Blog Digital Currency Perspectives October 16, 2019

Leibowitz v. iFinex Inc., No. 1:19-cv-09236 (S.D.N.Y. filed Oct. 6, 2019)

On October 6, 2019, alleged cryptocurrency investors filed a putative class action complaint in the U. S. District Court for the Southern District of New York, alleging that Bitfinex, Tether, and other defendants coordinated to manipulate the price of Bitcoin and disrupted the cryptocurrency market. The complaint brought claims for violations of the Commodities Exchange Act, the Sherman Act, the RICO statute, and the New York Deceptive Trade Practices Law.

The defendants allegedly engaged in a scheme that was “part-fraud, part-pump-and-dump, and part-money laundering” and “primarily accomplished” by Bitfinex and Tether “commingl[ing] their corporate identities and customer funds while concealing their extensive cooperation in a way that enabled them to manipulate the cryptocurrency market with unprecedented effectiveness.”

Despite claiming that “the number of [tether] tokens in circulation will always equate to the dollars in its bank account,” Tether allegedly “issued extraordinary amounts of unbacked [tether tokens] to manipulate cryptocurrency prices.” Specifically, between 2017 and 2018, Tether allegedly created 2.8 billion tether tokens, which it used to “flood the Bitfinex exchange and purchase other cryptocurrencies.” Since investors allegedly believed that each tether token was backed by one U.S. dollar, Tether’s issuance of tether tokens allegedly made investors believe that there was growing demand for cryptocurrencies and allegedly caused the prices for cryptocurrencies to rise dramatically. Once the price of Bitcoin allegedly was artificially inflated, Tether and Bitfinex allegedly sold the Bitcoin that they purchased with “fake” tether tokens for “real” U.S. dollars, which in turn caused the value of Bitcoin to fall. The defendants’ alleged scheme supposedly caused approximately US $466 billion in damages.