasingly powerful weapon in the hands of the General Attorney of New York, turning into what has been called “the worst law in America”, at least according to the paper of the Wall Street Journal entitled, precisely, “The Worst Law in America”.[1]

There is so much nonsense about the Martin Act. These include the fact that in order to prosecute, the prosecutor does not need to prove that there is fraudulent intent, nor does it need to prove that there is actual fraudulent trading or damage resulting from fraud. Nor does it have to prove the existence of a “probable cause”, nor does it have to provide any details of the investigation (the rationale for such confidentiality would be to avoid reactions from the markets).

In short, the prosecution has carte blanche to operate “so far as possible”, as long as it adheres to its “beneficial purpose” in combating possible fraud, with an instrument at the limit of what can be considered constitutional. The prosecutor can launch a subpoena to force witnesses to testify and provide documents useful for the investigation and, with the Martin act, his decision to conduct the investigation cannot be reviewed by a court.

It should be noted that the General Attorney is an elective office, therefore a political office, selected by popular vote. Since January 1, 2019, Letitia James, an African-American militant in the Democratic Party, has been in office, elected with three million and 700 thousand votes. Keep this person in mind, as we will talk about this shortly. It is she who today is responsible for the management of a power as great as that provided by the Martin act.

For at least 75 years, this formidable and dangerous weapon of the American regulator has been buried and forgotten. However, the financial crisis of 2008 was an excellent pretext to awaken the sleeping beast and for the general attorneys of New York it has become almost a fashion to use it in the last decade, perhaps also because of the personal advantages that, in some cases, they have been able to obtain thanks to it. According to a Bloomberg article, by applying the Martin Act, the New York Public Prosecutor’s Office gained considerable visibility by imposing fines of – literally – billions of dollars, hitting various Wall Street companies in cases where other regulators had their hands tied.[2]

The general attorneys who have been in charge of the prosecution over the years have gone a little too far, abusing the Martin act for any purpose, even to investigate climate change: even, was launched a subpoena to Exxon Mobile, which was required a series of documents from the ’70s, to try to understand if the company had tried to hide the negative impacts of the oil business on “climate change”. As far as Letitia James is concerned, among the investigations in which she has been protagonist there are:

  • the big pharma selling opiates
  • Facebook and the privacy issue on the social network
  • The National Rifle Association, the American weapons lobby.
  • Donald Trump, whom you call “illegitimate president”.

In short, it would seem that some investigations are guided by a strong political motivation, rather than a legal one. According to articles by Bloomberg and Overlawyered, the investigations were used by prosecutors for their media resonance, with the aim of winning elections to government offices: “[They] call the law a license to extract huge payments from companies to glorify politicians and help ambitious attorneys general win election to higher office”[4].

This long introduction to the Martin act will come in handy shortly, but let’s get to the present day. For some time now, the New York Public Prosecutor’s Office has been targeting the world of cryptocurrency. Eric Schneiderman, who is, to be clear, the one from the subpoena to Exxon Mobile on climate change, launched the subpoena to Bitfinex in November 2018, about which my readers are already well informed.[5]

It must be said that the State of New York has proved totally hostile to the crypto world on several occasions. In August 2015, BitLicense came into effect, which involved the “Great Bitcoin Exodus”: we talk about “exodus” because few companies were willing to operate in New York paying between 50 and 100 thousand dollars necessary to obtain such a license. Above all, however, what discouraged companies was the obligation to provide the regulator with an incredible amount of sensitive data about their business and their customers that the license requires.

So Bitfinex, Kraken, LocalBitcoins, Poloniex, Genesis Mining and many other companies have stopped operating in the State. Ripple (which is a company, just to name a few), Coinbase, Xapo and Bitpay have all remained in the state by purchasing the license.[6]

By 2016 Bitfinex had already been fined by the Commodity Futures Trading Commission because the platform grants, according to American laws, too much freedom in margin trading. Those who know and practice leveraged trading will understand the futility and hassle of laws such as these applied by the CFTC. They seem made to beat cash, or for the sole purpose of showing that they are the authority, which can arbitrarily restrict your freedoms. After all, let’s face it, you can lose everything you invested even with the regulator as your nanny to limit margins.

Against the Bitcoin ecosystem, regulators and prosecutors are relentless: in 2018, former prosecutor Schneiderman investigated at least 13 major exchanges, including Coinbase, Bitfinex, Gemini and Kraken, presenting each company with a list of questions in 34 points, to be completed and delivered within 2 weeks.[7]

While some companies, including Bitfinex, were more accommodating, Jesse Powell of Kraken, tired of wasting time, money and having to change the roadmap of his business because he was too busy filling out long questionnaires that seem like an interrogation, decided to answer with the middle finger to the request: “the prosecutor shows to be completely disconnected from reality […] we made the wise decision to leave New York 3 years ago […] go and ask for information from companies operating in his state. The questionnaire we received today proves that New York is not only hostile to crypto, but is hostile to business in general”.

