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Even earlier than the New York Lawyer Basic revealed a bombshell lawsuit final week towards Bitfinex and Tether, you most likely had some issues.

Suspicion has swirled round Bitfinex and Tether, which share the identical homeowners and administration, since at the least early 2018, most of it targeted on whether or not Tether, a stablecoin backed by the U.S. greenback, actually holds a greenback in reserve for every coin.

The controversy intensified in the course of final yr after researchers from the College of Texas at Austin discovered that gross sales of Tether appeared to have been used to pump the worth of Bitcoin throughout its run-up in 2017, suggesting that Bitfinex could have used the stablecoin to control the market. (As a reminder, Tether has turn into an more and more necessary participant within the cryptocurrency markets, accounting for extra Bitcoin buying and selling quantity than even the greenback.)

And but, the issues detailed within the NYAG’s lawsuit transcend what most individuals suspected. They usually focus on a Panama-based funds processor referred to as Crypto Capital Corp. Final yr, the courtroom filings allege, Bitfinex handed over greater than $1 billion to Crypto Capital with the intention to course of shopper withdrawal requests, with out a lot as a bit of paper specifying phrases of the deal:

Regardless of the sheer sum of money it handed over, Bitfinex by no means signed a contract or different settlement with Crypto Capital. In mid-to-late 2018, executives at Bitfinex/Tether started to suspect that Crypto Capital had misplaced, stolen, or absconded with the funds, and as of immediately, the businesses have been unable to find, a lot much less get well, roughly $850 million {dollars} handed over to Crypto Capital. None of that has been disclosed to traders.

Should you’ve been following the occasions within the cryptocurrency world that we’ve coated on this e-newsletter, the saga could remind you of one other latest case of misplaced or stolen cash—QuadrigaCX, the Canadian cryptocurrency change which stated earlier this yr that it misplaced entry to $190 million in funds following the demise of its CEO.

Because it occurs, each Bitfinex and Quadriga used the identical Panamanian funds processor: Crypto Capital. The truth is, Crypto Capital nonetheless lists Quadriga as certainly one of its shoppers on its web site. And as we discovered on this week’s episode of “Balancing the Ledger,” which you’ll be able to watch beneath, there’s proof that funds shoppers made to Quadriga could by no means have arrived in any respect.

Bitfinex, for its half, is denying any theft by the third-party processor, but additionally elevating extra questions, writing in an announcement Friday, “Quite the opposite, we’ve got been knowledgeable that these Crypto Capital quantities are usually not misplaced however have been, actually, seized and safeguarded. We’re and have been actively working to train our rights and cures and get these funds launched.”

But Crypto Capital isn’t exhibiting any indicators of life. Fortune requests for remark despatched to the contact e-mail on its web site went unreturned. Widespread sense says that if the web site had been nonetheless being maintained, somebody may need scrubbed Quadriga’s identify from it after that change declared chapter in February. Maybe legislation enforcement authorities have shut down the agency and seized the funds, however in that case, it’s not clear which authorities is holding them, and the authorized avenues to recovering them are doubtless lengthy and complex—significantly when Bitfinex itself is integrated within the British Virgin Islands.

I might, nevertheless, wager that the Crypto Capital thriller extends farther than simply Bitfinex and Quadriga, and I wouldn’t be stunned if it reveals up in additional prosecutors’ lawsuits.


We’ve launched a preliminary agenda for Fortune’s inaugural Brainstorm Finance convention in Montauk June 19-20—you may try this system right here. Convention attendance is by invitation solely, however you may request an invitation by emailing me instantly.


Ship suggestions and tricks to ledger@fortune.com, discover us on Twitter @FortuneLedger or e-mail/DM me instantly on the contact information beneath. Please inform your folks to subscribe.

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The Ledger: Bitfinex's Tether Bother, Bitcoin Crime, Bakkt's Huge Deal 1

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