World’s largest digital currency trading platform Bitfinex employed heavy-hitting international law firm based in Washington, D.C. Steptoe & Johnson to break off what their PR firm exclaims “a campaign of mistruth.”
CEO of 5W Ronn Torossian earlier issued a statement saying the PR company constituting Bitfinex exchange is “signaling to those who engage in this activity that they are serious about protecting the truth and their business.”
Steptoe & Johnson is famous for its contribution in the cryptocurrency space. The firm rules a coalition of blockchain enterprises and US and international law enforcement agencies across the globe called the Blockchain Alliance.
Even though Bitfinex did not reveal whom exactly it was threatening to take legal action against, the announcement appears at a time when blogger Bitfinex’ed has been repeatedly criticizing the company in a series of detailed Medium posts and tweets. Other critics have been voicing similar issues with at Bitfinex as well.
In-house counsel for Bitfinex Stuart Hoegner posted an announcement saying: “To date, every claim made by these bad actors has been patently false and made simply to agitate the cryptocurrency ecosystem.” Hoegner explained that as a result of agitators and their associates, the exchange asserts all its legal rights and remedies.
Bitfinex is incorporated in the Virgin Islands. It is closely tied to Hong Kong-based digital currency company Tether. Both enterprises are owned and operated by the same individuals, divulged in recently leaked documents.
Tether launched a token called USDT or tethered that is pegged to the US dollar. Supposedly, one USDT is equivalent to one dollar. Through trading Bitcoin or other virtual currency for USDT, traders can permanently store their funds in a stable asset to preserve capital. Meaning, Tether functions like a money market account. Tether also enables traders to transfer their money between exchanges without passing through a bank.
Bitfinex does not carry Bitcoin-to-fiat trading or withdrawals. In that sense, if traders on Bitfinex intend to sell their Bitcoin for fiat, they would have to move their Bitcoin to a regulated exchange like the US-based Coinbase which links to customer’s bank accounts, enabling them to make firsthand fiat deposits and withdrawals.
Bitfinex loss 120,000 BTC which amounts to roughly $72 million in a hack in August 2016. Instead of declaring bankruptcy, the exchange came up with a three-part strategy. First, it distributed the loss evenly among its users, giving each a 36 percent cut then issuing BFX tokens as I.O.U.’s to be claimed later.
Next, Bitfinex gave their customers an option to convert their BFX tokens to equity in its parent company, iFinex in mid-October. A total of approximately a third of all BFX tokens were converted. Finally, Bitfinex returned all the remaining BFX and announced it was free of debt.
Speculations and concerns
The concern at the moment is the fact that over 800 million USDT are in circulation, but Tether has not yet posted any substantial evidence that it has the money to sustain those tokens.
Bitfinex’ed concludes that Bitfinex or Tether is crafting that money out of thin air. He also claims Bitfinex is using techniques such as spoofing and wash trading to manipulate the market. Spoofing occurs when a user places in a large bid or request order to increase or decrease the price of Bitcoin before canceling the order. Wash trading occurs when an asset is purchased and sold simultaneously to make the demand look higher than it is.
In August 2016, he argues that Bitfinex is operating a Ponzi scheme to pay back its debt using accounting tricks to protect itself from being insolvent after the hack.
While Bitfinex is using legal actions to threaten critics and protect its image, an attorney focusing on software development at Anderson Kill in Washington, D.C. Stephen Palley concludes that Bitfinex would do better by being more open.
The lawyer posed questions such as “Why don’t they just open their books?” and “What are they afraid of?” in an interview. He concluded, “They are going to have to do that in discovery and litigation anyhow.”
To win the case, Bitfinex would have to clean themselves and solidify its stance that the blogger was making false claims and unsubstantiated. Palley added: “It looks to me like they are using heavy-handed intimidation tactics to shut down someone they claim is inconsequential.”
In a recent tweet by Bitfinex’ed, he posted his wallet address and appealed for donations to defend himself against the future litigation. He already received 1 BTC (currently valued $11,500) worth of contribution from one person.
The blogger brought up a previous lawsuit filed by Bitfinex and claims the exchange had no plans of pursuing it. In April 2017, Bitfinex filed a lawsuit against Wells Fargo for interrupting its US dollar wire transfers and was later on withdrawn after a week.
Bitfinex’ed ended saying “Best to be prepared. If this is [a] big bluff on their end then money goes to charity, I can’t hold the bitcoins while whistleblowing.”