But why this new Manichean trend against cryptocurrency? These benign bureaucrats are puppets in search of consensus of voters and their superiors, they play on the emotional wave of the masses, they demand the lights of the limelight and slavishly follow a sovereign morality that makes coercive violence a standard in their modus operandi. And what could be easier for a prosecutor who wants to make a career, than to strike at the heart of the emerging ecosystem in Bitcoin, to attack the “corrupt” world of cryptocurrencies, useful only for money laundering, for wild speculation, or to finance black hacker organizations and “terrorists” like Wikileaks?

After all, the reasons for this hostility are not very different from those we see in the fury towards two famous characters, somehow linked to the Bitcoin world: Ross Ulbricht, of whom I wrote here [8] and Julian Assange, of whom I think I still wrote too little. Prejudices, a hypocritical and respectful morality and a lot, a lot of ignorance.

Bitcoin exchanges are the perfect scapegoat for all the evils of civilization: fragile, poorly structured, sometimes naive, but always involved in affairs. If you trample on them no one complains about their rights, let alone those of their users, all speculators and evaders. Stories of money laundering and links with drugs foment the prejudice of our benign friends, and the recent words of the great scholar Joseph Stiglitz are the most naive incarnation: “we should shut down the cryptocurrencies”.

Above all, however, it is convenient to hunt down the prey in this last period, since something very disturbing is actually happening between some Bitcoin exchanges, for months now…


In January 2019, Zerononcense, the search and consulting portal for bitcoins and blockchain, launched an alarm: the black swan is lurking.[9] Some exchanges seem to be insolvent, but they are not “exit scams” or localized scams. It’s something structural, something deeper.


Coinapult is a little-known exchange, but founded by Erik Vorhees of Shapeshift and launched with the collection of $ 750,000 thanks to the promotion of Roger Ver. For months, users of Coinapult complain that their funds are blocked.[10]

On 10 December 2018 a message appears on the home page of the exchange, informing users that some services are “temporarily” suspended and withdrawals may take longer than usual to be executed.

The payment processor Coinapult relies on, is the Panamanian company Crypto Capital.


Coinapult is not an isolated case, similar fate is for the exchange CEX.io. Users of the platform are starting to experience problems with withdrawals as early as April and May 2018. There are also numerous complaints about twitter and reddit. For example, this user[11] waited 44 days to withdraw $34,000. The company justified itself by saying that it had found “difficulties in making transactions in dollars because of the unsatisfactory service of its payment processor, which has violated contractual terms and guarantees”.

Once again, CEX.io’s payment processor is the Panamanian company Crypto Capital.

The story of QuadrigaCX is more turbulent, but it’s so theatrical that it’s worth telling it in every act, even at the risk of wandering a bit from the goal of this article. The owner of the exchange, Gerald Cotten, has gone on to the news all over the world because in December last year he was “dead”, taking 25,000 Bitcoins to the tomb of which only he knew the private keys. But the real story behind this matter is even more incredible.

QuadrigaCX relied on payment processor Costodian Inc. (http://costodian.com/), which operated with a bank account at the Canadian Imperial Bank of Commerce (CIBC). However, this bank has doubts about the activities of the payment processor and fears money laundering, so it freezes the funds of Costodian Inc. and the owner Jose Reyes, explaining that before releasing them it needs to understand exactly who the money belongs to, whether to Jose and his company, or to QuadrigaCX, or to some customers of one or the other service.

The frozen funds are 28 million Canadian dollars (22 million US dollars) and of these, QuadrigaCX claims ownership of at least 16.3 million US dollars, so it tries to recover them and have them released through legal action. After about 10 months of investigation, on November 9, 2018, the Ontario Supreme Court ruled that it was not possible to establish the ownership of those funds, which are then seized and become the property of the Court itself. [12]

To this day, that money is not yet unlocked. But the good thing is yet to come. During 2018 QuadrigaCX continues to operate, but being now Costodian Inc. inaccessible, it relies, yes, to Crypto Capital.

