News from New York State Attorney General James.

FOR IMMEDIATE RELEASE 

April 25, 2019  

 

 

 

Attorney General James Announces Court Order Against “Crypto” Currency Company Under Investigation for Fraud.

 

NEW YORK – Attorney General Letitia James today announced that her office obtained a court order enjoining iFinex Inc., operator of the Bitfinex virtual asset trading platform, and Tether Limited, issuer of the “tether” virtual currency, and their related entities, from further violations of New York law in connection with an ongoing activities that may have defrauded New York investors that trade in virtual or “crypto” currency. 

  

“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds,” said Attorney General James.  “New York state has led the way in requiring virtual currency businesses to operate according to the law.  And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”   

 

In papers filed with the Manhattan Supreme Court, the Office set forth certain findings of its ongoing investigation into Bitfinex and Tether.  Today’s court order requires that the operators of the companies immediately cease further dissipation of the U.S. dollar assets which back “tether” tokens while the Office’s investigation continues, and produce documents and information, including material called for by the Office’s previously-issued investigative subpoenas.  The companies are also barred from destroying, deleting, or permitting others to delete, potentially relevant documents and communications, including documents and communications stored on any self-deleting or “ephemeral” computer applications.  

 

In September 2018, the Office of the Attorney General issued its Virtual Markets Integrity Initiative Report, which set forth the findings by the office about the practices of “virtual asset trading platforms” that operate, or were believed to operate, in New York.  Among the findings set forth in that Report, the Office highlighted the “substantial potential for conflicts between the interests of the platform, platform insiders, and platform customers.” 

  

In November 2018, the Attorney General issued subpoenas to Bitfinex and Tether, which are owned and operated by the same small group of individuals, and claim not to do business in New York.  As alleged in court papers filed by the Attorney General’s office, the Bitfinex trading platform allows New Yorkers to purchase and trade virtual currencies, including the so-called “tether” stablecoin, a virtual currency the companies long claimed was “backed 1-to-1” by U.S. dollars held in cash reserve.   

 

The filings explain how Bitfinex no longer has access to over $850 million dollars of co-mingled client and corporate funds that it handed over, without any written contract or assurance, to a Panamanian entity called “Crypto Capital Corp.,” a loss Bitfinex never disclosed to investors.  In order to fill the gap, executives of Bitfinex and Tether engaged in a series of conflicted corporate transactions whereby Bitfinex gave itself access to up to $900 million of Tether’s cash reserves, which Tether for years repeatedly told investors fully backed the tether virtual currency “1-to-1.”   

 

According to the filings, Bitfinex has already taken at least $700 million from Tether’s reserves.  Those transactions – which also have not been disclosed to investors – treat Tether’s cash reserves as Bitfinex’s corporate slush fund, and are being used to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals.  The Office’s filings further detail how the companies obfuscated the extent and timing of these corporate transactions during the Office’s investigation.  

 

Issued pursuant to General Business Law section 354, a provision of New York’s Martin Act that confers broad powers on the Attorney General to investigate and halt fraud in connection with securities or commodities, the court order bars the operators of Bitfinex from further draining the cash reserves of Tether, or taking personal distributions or dividends from the reserves.  The order also compels the companies to produce relevant documents and information which, to date, they have failed to produce to the Office of the Attorney General.  A copy of the court order can be viewed here. 

 

The Attorney General’s Virtual Markets Integrity Initiative Report provides information about virtual asset trading platforms, and the risks to retail investors in these products.  

 

This investigation is being handled by Senior Enforcement Counsel John D. Castiglione and Assistant Attorney General Brian M. Whitehurst of the Investor Protection Bureau, and Assistant Attorney General Johanna Skrzypczyk of the Bureau of Internet and Technology, supervised by Chief Deputy Attorney General for Economic Justice Christopher D’Angelo, Investor Protection Bureau Chief Kevin Wallace, and Bureau of Internet and Technology Chief Kim Berger.  Legal Assistant Charmaine Blake is assisting in the investigation. 

FOR IMMEDIATE RELEASE 

April 25, 2019  

 

 

Attorney General James Announces Investigation Into Facebook.

 

Company Harvested 1.5 Million Users’ Contact Databases Without Authorization.

  

NEW YORK – Attorney General Letitia James today announced an investigation into Facebook’s unauthorized collection of 1.5 million Facebook users’ email contact databases. While Facebook claims that 1.5 million contact databases were directly harvested by its email password verification process for new users, the total number of people whose information was improperly obtained may be hundreds of millions.  

 

“It is time Facebook is held accountable for how it handles consumers' personal information,” said Attorney General Letitia James. “Facebook has repeatedly demonstrated a lack of respect for consumers’ information while at the same time profiting from mining that data. Facebook’s announcement that it harvested 1.5 million users’ email address books, potentially gaining access to contact information for hundreds of millions of individual consumers without their knowledge, is the latest demonstration that Facebook does not take seriously its role in protecting our personal information.”   

 

Email verification is a standard practice for online services such as Facebook. Typically, when a consumer signs up to a new service, they are asked to provide an email address, where they then receive an email with a link to verify that the email account belongs to them. Facebook's procedure requested certain users to hand over their password to their personal email account. Additionally, reports indicate that Facebook proceeded to access those user’s contacts and upload all of those contacts to Facebook to be used for targeted advertising. While Facebook has admitted that 1.5 million people's contact books were directly harvested, the total number of people whose contact information was improperly obtained by Facebook may be hundreds of millions, as people can have hundreds of contacts stored on their contact databases.  

 

The office has previously enforced New York’s consumer protection laws against social networking websites that misappropriated user’s contact lists. In January 2019, Attorney General James announced an investigation into Apple over their failure to warn consumers about the FaceTime bug that jeopardized the privacy of consumers in New York by allowing users to receive audio and video from the device of the person they are calling even before the person has accepted or rejected the call. In March 2018, the Attorney General’s Office opened an investigation into Facebook over the reported misuse of user data with Cambridge Analytica.