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Bitfinex

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Bitfinex, Inc.
Type of businessPrivate
Available inEnglish, Russian, Chinese, Spanish, Turkish
Founded2012; 12 years ago (2012)
Area served52 countries
ProductsCryptocurrencies

Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple, OmiseGO, Monero, NEO, EOS

Fiat Currencies

USD, EUR, JPY, GBP
ServicesCryptocurrency exchange, P2P Margin trading, P2P Margin lending, OTC
URLwww.bitfinex.com

Bitfinex is a cryptocurrency exchange owned and operated by iFinex Inc registered in the British Virgin Islands.[1][2] Their customers' money has been stolen or lost in several incidents, and they have been unable to secure normal banking relationships.[3][4][5]

Research suggests that price manipulation of bitcoin on Bitfinex accounted for about half of the price increase of bitcoin in late 2017.[6]

History

Bitfinex was founded in December 2012 as a peer-to-peer Bitcoin exchange, offering digital asset trading services to users around the world. Bitfinex initially started as a P2P margin lending platform for Bitcoin and later added support for more cryptocurrencies.

In May 2015 the exchange was hacked, which resulted in loss of 1,500 Bitcoins or about $400,000 USD of their customers assets.[7][8] In October 2018, Bitfinex again had serious difficulties with its banking relationships. Its management stated "Bitfinex is not insolvent on October 7."[9]

In June 2016, the U.S. Commodity Futures Trading Commission ordered Bitfinex to pay a $75,000 fine for offering illegal off-exchanged financed commodity transactions. The order also found that Bitfinex violated the Commodity Exchange Act by not registering as a Futures Commission Merchant.[10]

In April 2017, Bitfinex announced that it was experiencing delays in processing USD withdrawals after Wells Fargo cut off[11] its wire transfers. Shortly after the Wells Fargo cutoff, Bitfinex stated all international wires had been cut off by its Taiwanese bank. Since then, Bitfinex has moved between a series of banks in other countries, without disclosing to customers where the money is kept.[12][11][13]

Noble Bank International of San Juan, Puerto Rico reportedly handled some dollar banking for the exchange in 2017 or 2018.[14] The banking relationship was reportedly terminated in September 2018 as Noble Bank encountered financial difficulties.[15]

In March 2018, British Virgin Islands-based Bitfinex confirmed the exchange’s plans to relocate its primary server infrastructure to Zug, Switzerland.

In May 2018, Bitfinex emailed some of its users asking for some tax details, which the company indicated it would share with the government of the British Virgin Islands, which might in turn pass it on to the governments of the users' countries of residence.[citation needed]

Phil Potter, Chief Strategy Officer of Bitfinex left the exchange about June 22, 2018.[16]

In April 2019 New York Attorney General Letitia James launched an investigation accusing Bitfinex of using the reserves of Tether, an affiliated company to cover up a loss of $850 million to a Panamanian payment processor known as Crypto Capital Corp.[17] [18] Reggie Fowler, who is alleged to have connections with Crypto Capital, was indicted on April 30, 2019, for running an unlicensed money transmitting business for cryptocurrency traders.[19] He is believed to have failed to return about $850 million to an unnamed client. Investigators also seized $14,000 in counterfeit currency from his office.[19] Bitfinex had been unable to obtain a normal banking relationship, according to the lawsuit, so it deposited over $1 billion with a Panamanian payment processor known as Crypto Capital Corp. No contract was ever signed with Crypto Capital.[18] James alleged that in 2018 Bitfinex knew or suspected that Crypto Capital had absconded with the money, but that their investors were never informed of the loss.[18]

According to an unaudited 2019 Bitfinex accounting report, in 2018 they had gross profits of $418 million, expenses of $14 million, net profits of $404 million, and dividends of almost $262 million. Bitfinex raised the $1 billion investment in 10 days.[20][21] The reported figures for 2017 were $333.5 million in gross profits, $6.8 million in expenses, $326 million in net profit and $246 million in dividends.[22][23]

On October 15, 2021, it was announced that Bitfinex will pay a $1.5 million fine to the Commodity Futures Trading Commission for illegal, off-exchange retail commodity transactions in digital assets with Americans.[24]