As a Quadriga executive will admit ex post when publishing on Reddit in January, since November 2018 the exchange has had liquidity problems, but not so much because of the funds blocked by the Supreme Court, but because of Crypto Capital, so they are forced to remove Crypto Capital’s channels from the modalities of deposits and withdrawals[13]:

Watch out now for the steps

  • On November 9 the Supreme Court declared that it is impossible to determine whose money is in the bank. We do not know, in short, if they are of QuadrigaCX, its users, Costodian or who else
  • QuadrigaCX experienced deposit and withdrawal problems during the month due to Crypto Capital
  • On 27 November, Gerald Cotten made his will. He leaves almost everything to his wife, who he had only married the month before. Among the inherited goods, there is also a lexus from 2017, an airplane and a yacht. But the will[14] is so detailed that it also includes $100,000 left in a trust to take care of his beloved Chihuahuas, Nitros and Gullys.[15]
  • On December 9, 12 days after the drawing up of the will, Gerald Cotten “died” in India.

According to the chronicles, no other employee of the exchange knew the private keys, so with Cotten would be lost about 26,500 bitcoins (plus other minor crypto currencies) belonging to about 90,000 customers of QuadrigaCX. In fact, according to the analysis of transactions on blockchain made by ZeroNoncense, there were less than 1000 btc in the coffers of the exchange. So why are we talking about 25 thousand? So where did all the users’ money go? Are they in bitcoins or dollars? Are they frozen and in the hands of the Supreme Court? Did Crypto capital have them, or did Nitro and Gully eat them?

The causes of death would be complications due to Chron’s disease. It is said that the man really died and that the body was taken to Canada, but this epilogue did not convince everyone. The Times of India reports that in that region there are many cases of false death certificates. In one month, six manufacturers of fake certificates have been arrested in India. If the good Gerald was so scrupulous, or if he really felt that he should die soon after, one might wonder why drawing up such a detailed will even for the beloved Chihuahuas, completely forgetting the private keys of the bitcoins, whose safe management should have been his main occupation at a professional level.

In short: what happened at Cotten’s is hard to say, but what’s certain is that Crypto Capital contributed to the already big problems of the exchange, which now went bankrupt due to insolvency.


In 2018 (the screenshot dates back to 28 January) the page on the Crypto Capital website about the partners counted many exchanges. However, we have seen that QuadrigaCX, Coinapult and CEX.io have suspended their services. Three other exchanges, Bitfinex, Chip Chap and BTCC left Crypto Capital and were removed from the page (in the screenshot below, I marked them with an orange cross). Evidently they all had problems with the payment processor. Of those left on the current page, three no longer operate or do not offer deposit/withdrawal services (the aforementioned CEX, Quadriga and Coinapult, reported with broken piggy bank). Of all Cryptocapital’s customers, only EXMO seems to remain. See the situation today: https://cryptocapital.co/#EXCHANGES


EXMO is not a particularly well known exchange in the news and does not seem to have had any significant problems. The only important news was the kidnapping, in 2017, of Pavel Lerner, manager of the exchange, which at that time had about 100,000 active traders. Pavel was kidnapped in Kiev by a group of men with balaclavas as he left his office. After paying a million dollar bitcoin ransom, he was freed by the kidnappers on a highway. The story does not seem to have had any repercussions on the exchange, of which it seems that Pavel did not have any personal key to access the funds.

The company recently confirmed to me that it is still possible to use the Crypto Capital channel, even though the site shows other channels for depositing and withdrawing funds, so they are likely to use mainly alternatives. I doubt that, being a small and uncrowded exchange, they have not yet noticed the problems of Crypto Capital. Or, since EXMO mainly serves customers in Eastern Europe, Crypto Capital could rely on banks with which it still manages to operate.

exmo still accepts crypto capital?

At this point of the investigation, it is now clear that there is something rotten with Crypto Capital and that it is transversal to many services, the analysis of Zerononcense was correct.

But why did all these exchanges rely on Crypto Capital? What company is it and what went wrong? Crypto Capital, originally a Panamanian company, ceased to be such in June 2018, when it moved to Zurich, under the new name of Global Trade Solutions AG, authorized by Finma Switzerland to operate as a money service operator https://www.arif.ch/Members-list.

This company has a bank account in the large British bank HSBC, while the subsidiary Global Trading Solutions LLC also has accounts in Citibank, Enterprise Bank & Trust and Wells Fargo. But there are at least 5 other companies belonging to the same group operating in Poland, Portugal and Germany. So how can we blame an exchange for finally finding a payment processor authorized to operate by the institutions, which is crypto-friendly and has so many connections and banking channels around the world? It really seems the paradise of crypto-addicts. Kraken and Binance have also been using Crypto Capital for a short time.

