New York Moved to Block Bitfinex From Drawing on Tether Reserves

New York Attorney General Letitia James disclosed on April 25, 2019 that her office had obtained a court order restricting Bitfinex and affiliated stablecoin issuer Tether from further transactions involving Tether’s dollar reserves. The order accompanied allegations that Bitfinex had lost access to more than $850 million in customer and corporate funds and had used Tether’s reserves to conceal the resulting shortfall.

The order was signed on April 24 and the supporting papers were filed publicly on April 25 in New York County Supreme Court. It was an investigative measure issued without prior notice to the companies, not a final judgment that fraud had occurred. That distinction was essential: New York had secured compulsory restrictions and document demands, but the companies disputed the regulator’s account.

What the court restricted

The signed order barred the respondents from taking further action to access, lend, extend credit, pledge or otherwise make claims on Tether’s U.S. dollar reserves. It also restricted distributions to executives, employees and other associated individuals from funds Tether had already provided to Bitfinex.

The companies were directed to preserve potentially relevant communications and produce documents requested in the attorney general’s investigation. The preservation requirement expressly covered electronic communications, including material stored through self-deleting or ephemeral applications.

The order arose under Section 354 of New York’s General Business Law, part of the Martin Act. That provision gave the attorney general broad investigative authority over suspected fraud involving securities or commodities. The April 25 record did not resolve whether every respondent or transaction ultimately fell within New York’s jurisdiction; it established that the court had authorized the investigation and interim restrictions.

New York’s allegations

The attorney general alleged that Bitfinex had placed more than $850 million of commingled customer and corporate funds with Crypto Capital Corp., described as a Panamanian payment processor, without a written contract or comparable assurance. According to the filing, Bitfinex could no longer access that money and had not disclosed the problem to customers or the market.

New York further alleged that Bitfinex and Tether were controlled by the same small group of people. To address Bitfinex’s liquidity problem, the regulator said the affiliated companies arranged transactions giving Bitfinex access to as much as $900 million from Tether’s reserves. The attorney general’s April 25 announcement said Bitfinex had already taken at least $700 million.

Those amounts were investigative allegations, not independently audited balances or judicial findings on April 25. The supporting records established what New York asserted and why it sought restrictions; they did not, by themselves, prove that the money was permanently lost or determine the complete condition of Tether’s reserves.

Bitfinex and Tether disputed the account

Tether responded on April 25 that the court filings contained false assertions. The company said it had been informed that the Crypto Capital funds were seized and safeguarded rather than lost, and that it was working to obtain their release. It also described Bitfinex and Tether as financially strong and said they would challenge what they considered regulatory overreach.

That response was a contemporaneous company claim. It did not include seizure orders, bank statements or an independent reserve examination capable of resolving the central factual dispute. The event-day evidence therefore left two incompatible accounts: New York described an undisclosed shortfall supported through conflicted transactions, while the companies described temporarily inaccessible funds subject to recovery efforts.

Why the order mattered

The investigation connected the solvency and banking problems of a major cryptocurrency exchange directly to confidence in a dollar-linked token used across crypto trading markets. If exchange losses could be financed from an affiliated token issuer’s reserves without timely disclosure, users had limited ability to evaluate either company’s financial position.

The April 25 order did not establish that tether tokens had failed to maintain their market value, and this reconstruction makes no price, return or trading-volume claim. Its significance was institutional: a state regulator had moved beyond requests for information and obtained enforceable limits on how two closely connected crypto businesses could use reserve assets while their disclosures and transactions were examined.

What remained unresolved on April 25 was whether the approximately $850 million was recoverable, how much of Tether’s reserve pool remained available, whether customers had been misled and whether New York could sustain its jurisdictional case. Those questions required evidence and proceedings that had not yet occurred.