Bitfinex Tether Class Action - Fact Finding

[Troote]

Hi guys,

So as you all know, there is an on-going class action against Bitfinex Tether. For those of you who are not aware, the class action was filed in June 2019 and is available here: https://www.scribd.com/document/429141197/Putative-Class-Action-Bitfinex-Tether

We are getting close to a January 15th deadline which signs the end of the discovery phase of the lawsuit. Here is a link to a paragraph on Reddit which describes the case and what is going on: https://www.reddit.com/r/CryptoCurrency/comments/ksdfne/why_tether_might_tank_the_crypto_market_on_jan/

This is a systemic risk. Whilst this might be a dud, there is also a possibility this lawsuit may have a major impact on the crypto industry as a whole.

This thread is not there to speculate on the outcome, the impact of the lawsuit on cryptocurrency prices, whether Bitfinex are bad guys or not, let alone link this to Trump/Biden administration and politics. We are not privy to this sort information and conspiracy theory type of speculation will detract us from facts. 

What I would like to get out of this thread is a robust understanding of the timeline of the lawsuit, what milestones need to be reached and when. An understanding of the possible legal outcomes of these milestones would be helpful. I am hoping this information could help us better understand the nature of the risks and give us the ability to track what we see in the news with the legal process. This would be instrumental in helping us judge for ourselves how this risk matures over time. 

My current understanding:

- On January 15th, Bitfinex/Tether will "submit documents to the New York state attorney general about their financial relationships"

- Until April 2021-ish, assuming the lawsuit proceeds, there would be depositions for approximately 3 months

- Until September 2021-ish, assuming the lawsuit proceeds, there would be mediation/negotiation for approximately 6 months

- Until January 2022-ish, if negotiations fail, there will be a trial.

Is that understanding of the timeline correct? Could a lawyer help understand how this process matches the SEC lawsuit process (trying to put a time prediction as to when a bombshell Bitfinex/Tether announcement similar to Ripple's could be announced)? 

Thanks in advance to our law experts like @Pablo or @Eric123.

Edited January 10, 2021 by Troote

[pucksterpete]

going to be fun watching this implode 

[Eric123]

@Troote I haven't looked into the case that deeply but the in general this is how it happens. 

The Judge enters a Scheduling Order at the first conference which loosely lays out the time frame for the case to proceed, ie. service and answers to interrogatories/production of documents, depositions, briefs, trial.  The Scheduling order is constantly being extended under normal circumstances.  In this case and in the midsts of Covid I would think everything would take much longer.  I'm guessing the NYAG will want to depose many people that are out of the Country, under normal circumstance this is hard to coordinate, now given travel restrictions, lockdowns etc., Also Jury trials were halted for months causing a back up.  All this will make the case drag out.  At this point I don't think anyone can give an accurate estimate of when the case will be resolved.     

[Pablo]

Aren't these 2 separate matters?

The NY AG is investigating Tether for alleged fraud associated with the loan made by Tether to Bitfinex designed to hide a $850m shortfall in USD funds on Bitfinex. The injunction (which expires on Jan 15 2021) was designed to stop Tether and Bitfinex coming up with any other arrangements to address the shortfall as well as prohibiting destruction of documents and other evidence.

The class action has a completely different timeline: https://www.courtlistener.com/docket/16298999/in-re-tether-and-bitfinex-crypto-asset-litigation/?page=1

As far as I can tell, the defendants only just filed their memorandum in support of their motion to dismiss on Dec 17 last year so it could be some time before the judge adjudicates on the interlocutory. That's just a motion to dismiss (similar to the approach taken by Ripple in its class action which was only partially successful).

Once the judge has advised which, if any, parts of the plaintiff's claims should be dismissed, the parties will have a better idea of next steps to deal with the remaining heads of claim including which evidence needs to be filed, who will be involved in any hearing etc. 

One interesting side-note is that the lawyers one of the defendants - Reginald Fowler - have just withdrawn their representation in the class action lawsuit. Reginald ran the alleged "shadow banking" operation used by Tether and Bitfinex and he is facing parallel criminal charges for bank fraud and operating an unlawful money transmission business: https://www.justice.gov/usao-sdny/pr/arizona-man-and-israeli-woman-charged-connection-providing-shadow-banking-services. Note that Tether and Bitfinex are tangled up in that mess too although their names have been anonymised to spare the "innocent".

The law firm representing Fowler in the criminal matter also withdrew. It's a wild guess I know but it looks to me that for all Reginald's skills at setting up billion dollar accounting and banking schemes, he wasn't much good at paying his bills.

Oh Tether - the more we dig into you, the more garbage we find...   

I used to think Tether was a systemic risk. In 2017 that is. Tether and Bitfinex shared an Australia lawyer as their General Counsel so a few crypto lawyers in Australia had a decent idea of what he was going through. It's taken a few years to play out, during which time the market has developed a whole raft of alternative stablecoins, some of which are decentralised.

Tether and Bitfinex are still in whole worlds of pain but I'm more circumspect about Tether news these days because I saw how it was used as a grenade in 2017 and 2018 to tip market sentiment and we saw that again in the last 2 weeks. I'm certain we'll see more of that as this bull market tears away.

So yes, still a systemic risk but will there be a "big bang" event that causes the collapse of the market? I'm sure the news will present it like that and I and many others will be waiting to buy at the bottom of any crash. The truth is that today there is nothing more certain to me than that a government-backed USD stablecoin will eventually become the default USD denominated on exchanges. 

