Exchanges

Bitfinex and NYAG’s jurisdictional battle to continue as judge sets another date

Quick Take

  • Bitfinex and the NYAG are locked in a continued legal scuffle over whether the NYAG has jurisdiction over the company
  • In a hearing today, both sides argued their case for and against jurisdiction
  • While the judge said he hoped to come to a resolution today, ultimately another date was set

The New York Attorney General’s Office (NYAG) and iFinex counsel continued their court battle today, with the Bitfinex parent company continuing to allege the NYAG lacks jurisdiction in the case. While the presiding judge, Hon. Joel M. Cohen, initially said he hoped to resolve the case today, the court ultimately decided to continue the matter, meaning a new date will be set as the court continues its consideration for another 90 days.

During the hearing, iFinex’s legal counsel said the company is not seeking to stop the investigation, but rather preclude iFinex’s participation.

The NYAG and iFinex have been locked in a legal squabble since April, when the office brought an investigation into alleged Martin Act violations, claiming iFinex co-mingled funds with its sister company, Tether, to cover losses totaling $850 million. The exchange insists the NYAG lacks jurisdiction in the case since it does not serve New York customers according to its terms of service.

At the center of recent proceedings lies the Martin Act, which empowers the NYAG with certain powers in fraud investigations and could compel cooperation from iFinex. The company disagrees with the application of the law, and claimed the AG office made “misleading” claims in July 7 filings that alleged New York users were still being served. The exchange argued any state-based traders were arms of foreign entities, meaning the exchange was serving the foreign entity rather than a New York customer.

In today’s hearing, iFinex addressed the issue of New York users, saying no ban is perfect. Its terms of service preclude U.S. customers, and defense counsel said it works very hard to kick New York users off the platform. Indeed, defense pointed to an incident last week when the exchange “identified” a New York resident and kicked the user off the Bitfinex platform.

This coincided with a report from The Block, detailing how an anonymous user created an account with the user name IAmANYResident, who simply indicated they were not a U.S. resident and was able to continue trading despite the platform recognizing a New York IP address. The Block reached out to Bitfinex and the company did not respond to request for comment, but published a blog post discussing the importance of respecting terms of service.

In response, the NYAG alleged business ties extended beyond serving traders who may or may not have violated terms of service. The office claimed a Tether executive lived and worked in the state, as well as signed up accounts there. The executive established business ties in-state to transact in bitcoin, other assets and tether, according to the office.

In addition to this, there are also questions as to what category Tether falls under. If the asset is discerned to be a commodity, security or foreign currency, this could grant the NYAG subject matter jurisdiction over the case, which is distinguished from personal jurisdiction that would come from serving a New York customer base. Both types of jurisdiction would empower the NYAG to enforce Bitfinex’s cooperation in its investigation under the Martin Act. iFinex’s counsel claimed Tether is none of these things, though stopped short of defining what class the asset falls under.

Cohen said another date will be set to continue case discussions after a 90-day extension.