However, it is at least since January 2018 that something is wrong. In the Netherlands, for example, the company has an account with ING Bank. The account is frozen in January 2018, but Crypto Capital manages to unblock the funds 112 days later. Maybe it’s just a coincidence, but during 2018 the Dutch bank ING is not doing well, in September it pays a fine of 775 million euros for failure to take measures against money laundering and corruption, and in October Bankitalia prohibits ING to open new bank accounts in our country.

Then in March the news from Poland, where Crypto Capital has two subsidiaries. 1.27 billion dollars are seized by the authorities. At the time there was still no formal accusation by the authorities, but it was already known that the Polish magistrates were waiting for directions from Europol and Interpol, demonstrating that the investigation was on an international scale. Some articles talk about money laundering and criminal activities, perhaps even linked to the Colombian drug cartel. There is no evidence of this connection, but a little folklore never hurts the newspapers. According to some reports, some of the money was linked to people whose names appeared on Panama Papers, i.e. in the documents of the tax havens made available after the leakage of data from Mossack Fonseca’s tax and legal office, by Panama. In the crypto world the news of the seizure in Poland has a certain resonance, given that over 300 million (between 340 and 371) of the funds seized at the two Polish subsidiaries of Crypto Capital actually belong to Bitfinex customers, who have deposited there their funds to operate on the exchange.

Then came Crypto Capital’s account in HSBC in England, closed for fraud and money laundering in October 2018. Again, the news is linked to Bitfinex, although formally HSBC is not a bank of Bitfinex and has no agreement with the exchange. Bitfinex is however the most visible simply because it is the largest of Crypto Capital’s clients, being the first to trade Bitcoin for the dollar.

Looking at the various companies in the group, it seems that no one has been spared.

  • Haparc B.V, Netherlands – Bank ING (frozen in January 2018, funds returned 112 days later)
  • Crypto SP z.o.o, Poland – Bank Spółdzielczy w Skierniewicach (seizure in March 2018)
  • iTran SP z.o.o, Poland – Bank Zachodni WBK (seizure in March 2018)
  • Global Trading Solutions LLC, United States – US Bank (closed)
  • Global Trade Solutions A.G., Switzerland – Caixa Geral De Depositos, Portugal (closed)
  • Global Trade Solutions GmbH, Germany – Deutsche Bank Privat Und Geschaeftskunden AG (?)

Is the German account the last to close, which is why EXMO is still operating through Crypto Capital? We will find out, but certainly, if it is still operational, it still has the days numbered.

In fact, on 4 May, a few days ago, we reached the end of this story: two arrest warrants for the African-American Reginald Fowler and the woman Ravid Yosef. Fowler was a professional American football player, now co-owner of the Minnesota Vikings team. He also owned Spiral Inc. (bankrupt), the OEM Logistics company, as well as many of the Crypto Capital group companies mentioned above. Ravid Yosef is a Los Angeles-based blogger and relationship coach who settled in Tel Aviv and, according to chronicles, found the love of her life in a bar (a handsome black guy) while on her first date with a guy (yes, another guy) she met on Tinder. This is certainly an indispensable detail in our story.

Fowler is now under arrest, the beautiful lady instead… fugitive.

The Crypto Capital investigation was conducted by the Southern District of New York (SDNY) and apparently the prosecutor’s office has the whole crypto world in its sights, suspicious of any activity and service in crypto currencies, not just those related to Crypto Capital. The American authorities have, so to speak, the “easy kidnapping”, in spite of our financial freedom. Because after all, all the money blocked in the various accounts is not so much of Fowler and partner, but of unsuspecting exchanges and ordinary users, like us, even more unsuspecting. It is no coincidence that in the last month Bitcoin has grown by 15%: if the dollars are not safe, better to convert to bitcoin!

It’s impressive how easily Americans can cross the border and dictate the law outside their perimeter. This is not just about the crypto world. For example, at the end of April this year, after six years of investigations by the New York Department of Financial Services and other American authorities, Unicredit agreed to pay a $1.3 billion fine. The accusation is that of transactions with countries such as Iran, Libya, Syria, Cuba, Myanmar and Sudan, against which the United States has launched (often unilaterally) an embargo. It is surprising and disturbing that an embargo issued by a foreign country can dictate the law on what private companies in other countries may or may not do. And Unicredit is by no means the only case, as many as 15 European banks have paid more than $19.5 billion for violating US embargoes and sanctions against various countries. For example, BNP Paribas paid $9 billion in 2014. The list of other banks fined by the US authorities is incredibly extensive, including HSBC, ING or Barclays (Coinbase’s support bank)[16]


And to finish, we come to the most important part of this story, the one that involves us closely, given that many bitcoiners have an account on Bitfinex. The current Attorney General of New York Letitia James still hurls against the company, but in the absence of evidence or “probable causes”, what can she do to pursue the exchange? In the witch hunt, an even older law of mccarthyism comes back comfortably: the notorious Martin Act. In the absence of any evidence, the prosecution cannot report a crime, so the indictment of 24 April is formally a preliminary injunction[17] that exploits the law of 1921.