2016 hack

Main article: 2016 Bitfinex hack

In August 2016, Bitfinex announced it had suffered a major security breach.[25] Immediately thereafter, Bitcoin's trading price plunged by 20%.[26] After learning of the breach, Bitfinex halted all Bitcoin withdrawals and trading.[2] In that hack, the second-biggest breach of a Bitcoin exchange platform, 119,756 units of Bitcoin,[26] worth about $72 million at the time, were stolen. The Bitcoin was taken from users' segregated wallets and Bitfinex said it was tracking down the hack.[27] Exchange customers, even those whose accounts had not been broken into, had their account balance reduced by 36% and received BFX tokens in proportion to their losses.[28] The exchange's access to U.S. dollar payments and withdrawals was then curtailed. The hack happened even though Bitfinex was securing the funds with BitGo, which uses multiple-signature security.[29] The stolen Bitcoin was seized by the United States Department of Justice, and a New York couple, Ilya Lichtenstein and his wife, Heather Morgan, was federally charged in February 2022 with conspiring to launder the bitcoin, which was then worth $3.6 billion.[30][31] According to Justice officials, Lichtenstein and Morgan are charged with conspiracy to launder money, which has a maximum sentence of 20 years in prison, and conspiracy to defraud the United States, which carries a maximum sentence of five years in prison.[32] On 10 February 2022, it was reported that Heather Morgan was detained in Manhattan last 8 February 2022 with her husband, Ilya Lichtenstein.[33]

Tether

Main article: Tether (cryptocurrency)

Tether is a cryptocurrency (a so called stablecoin) which Tether Limited had claimed to be pegged to the US dollar. Tether is closely associated with Bitfinex, with whom, as of 2018, they shared common shareholders and management.[16] In 2017, critics raised questions about the relationship between Bitfinex and Tether.[12][34][11]

In February 2021, Bitfinex agreed to pay $18.5 million in a settlement with the New York Attorney General's office regarding allegations over Bitfinex parent iFinex making false statements about the backing of Tether and the movement of hundreds of millions of dollars between the two companies to cover up massive losses by Bitfinex in 2017 and 2018.[35] As part of the agreement, Bitfinex will maintain its prohibition on trading activity with New Yorkers.[36]

In 2021, Bitfinex repaid their remaining loan balance to Tether in full.[37]