[Jack21]

The lawsuit has been for a while and it seems to me that they can find million reason to posponse the court date as long as possible, at least next year when btc is peak. At that time, money will solve all the issue

[Spartaksus]

1 hour ago, Troote said:

- On January 15th, Bitfinex/Tether will "submit documents to the New York state attorney general about their financial relationships"

And what will happen if they fail to provide documents until this date? Some kind of immediate action?

[jetbrzzz]

5 hours ago, Pablo said:

Oh Tether - the more we dig into you, the more garbage we find...   

Exactly this. I stumbled across ChicoCrypto's break down of the Tether relationship awhile back, but didn't really make much of it at the time. It did steer me far enough away from BTC though, and this $40k bubble that's happening now, good lord.

I have a hunch that a lot of people are over the target when they speculate Tether (printed and backed by nothing a la JPow at the FED) is being used to pump the BTC price. Print "fake" Tether which isn't actually backed 1:1 as they claim, use it to pump BTC, then cash out at the top; pretty straightforward as far as financial chicanery goes. 

R. Ver seems like a guy you'd like to have a beer with but I see a lot of his personal moves, including in the Mt. Gox saga, as less than on the up and up. Let's just say he'd order a word salad to go along with his beer. 

 

 

[Eric123]

15 hours ago, jetbrzzz said:

Print "fake" Tether which isn't actually backed 1:1 as they claim

I sometimes watch him but Chico Crypto has made a ton bad calls.  No one has ever proved tether is not backed 1:1.  Tether's statement was that they are backed 100% in cash and cash equivalents.  This video came out on May 1, 2019 when Bitcoin was $5k.  If Chico Crypto steered you away from Bitcoin he steered you away from an 8X gain.  You should be furious. 

One of the problems with the whole crypto space is that there are no real journalists.  Eventually this will change but at this point there are very few sources of information.

   

[JJJ2]

10 minutes ago, Eric123 said:

I sometimes watch him but Chico Crypto has made a ton bad calls.  No one has ever proved tether is not backed 1:1.  Tether's statement was that they are backed 100% in cash and cash equivalents.  This video came out on May 1, 2019 when Bitcoin was $5k.  If Chico Crypto steered you away from Bitcoin he steered you away from an 8X gain.  You should be furious. 

One of the problems with the whole crypto space is that there are no real journalists.  Eventually this will change but at this point there are very few sources of information.

   

Well this is the normal situation in all fields. Journalists write what their boss wants and their boss does what the power (politics, companies who own/pay the magazine) wants etc.

[Eric123]

5 minutes ago, JJJ2 said:

Well this is the normal situation in all fields.

In crypto it's just basically kids with no background in journalism broadcasting from their parents basements.   

[JJJ2]

3 minutes ago, Eric123 said:

In crypto it's just basically kids with no background in journalism broadcasting from their parents basements.   

but the markt caps are real $ and even billions.

Weird situation then.

[jetbrzzz]

On 1/11/2021 at 7:57 AM, Eric123 said:

No one has ever proved tether is not backed 1:1.  Tether's statement was that they are backed 100% in cash and cash equivalents.  This video came out on May 1, 2019 when Bitcoin was $5k.  If Chico Crypto steered you away from Bitcoin he steered you away from an 8X gain.  You should be furious.   

I don't know the answer to this but has anyone actually ever fully audited their financials?

Not to make accusations but criminals don't actually tell you they're breaking the law. And even if it was 'clean', there's been plenty of look-the-other-way fraud a la Enron and WireCard more recently.  The auditors "should have" seen the obvious fraud, cooking the books, and they signed off on it anyway. Of course there were other considerations in my decision and I'll leave it at that.

But the fact that Tether is just some private company with questionable ties to an exchange and other financial shenanigans made me wary.

There's plenty of opportunities I've passed on, none make me furious. There's more than enough opportunities for everyone.

Edited January 12, 2021 by jetbrzzz

[Eric123]

19 hours ago, jetbrzzz said:

There's plenty of opportunities I've passed on, none make me furious.

I understand, making money isn't as important to some people.  I envy your attitude.  

[Troote]

1 hour ago, Eric123 said:

I understand, making money isn't as important to some people.  I envy your attitude.  

Once you run out of cash you are willing to invest in crypto, you get to a point where diversification is no longer possible unless you reduce exposure to the projects you believe in most. At that point the only option would be to jump in and out of investment trying to chase green candles, which comes with its own risks. It's OK to miss out on some pumps, unless you have unlimited funds and time, it's impossible to catch everything.

You are actually in that very situation, you hold BTC and you are not selling them to increase your exposure to XRP even though you wished you could buy more. Same thing. It's a rational, personal choice, missing out on some pumps is what it is, it shouldn't make you furious.

Edited January 12, 2021 by Troote

[jetbrzzz]

3 hours ago, Eric123 said:

I understand, making money isn't as important to some people.  I envy your attitude.  

Personally I try to stick to fundamentals when I make my long term decisions; you can't have your hands in every proverbial cookie jar.

Tether just looks like a FED QE to infinity and beyond, money printer go "Brrrrrrrrrrrrrrr" scheme to me. Which is ironic because the BTC maxis go on about how scarce Bitcoin is, which is true but what does that matter if you can pump the price with another asset?

And it came out in discovery that they're only 74% backed, at least back in 2019. I don't have the exact details as to when or for how long, but it's in there.

https://www.coindesk.com/TETHER-LAWYER-CONFIRMS-STABLECOIN-74-PERCENT-BACKED-BY-CASH-AND-EQUIVALENTS

I wouldn't be surprised if it's even lower today, given the recent pump to $40k.

 

Edited January 12, 2021 by jetbrzzz