With this act, the Department of Justice requires Bitfinex to provide a series of documents relating to customers, transactions, accounts, tax documents, etc. and requires Bitfinex to identify every citizen of the State of New York using the platform. Finally, it orders the exchange to terminate the “alleged fraudulent practices”, which are only alleged, precisely in the absence of evidence. The mere possibility seems sufficient, for the power of attorney, in order to issue an order of this kind, with a potentially disruptive impact on the company itself, its reputation, but also the markets. All this without even first contacting the company privately: “without notice or a hearing”, as Bitfinex complains in the public response announcement. The justification for such an immediate injunction would be, according to the prosecution, the fact that a potential “dissipation of assets” by Bitfinex or Tether would make an ex post refund impossible if the fraud was actually verified.

The real accusation launched against Bitfinex is the fact that it has covered, with 700 million dollars in Tether’s assets, an “apparent” loss of 850 million dollars that iFinex is trying to hide from shareholders and customers, and for which it finds itself in difficulty in covering users’ withdrawals.

“Bitfinex … engaged in a cover-up to hide the apparent loss of $850 million dollars”.

The power of attorney says that Bitfinex fails to recover those funds from Crypto Capital, the payment processor it relies on. In the files of the power of attorney appear the chats, dating back to August 2018, in which Giancarlo Devasini (with the account “Merlin”) puts pressure on an executive of Crypto Capital, saying that if they do not unblock the funds you risk the systemic disaster: “bitcoin could collapse below a thousand dollars if we do not act quickly […] is there no way to move at least 100 million? We’re getting a lot of withdrawal requests and we won’t be able to deal with them if we can’t get some money out of Crypto Capital.

-Merlin, 15.08.2018 10:01:

I need to provide customers with precise answers at this point, can’t just kick the can a little more

-Merlin, 15.08.2018 10:02:

Please understand all this could be extremely dangerous for everybody, the entire crypto community

-Merlin, 15.08.2018 11:03:

BTC could tank to below 1k if we don’t act quickly

-Merlin, 15.08.2018 11:46:

Hey Oz, sorry to bother you every day, is there any way to move at least 100M … ? We are seeing massive withdrawals and we are not able to face them anymore unless we can transfer some money out of Crypto Capital.

Despite everything, Bitfinex somehow manages to save the face (and avoid further dumping of the price of Bitcoin and a systemic crisis, in full bear market) by responding to the needs of users through the execution of 700 transfers for more than a billion dollars in October 2018 alone. These withdrawals were made by large investors, given the size of the amounts for an average of one and a half million dollars per transfer

In November 2018, however, Bitfinex faces a new wave of wire transfers and Crypto Capital is still reluctant. The money isn’t there and Devasini is on a rampage, writing to the executive of Crypto Capital: “You have to tell me the truth about what’s going on. I’m here to help you and I’ve been patient so far, but you have to stop the bullshit and tell me what the fuck is going on”.

-Merlin, 28.11.2018 10:55:

I think you should stop playing and tell me the truth about what is going on

-Merlin, 28.11.2018 10:56

I am not your enemy, I am here to help you and have been very patient so far, but you need to cut the crap and tell me what is going on

Bitfinex claims to have provided these chats to the prosecution with a view to maximum collaboration, since there is nothing to hide. A “kindness” that perhaps has turned against him. They did not expect the preliminary injunction of April 24, made without notice. Perhaps the “middle finger” strategy chosen by Kraken would have been better?

Meanwhile, since October 2018 Bitfinex has been switching to legal action, trying to bypass Crypto Capital, which is evidently unable to return the funds (and now we know well why), and trying to recover money directly from the banks in which they are located.

As we’ll see, Bitfinex has good reasons to get rid of the prosecution’s accusations, which have been highlighted very well in the lawyers’ response to the accusation (see below). Before seeing such an answer, however, it is good to clarify what is the patrimonial situation of Tether and Bitfinex.

In my previous article I explained how any clue suggested that Tether was actually covered 100% by U.S. dollars, contrary to what the detractors suggest. Our history at that time stopped shortly after the abandonment of banks in Taiwan and Wells Fargo, explaining how Bitfinex had deposited billions of dollars of cash in the coffers of Noble bank which, thanks to the new customer Bitfinex, closes the year 2017 with a balance of 3.3 billion dollars, while the previous year kept only 191 million. Since June last year, however, many things have changed.

