Bitfinex: NYAG's Order Is Hurting Our Customers and the Crypto Market

Bitfinex's customers might suffer if it can't access a line of credit from stablecoin issuer Tether, the exchange's attorneys argued Sunday.

"The balance of equities strongly favors Bitfinex and Tether, because a preliminary injunction would not protect anyone but would instead cause great disruption to Bitfinex and Tether - ultimately to the detriment of market participants on whose behalf the Attorney General purports to be acting."

The impact on USDT, the dollar-pegged cryptocurrency issued by Tether, has been much smaller, as "Tethers still trade at par to this day, despite this proceeding," the filing states.

Stepping back, the preliminary injunction, filed under a New York state law called the Martin Act, requires Bitfinex and Tether to turn over every document pertaining to a $625 million transfer and a subsequent $900 million line of credit Tether extended to Bitfinex after the latter lost access to $850 million held by its payment processor, Crypto Capital.

The injunction also prevents Bitfinex from further drawing on the line of credit from Tether.

Stuart Hoegner, general counsel to both Bitfinex and Tether - which share key personnel and ownership - wrote in a filing last week that the agreements were made to protect the broader cryptocurrency ecosystem, as "Tether, and holders of tether, have a keen interest in ensuring that one of the dominant trading platforms of tethers has sufficient liquidity for normal operations."

For its part, the NYAG's office says that the preliminary injunction doesn't prevent Bitfinex or Tether from conducting operations, and it needs greater clarity around the "Core issues in this case," referring to allegations that Bitfinex and Tether misled clients.

While the NYAG's initial response said its injunction was "Narrow" in scope and only prevented Bitfinex and Tether from tapping the latter's reserves, Tether's attorneys say this has a far-reaching impact.

Bitfinex and Tether's attorneys also argue that the NYAG's office does not have legal standing, as no fraud occurred.

Bitfinex and Tether's attorneys claim that the Martin Act only covers fraudulent conduct as it relates to securities or commodities, but the NYAG's office has not proven that tethers qualify as either.