New York

New York AG: “You Either Play by The Rules or We Will Shut You Down”

New York Attorney General Letitia James has warned New Yorkers of the “extreme risk” posed by cryptocurrencies and urged “extreme caution when investing in virtual currencies”.

An additional alert was issued toward industry members, reminding brokers, dealers, salespersons, and investment advisors that they could potentially face “both civil and criminal liability” if they do not fulfill their obligations regarding registration with the state of New York when doing business with virtual currencies.

Attorney General James said the AG office is leveling the playing field and issuing alerts to both investors and industry members across the nation.

“We will not hesitate to take action against anyone who violates the law. Two weeks ago, we filed a lawsuit to shut down Coinseed’s fraudulent operation. Last week, we ended both Bitfinex and Tether’s illegal activities in New York. And now, today, we’re sending a clear message to the entire industry that you either play by the rules or we will shut you down”, AG Letitia James stated.

The New York AG office has been very busy tackling cryptocurrency trading businesses. Tether and Bitfinex were banned from operating in the state for failing to hold enough reserves and to disclose that information.

Both companies will disburse $18.5 million after the OAG having reviewed 2.5 million documents that allegedly prove Bitfinex and Tether failed to hold enough dollar reserves to match the USDT available in the market. AG Letitia James and her team found the exchange operator was ripped off by a Panama entity for nearly $1 billion.

The NY ban didn’t kept Tether from reaching US$35 billion in market capitalization. USDt is increasingly being used in remittances and innovative projects in the digital token ecosystem, including those in the nascent space of decentralized finance (DeFi).

New York Attorney General Letitia James’ Alert to Industry Members:

For over a quarter of a century, commodity broker-dealers, salespersons, and investment advisors doing business within or from New York have been required by statute to register with the OAG. Last year, in a case brought by the OAG, the Appellate Division held that a virtual currency was a commodity under the Martin Act, a ruling consistent with that of other courts and agencies. Therefore, today’s industry alert reminds all brokers, dealers, salespersons, and investment advisors that they must register with the OAG’s Investor Protection Bureau if they are doing business in New York, unless they qualify for an exemption. The OAG reminds industry members that those parties who are obligated to register, but do not, are subject to both civil and criminal enforcement under the law.

Those in the industry who have information regarding illegal or unethical behavior in trading of virtual currencies are encouraged to file an anonymous, secure, and confidential transmission (including any documents) through the OAG’s whistleblower portal.

Today’s industry alert comes on the heels of Attorney General James’ lawsuit, two weeks ago, against Coinseed, Inc. and its executives, which — in operating a virtual currency trading business in New York — carried on as unregistered broker-dealers for more than three years while collecting over $1 million in investors’ assets. Attorney General James seeks restitution for the thousands of defrauded investors, disgorgement of already raised funds with interest, permanent injunctions against all the defendants to immediately stop their illegal behavior, and the full closure of Coinseed’s business operations, among other remedies.

Additionally, just last week, Attorney General James announced an agreement with Bitfinex, Tether, and related entities that ends all their trading activity in the state of New York, imposes an $18.5 million penalty on the companies, and increases transparency. In the case of Tether, the company falsely represented that each of its stablecoins were fully backed, one-to-one, by U.S. dollars in reserve at all times. However, an investigation by the OAG found that iFinex — the operator of Bitfinex — and Tether made false statements about the backing of the “tether” stablecoin, and about the movement of hundreds of millions of dollars between the two companies to cover up the truth about massive losses by Bitfinex.