As we have seen from the chats, the problems with Crypto Capital start. And even Noble bank is not adequate to process the incredible amount of payments required by a reality like Bitfinex. So Tether moves $1.8 billion to Deltec Bank & Trust Limited, in the Bahamas, the new partner of the cryptocurrency giant, which remains its main bank to this day. The news is public on November 1, 2018 and from November 27, 2018 it reopens to account verification without relying on third-party payment processors, as was Crypto Capital.

Meanwhile, Bitfinex learns that the accounts of Crypto Capital in Portugal, Poland and the UK are congealed by various European magistrates. The management of Bitfinex is unaware of the reasons for these seizures, even if the suspicion falls to the US authorities. The company is still moving through legal channels with the aim of releasing the money, which is now 850 million dollars and the exchange starts to be seriously short of money. A countermeasure at this point is necessary.

Suspending the withdrawals and publicly declaring to the world that it had a temporary hole of 850 million dollars in these circumstances would have been suicide. First of all, because the money in the banks could be returned at any moment and the exchange could be given liquidity again. It would be an incredible auto goal to announce that you are momentarily insolvent, when the next day the situation could be resolved. Holding on and waiting for the funds to be returned seems more sensible, also because it had already happened that the funds were being returned, as in the case of the Dutch subsidiary of Crypto Capital, whose funds were released after 112 days. Above all, however, with all the detractors and the F.U.D. of those who have been hurling themselves against Bitfinex daily for years, publicly declaring the solvency problems would sound like an unconditional surrender to all the rumors, probably triggering a massive bank run by users, worsening the situation even more.

The management of the exchange decides to take several measures:

Tether lends money to Bitfinex

In November, Tether transferred 625 million to Bitfinex to handle the withdrawals. The transfer takes place between Tether’s account at Deltec bank and Bitfinex’s account at the same bank. On the other hand, Bitfinex moves from its Crypto Capital 625 million account (otherwise unusable) to Tether’s Crypto Capital account. In a nutshell, Tether passes “good” dollars and takes “momentarily bad” dollars, the latter being hardly available because in Crypto Capital’s channels. However, this measure is only temporary, in the hope that the situation will be quickly unblocked and the funds released. But that’s not the case, so the two companies are doing behind the scenes and decide that a more structural solution is needed.

Thus, on March 19, 2019, iFinex obtained a $900 million Tether credit line with a 3-year maturity. In return, it secured 60 million shares in iFinex Inc. These shares actually belong to DigFinex, the holding company that owns both Tether and iFinex, but by contract DigFinex decides not to dispose of them, thus allowing the transaction. This line of credit is now occupied for 750 million, so Bitfinex could still draw for another 150 million if the power of attorney order were revoked by Judge Cohen of the American Supreme Court (to which Bitfinex has appealed), which will rule on Monday, May 13.

The lack of transparency towards shareholders and clients of the platform with respect to this last transaction is precisely what the New York Public Prosecutor’s Office accuses in its preliminary injunction of 24 April. However, the reasons why this action was carried out without public communication are clear: as mentioned earlier, declaring a temporary hole of 850 million could have been a suicidal move.

Diversification of risk by investing in securities

After years of struggling in a vain attempt to find a safe haven for its customers’ money, it is clear to Tether/BItfinex that banks can be extremely fragile. Here, then, is a surprising and in its own way brilliant move, however controversial: to use in absolute transparency (the announcement is public) part of the dollars that make up the underlying of Tether to buy bonds and government bonds, including U.S. government bonds. The choice may seem disorienting, after the company has insisted, since 2014 (Tether’s birth year), that each USDT is firmly pegged to a dollar in the company’s coffers. However, a company’s stock has the huge advantage of constituting a different asset than a bank account that, as we have seen, can be frozen at any time without notice.

An American T-Bill (the equivalent of our BOTs) yields 2.5%, which on large figures like money in the belly to Tether constitute stellar returns. In periods when there is a lack of liquidity they can be very useful. On one hand, investing in bonds can involve risks, as they have their own natural maturity and it is not possible to dispose immediately of their monetary countervalue, which could lead to the problem of finding oneself short of liquidity if there are peaks in the requests for withdrawals of the users. On the other hand, however, it is a good way to diversify your exposure to the risks of cash money, as the maturity of a short-term government bond can also be shorter than the time needed to obtain the return of funds blocked in a bank account.

