Cryptocurrencies have had a rough week of it, evidenced by a double-digit percentage drop in bitcoin, arguably the marquee name in the space.

At a recent price of $5,092 as reported Friday (April 26), bitcoin is down from levels earlier in the week that topped $5,580.

The slide comes as the New York state attorney general has accused Bitfinex, a cryptocurrency exchange, of covering up missing funds — $850 million worth — through illegal transactions.

Various financial publications including The Wall Street Journal reported that the exchange dipped into reserves of Tether. Tether is a stablecoin (in turn backed by United States dollars), and Bitfinex allegedly raided reserves to make payouts to consumers looking for redemptions.

The Journal reported that Tether has “become a major source of liquidity in the cryptocurrency market,” and about 80 percent of all bitcoin trading is done in Tether, as research site CryptoCompare has estimated.

As reported by Fortune, the funds that were raided — if amounting to a full $850 million — would account for as much as 27 percent of the dollar reserves tied to Tether. That estimate comes from Chad Cascarilla, who helms Paxos, which offers its own stablecoin.

Per the attorney general’s filing, messages from executives at the exchange — in at least one case to a payment processor based in Panama known as Crypto Capital — detail what seems to be a precarious financial position.

The complaint says that the $850 million had been handed to Crypto Capital to help cover redemptions, that access to the money was lost and Bitfinex and Tether then started to “drain” reserves. The attorney general’s complaint states that Crypto Capital failed to process redemption orders.

Bitfinex has now said the aforementioned funds have not been lost but rather “seized and safeguarded … Both Bitfinex and Tether are financially strong — full stop,” the exchange said.

As detailed in events that transpired in 2018, “The situation looks bad. We have more than 500 withdrawals pending and they keep coming in … [T]oo much money is parked with you and we are currently walking on a very thin crust of ice,” read a message from a Bitfinex executive who signed the message as “Merlin.” That executive said, too, said in the August 2018 missive that bitcoin could “tank” below $1,000.

Elsewhere, the filing notes that Bitfinex’s arrangements with at least some banks had become pressured, as, for example, Wells Fargo said it would no longer conduct wire transfers between Bitfinex and Tether.

The complaint from state Attorney General Letitia James said iFinex, Inc., the Bitfinex operator that also owns Tether, has been “commingling client and corporate funds” in an effort to cover up the missing money, reports said. A court order now has mandated that iFinex stop moving money from Tether reserves to Bitfinex bank accounts.

Bitfinex has said in a statement on its website that the attorney general’s filings disclosed this week were “written in bad faith and riddled with false assertions” and characterized them as an overreach. The company said it had previously been cooperating with the attorney general office’s investigation, and it planned to fight the order.



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