See also

References

  1. ^ "Company Overview of iFinex Inc. (BVI)". Bloomberg. Archived from the original on July 1, 2018. Retrieved June 30, 2018.
  2. ^ a b Shekhtman, Lonnie (August 3, 2016). "Bitcoin security breaches raise questions about digital currency's future". Christian Science Monitor. Archived from the original on May 28, 2017.
  3. ^ Kaminska, Izabella (April 26, 2019). "We all become MF Global eventually, Tether edition". Financial Times. Archived from the original on April 27, 2019. Retrieved May 20, 2019.
  4. ^ Lee, Timothy B. (April 29, 2019). "The leading "stablecoin" is no longer backed by $1 for every coin". Ars Technica. Archived from the original on May 10, 2019. Retrieved May 20, 2019.
  5. ^ Vigna, Paul (May 17, 2019). "Lack of Banking Options a Big Problem for Crypto Businesses". Wall Street Journal. Archived from the original on May 21, 2019. Retrieved May 20, 2019.
  6. ^ Popper, Nathaniel (June 13, 2018). "Bitcoin's Price Was Artificially Inflated Last Year, Researchers Say". New York Times. Archived from the original on June 13, 2018. Retrieved June 13, 2018.
  7. ^ Baraniuk, Chris (August 8, 2016). "Bitcoin users 'must pay' for lost coins". BBC News. Archived from the original on November 5, 2017. Retrieved November 23, 2017.
  8. ^ Popper, Nathaniel (November 21, 2017). "Warning Signs About Another Giant Bitcoin Exchange". The New York Times. ISSN 0362-4331. Retrieved October 14, 2021.
  9. ^ Kharif, Olga; Leising, Matthew (October 17, 2018). "Bitcoin Trades at $300 Premium on Controversial Crypto Exchange". Bloomberg. Archived from the original on October 18, 2018. Retrieved October 18, 2018.
  10. ^ "CFTC Orders Bitcoin Exchange Bitfinex to Pay $75,000 for Offering Illegal Off-Exchange Financed Retail Commodity Transactions and Failing to Register as a Futures Commission Merchant". Commodity Futures Trading Commission. June 2, 2016. Archived from the original on June 20, 2018. Retrieved June 4, 2018.
  11. ^ a b c "Tether Theft Isn't the First Controversy for Cryptocurrency Firm". Bloomberg.com. November 21, 2017. Archived from the original on November 22, 2017. Retrieved November 23, 2017.
  12. ^ a b Popper, Nathaniel (November 21, 2017). "Warning Signs About Another Giant Bitcoin Exchange". The New York Times. Archived from the original on November 22, 2017. Retrieved November 23, 2017.
  13. ^ Nathaniel, Popper (November 21, 2017). "Warning Signs About Another Giant Bitcoin Exchange". New York Times. Archived from the original on November 22, 2017. Retrieved June 4, 2018.
  14. ^ Katz, Lilly (May 31, 2018). "Bittrex Gets Bank Agreement to Help You Buy Bitcoin With Dollars". Bloomberg. Archived from the original on May 31, 2018. Retrieved June 4, 2018.
  15. ^ Leising, Matthew; Rivera, Yalixa (October 1, 2018). "Puerto Rico's Noble Bank Seeks Sale Amid Crypto Slide". Bloomberg. Archived from the original on October 3, 2018. Retrieved October 18, 2018.
  16. ^ a b Irrera, Anna (June 22, 2018). "Bitfinex chief strategy officer departs". Reuters. Archived from the original on June 24, 2018. Retrieved June 23, 2018.
  17. ^ "In the Matter of the Inquiry by LETITIA JAMES. : Attorney General of the State of New York". Supreme Court of the State of New York County of New York. Archived from the original on May 1, 2019. Retrieved May 22, 2019.
  18. ^ a b c Larson, Erik; Leising, Matthew; Kharif, Olga (April 26, 2019). "Crypto Market Roiled by New Allegations Against Tether, Bitfinex". Bloomberg. Archived from the original on October 14, 2020. Retrieved May 5, 2019.
  19. ^ a b Robinson, Matt; Kharif, Olga; Leising, Matthew (May 3, 2019). "Ex-NFL Owner Said to Be Tied to $850 Million Crypto Mystery". Bloomberg. Archived from the original on May 5, 2019. Retrieved May 5, 2019.
  20. ^ "Bitfinex Raises $1 Billion in LEO Token Sale Within Ten Days – Trustnodes". www.trustnodes.com. May 13, 2019. Retrieved December 22, 2021.
  21. ^ "Analysis of LEO burns shows Bitfinex made nearly $300 million from trading fees in 2018". finance.yahoo.com. Retrieved December 22, 2021.
  22. ^ "Initial Exchange Offering of LEO Tokens" (PDF). Bitfinex.com. May 8, 2019. Archived (PDF) from the original on May 9, 2019. Retrieved May 11, 2019.
  23. ^ Kharif, Olga (May 9, 2019). "Beleaguered Bitfinex Says Its Crypto Exchange Turns 97% Profit". Bloomberg. Archived from the original on May 11, 2019. Retrieved May 11, 2019.
  24. ^ Lyons, Kim (October 15, 2021). "Tether will pay $41 million over "misleading" claims it was fully backed by US dollars". The Verge. Retrieved October 22, 2021.
  25. ^ "Bitfinex comes back from $69 million bitcoin heist". May 21, 2017. Archived from the original on May 22, 2017.
  26. ^ a b Tsang, Amie (August 3, 2016). "Bitcoin Plunges After Hacking of Exchange in Hong Kong". The New York Times. Archived from the original on May 18, 2017.
  27. ^ "Bitcoin Worth $72M Was Stolen in Bitfinex Exchange Hack in Hong Kong". Fortune. Archived from the original on November 20, 2016. Retrieved October 26, 2016.
  28. ^ Baldwin, Clare (August 6, 2016). "Bitfinex exchange customers to get 36 percent haircut, debt token". Reuters. Archived from the original on March 16, 2019. Retrieved June 20, 2018.
  29. ^ "Bitcoin worth $72 million stolen from Bitfinex exchange in Hong Kong". Reuters. August 3, 2016. Retrieved October 14, 2021.
  30. ^ Barrett, Devlin (February 8, 2022). "Feds arrest couple, seize $3.6 billion in hacked bitcoin funds". The Washington Post.
  31. ^ Lyngaas, Sean (February 8, 2022). "Feds arrest a New York couple and seize $3.6 billion in stolen cryptocurrency". CNN News. p. 1. Retrieved February 9, 2022.
  32. ^ Lyngaas, Sean (February 8, 2022). "Feds arrest a New York couple and seize $3.6 billion in stolen cryptocurrency". CNN News. p. 1. Retrieved February 9, 2022.
  33. ^ Farrer, Martin (February 10, 2022). "'Sexy horror comedy': Bitcoin laundering suspect is also 'raunchy rapper' Razzlekhan". The Guardian News. p. 1. Retrieved February 10, 2022.
  34. ^ "Crypto-currency company reports $31m raid". BBC News. November 21, 2017. Archived from the original on November 22, 2017. Retrieved November 23, 2017.
  35. ^ Browne, Ryan (February 23, 2021). "Cryptocurrency firms Tether and Bitfinex agree to pay $18.5 million fine to end New York probe". CNBC. Retrieved December 22, 2021.
  36. ^ "Bitfinex Settles New York Probe Into Tether, Hiding Losses," Bloomberg, February 23, 2021.
  37. ^ "Bitfinex Says It Repaid Tether for $550M Loan at Center of NYAG Probe". nasdaq.com. February 5, 2021. Archived from the original on February 6, 2021.


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