Among other things, the decision to diversify was also supported by the fact that the other existing stable coins pegged to dollars only hold a fractional reserve that can be liquidated immediately. And so it is that Tether goes from being only 74% covered by cash dollars and the rest by bonds.[18]

Ironically, there are 850 million dollars of underlying Tether frozen in various banks, but the respective USDT still move freely from wallet to wallet, from exchange to exchange, and users trade them (at the current exchange rate) at 0.99 cents per USDT for 1 dollar, in short, almost at parity. But why, we wonder, the value of USDT in the markets remains so anchored to the dollar, despite the news of the last period? The answer is simply that traders do not short USDT, because they consider it risky or unprofitable. The only reason why USDT can permanently fall below the value of the dollar is if the underlying dollars are not only temporarily frozen, but permanently confiscated by the authorities. To date, this condition is absolutely unlikely and the charges of the Department of Justice in New York are neither strong nor well-founded enough.


Bitfinex has very good arguments against the power of attorney injunction, which have been submitted by its attorneys to the State Supreme Court[19]

First, a normal preliminary injunction would be inapplicable in this case, which is self-evident due to the fact that the prosecution had to resort to the Martin Act. But even the Martin Act cannot be applied, for various reasons. In the meantime, because there is no irreparable damage and neither is there any person who is identified as a victim who may have suffered any loss: “Attorney General has not identified any victim that has suffered any loss”.

Among other things, Bitfinex has no customers in the State of New York or even American customers in general, since August 2018. The news, which at the time made a lot of noise in the crypto community, can be read on the Bitfinex website:

“Bitfinex has decided to stop serving US individual and corporate customers altogether. As of August 15, 2018, no trading or funding services will be available to these users”.

On the site also appear all the details that have been communicated on how to close and withdraw all funds, specifying that what will be left on Bitfinex by U.S. citizens will be considered by Bitfinex “abandoned property”.[20]

That is a fact, we also have numerous direct testimonies that the American citizens really had to close the account. If you don’t know someone personally, you can read about them anywhere online. Here[21] for example, some traders complain about the closure and ask for alternatives as valid as Bitfinex, which has always been known to be a platform, as well as technically flawless and robust, also very convenient in terms of fees and percentages of lending and funding.

Another very strong argument in defense of Bitfinex is that the prosecution does not denounce the presence of the opening of a credit line between Tether and Bitfinex, which is in fact completely legal, but accuses of not having communicated it to customers and shareholders: “the alleged non-disclosure of that information”. In itself, this is a very bland allegation to justify the Martin Act and, however, Tether updated the terms on its website in February, a month before the Bitfinex transaction, writing that reservations may also include, in addition to cash, “loans made by Tether to third parties, which could include affiliated entities” (where the affiliated entity is clearly Bitfinex).

“The alleged wrongdoing within the purview of the Martin Act is not the line-of-credit transaction itself, but the alleged non-disclosure of that information. While Bitfinex and Tether do not believe they did anything wrong at any point in time, any failures to timely disclose information to customers or to holders of tether was cured when Tether updated its website over two months ago – long before this proceeding was filed. The ongoing transactions via Bitfinex and Tether are not in any fraudulent sense, nor is the line-of-credit transaction”.

In addition, Bitfinex reaffirms the robustness of the Tether/Bitfinex group, specifying the quantities kept in reserve and the full solvency of the company, also demonstrated by the quantities taken daily by users without any hitch (I quote by cutting and adapting freely, you can find the original text in the screenshot):

“To date, Tether’s cash reserves amount to 2.1 billion dollars. Between December 2018 and April 29, 2019, average withdrawals amounted to $566,000 a day, with the largest withdrawal of $24.2 million. Although Bitfinex fully draws on Tether’s reserves in USD, these still amount to just under 2 billion, constituting 68% of the tethers in circulation [which from coinmarketcap we can see are 2.7 billion USDT]. And we are only talking about cash reserves. In addition to these, Tether holds less liquid reserves, for a total amount of 100% of the tethers in circulation. Commercial banks operate under fractional reserve and, according to the dictates of the Federal Reserve, they must hold cash reserves that represent, at most, 10% of their assets. Tether’s reserves far exceed that threshold, and Tether has never failed to process a single withdrawal request.

Finally, Bitfinex launches a freefall to the power of attorney: the preliminary injunction has no purpose other than to make news (“generate headlines”) and is highly harmful to the business of Bitfinex; it will only have the effect of damaging the customers that the General Attorney claims to want to protect.

