Tether, Bitfinex Request Lessening of Cash Use Restrictions Imposed by Injunction Order

Lawyers for parent firm iFinex Inc., Bitfinex, USD stablecoin issuer Tether and affiliated entities have submitted a letter to Justice Joel M. Cohen on May 13 asking for more leniency in the use of cash restrictions imposed by last month’s injunction.

On April 24, the office of the Office of the New York Attorney General (NY OAG) had accused Bitfinex of losing $850 million of funds needed for user redemptions, and subsequently using capital from affiliated firm Tether to secretly cover the shortfall.

Last week, Cohen had noted that the scope of the OAG court order was too broad, and ordered the parties to try to resolve their dispute and submit a refined argument.

The May 13 letter from iFinex claims that the NY OAG was grossly overreaching its purview with some of the stipulations and language used in the court filings, stating that the respondents’ lawyers do not waive their Motion to Vacate the ex parte April 24, 2019 Order in its entirety. It noted that in discussions thus far, parties on both sides have been unable to reach agreement, and critiqued the NY OAG’s recent counterproposal.

At the heart of the respondents’ contention was the NY OAG’s restriction on the use of stablecoin reserve funds — whether for investment purposes, related-party transactions or distributions and dividends. The letter argued against the injunction to use “non-reserve funds” only to make payments, stating:

“OAG’s language would potentially require the company to cut off salary and other ordinary course payments in any given period if, for whatever reason, there was insufficient profit […] It is simply not the OAG’s purview to micromanage Tether’s business in this way.”

Elsewhere, the letter argued that Order could be misconstrued to suggest that Tether “may only invest in cash or cash-equivalent accounts,” noting that:

“Tether’s business model depends on making investments and asset purchases with the proceeds it derives from selling tethers. If it simply held the proceeds in cash, the company would not earn the money required to fund its operations.”

While upholding that Tether should use funds from transaction fees, rather than reserves, for payments, the NY OAG did clarify in March — before the injunction — in a letter to the court that “bona fide holders of tether should be able to redeem those tokens for cash, as Tether has long represented to the market.”

It also stated that “the OAG’s proposed modifications do not restrain Tether from placing the reserves in legitimate interest-bearing or similar cash equivalent accounts”

As reported, court filings signed by AG Letitia James alleged that the “co-mingled client and corporate funds” ostensibly lost had been held at the controversial Panama-based shadow payment processor Crypto Capital.