Photographer: Rafael Henrique/Getty Images

The crypto exchange Bitfinex reached a settlement with New York Attorney General Letitia James over allegations that it hid the loss of comingled client and corporate funds.

Without admitting or denying any wrongdoing, the officials who control Bitfinex and the affiliated stablecoin Tether, agreed to pay $18.5 million, the state attorney general’s office said in a statement on Tuesday. New York officials, who originally began investigating Bitfinex in 2019, will receive quarterly reports on composition of Tether’s reserves for the next two years.

“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” James said in the statement. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.”

The agreement sheds some light on one of the most controversial areas of the cryptocurrency market, where trading has been dominated by loosely regulated exchanges around the world. About 55% of all Bitcoin purchases are conducted with Tether, according to researcher CryptoCompare.

The use of Tether has ballooned since New York began the investigation, with the stablecoin’s market capitalization growing to about $36 billion from less than $5 billion during that time. Many of the other major crypto exchanges such as Binance also use Tether, saying it helps provide liquidity and can be used to facilitate transactions between different digital coins and tokens. Unlike other currencies such as Bitcoin that are “mined,” Tether officials say they create new coins based on customer orders. That had led to speculation that Tether was being used to lift the price of Bitcoin, an allegation Bitfinex officials dispute.

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