“The balance of equites strongly factors Bitfinex and Tether, because the Attorney General’s preliminary injunction was obtained via a misleading application, and serves no purpose except to generate headlines. On the other side of the ledger, the injunction is highly disruptive to Bitfinex’s business, and will only harm the very customers the Attorney General claims to be interested in protecting”.

Supreme Court Judge Cohen reviewed the documents and expressed his disappointment at the way the injunction was formulated and the absurdity of the amount of documents required. Not only that, he literally said the following words:

“The preliminary injunction that we have right now is vague, open-ended and not sufficiently tailored to precisely what the AG has shown will cause imminent harm. I think it’s both amorphous and endless.”[22]

The New York Public Prosecutor’s Office has even “defended” its reasons by saying that, all in all, the injunction is “narrow” (of limited scope) and that it would not have a significant impact on the operation of either Tether or Bitfinex.


For a real epilogue of this story, we await the judgment of Judge Cohen on May 13, but in Bitfinex meanwhile they do not stand with their hands in hand. Are there liquidity problems? No problem, we take out the money with the magic wand. The LEO token, Bitfinex’s ICO, has been launched. Or more precisely, the IEO of Bitfinex (Initial Exchange Offering).

What will this new token be used for, what amazing technology does it implement? I was reading the LEO white paper to understand how it works, but then I discover that with the private placement has already collected a value of almost $ 1 billion.

In short, we can say it, there’s no need to understand how it works, it’s already worked!

Merlin the Wizard has struck again.

It’s really true: Italians do it better.


The scene of the cover photo is taken in this sequence of frames.

[1] The Editorial Board (2018-03-25). “The Worst Law in America”. Wall Street Journal. ISSN 0099-9660. Retrieved 2018-05-22. https://www.wsj.com/articles/the-worst-law-in-america-1522014930

[2] https://www.nytimes.com/2003/04/28/business/regulators-finalize-14-billion-wall-st-settlement.html

[3] https://www.bloomberg.com/news/articles/2015-11-10/everything-you-need-to-know-about-the-exxon-climate-change-probe

[4] https://www.bloomberg.com/quicktake/martin-act

[5] http://www.albertodeluigi.com/2018/06/13/tether-audit-subpoena-bitfinex/.

[6] https://www.bizjournals.com/newyork/news/2015/08/12/the-great-bitcoin-exodus-has-totally-changed-new.html

[7] https://www.theverge.com/2018/4/17/17247946/bitcoin-new-york-attorney-general-eric-schneiderman-investigation

[8] http://www.albertodeluigi.com/ross-ulbricht-silk-road/

[9] https://bitcoinexchangeguide.com/cryptocapital-co-may-be-cryptos-black-swan/

[10] Vedi Reddit su r/Bitcoin, Coinapult

[11] Vedi canale Reddit r/CryptoCurrency su CEX

[12] https://www.coindesk.com/crypto-exchange-quadrigacx-awaits-ruling-on-22-million-in-frozen-funds



[13] Vedi canale Reddit r/QuadrigaCX

[14] https://www.docdroid.net/wYxaOnX/gerald-cotten-will.pdf

[15] https://www.bloomberg.com/news/articles/2019-02-05/crypto-exchange-founder-filed-last-will-12-days-before-he-died

[16] https://www.manhattanda.org/unicredit-bank-ag-to-plead-guilty-and-pay-316-million-to-das-office-related-to-illegal-transactions-on-behalf-of-nuclear-weapons-proliferator/


Order of the 24 april:


File 25 april:


[18] https://www.coindesk.com/tether-lawyer-confirms-stablecoin-74-percent-backed-by-cash-and-equivalents

[19] https://iapps.courts.state.ny.us/nyscef/ViewDocument?docIndex=JcKQms/tM52ywY78HUsInw==

[20] https://support.bitfinex.com/hc/en-us/articles/115003461254-US-Residents-Frequently-Asked-Questions

[21] Vedi canale Reddit r/Bitfinex

[22] https://www.coindesk.com/judge-asks-nyag-to-narrow-scope-of-amorphous-bitfinex-document-request

Amelia Tomasicchio
Amelia Tomasicchiohttps://cryptonomist.ch
As expert in digital marketing, Amelia began working in the fintech sector in 2014 after writing her thesis on Bitcoin technology. Previously author for several international crypto-related magazines and CMO at Eidoo. She is now the co-founder and editor-in-chief of The Cryptonomist, and also PR manager for the Italian market at Bitget. She is also a marketing teacher at Digital Coach in Milan and she published a book about NFTs for the Italian publishing house Mondadori, while she is also helping artists and company to entering in the sector. As advisor, Amelia is also involved in metaverse-related project such as The Nemesis and OVER.