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Nyag Affirmation
Nyag Affirmation
450545/2019
NYSCEF DOC. NO. 81 RECEIVED NYSCEF: 07/08/2019
Petitioner,
Respondents,
in promoting the issuance, distribution, exchange,
advertisement, negotiation, purchase, investment advice
or sale of securities or commodities in or from New
York State.
--------------------------------- --- -- X
General of the State of New York ("OAG" or "Attorney General"), and am an attorney admitted
to practice before the courts of this State. I am familiar with the facts and circumstances of the
OAG's investigation of iFinex Inc., BFXNA Inc., BFXWW Inc. (collectively, " Bitfinex"),
Tether Holdings Limited, Tether Operations Limited, Tether Limited, and Tether International
2. I submit this affirmation, along with exhibits, based on the examination of records
and documents contained in the files of the OAG, including but not limited to materials provided
to the OAG by Respondents in connection with the OAG's ongoing investigation. This
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3. Certain material contained in the documents that are attached as exhibits to this
Affirmation have been redacted in order to protect the identities of certain non-party individuals
or entities, or to protect confidential personal information in accordance with Rule 202.5 of the
4. In the course of its investigation, the OAG has collected evidence relevant to
5. In its subpoenas dated November 27, 2018, and in the Ex Parle Order Pursuant
to General Business Law§ 354 (hereinafter, "354 Order"), the OAG sought documents and
information relevant to its investigation dating from January 1, 2015 to the present date.
Attached hereto as Exhibit A is the OAG' s November 27, 2018 subpoena to Bitfinex. Attached
hereto as Exhibit Bis the OAG' s November 27, 2018 subpoena to Tether. Attached hereto as
Respondents' contacts with New York is set forth below. The OAG has additional evidence
regarding contacts between Respondents and New York, including a substantial number of
documents which would not be practical to submit to the Court as attachments to this
Affirmation. The OAG also has additional evidence regarding Respondents' contacts with New
York that is not submitted in order to protect aspects of its ongoing investigation.
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New York and United States User Access to Bitfinex and Tether
a. Bitfinex
Motion to Dismiss, Mr. Hoegner states that "On or about January 30, 2017, Bitfinex banned New
York customers from transacting on the platform pursuant to the Company's Terms of Service."
8. The OAG's investigation is concerned with, among other things, the activities of
Respondents and their operation of the Bitfinex trading platform dating back to at least January
I, 2015. Accordingly, the use of the Bitfinex trading platform by New York customers prior to
January 30, 2017 is within the relevant time period of the OAG's investigation.
demonstrate that Respondents did in fact allow customers located in New York to transact on the .
10. For example, attached hereto as Exhibits D and Eis correspondence from 2018
between Respondents and a virtual currency trading firm located in New York. Attached hereto
as Exhibits F and G is correspondence from 2018 between Respondents and this trading firm
regarding the creation of accounts for offshore vehicles, on behalf of which New York-based
employees would continue to trade. Based on information gathered in the course of the OAG's
investigation, this trading firm subsequently conducted significant activity on the Bitfinex
trading platform through at least early 2019. Exhibits D, E, and F were not produced to the OAG
personal jurisdiction.
establish that in October 2018, Respondents "onboarded" the virtual currency firm Galaxy
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Digital L.P., located at 107 Grand Street in New York, New York, as well as associated entities,
to trade on the Bitfinex trading platform. Compiled as Exhibit H are true and correct copies of
correspondence from Galaxy Digital L.P. and its associated entities to Respondents regarding the
onboarding process.
12. As another example, compiled at Exhibit I are true and correct copies of
documents produced by Respondents, dated April 2019, regarding the " verification" of a trader
on the Bitfinex trading platform. Respondents knew that this trader resided in, and traded from,
New York.
Respondents knew traders on the Bitfinex platform were located in New York, were consistently
accessing the Bitfinex website from New York, and were conducting their trading activity from
Respondents, showing log-ins by a professional trading firm on the Bitfinex trading platform
from November 7, 2017 to May 4, 2019. The identity of the firm, the firm's individual IP
address, and other potentially identifying information have been redacted. The information
contained in the document demonstrates that the trading firm accessed the Bitfinex website
consistently from "New York, US," and did so as recently as May 4, 2019.
15. The OAG has obtained additional evidence that the Bitfinex trading platform has
been available to New York-based traders at late as 2019. In order to protect aspects of the
OAG's ongoing investigation, the OAG is willing to provide that evidence to the Court in
camera.
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b. Tether
Respondents' Motion to Dismiss, "As of November 23, 2017, Tether ceased servicing U.S.
Persons, including United States individual and corporate customers." He further states that
"The Tether Terms of Service state in pertinent part [that ... the] following Persons are
prohibited from depositing to, or withdrawing from, any Digital Tokens Wallet on the Site ...
any Person that resides, is located, has a place of business, or conducts business in the State of
17. The OAG's investigation is concerned with, among other things, the activities of
Tether regarding its servicing of New York and United States customers dating back to at least
January 1, 2015. Accordingly, Tether's servicing of New York and United States customers
prior to November 23, 2017 is within the relevant time period of the OAG's investigation.
18. Additionally, Tether's Terms of Service did not specifically prohibit redemptions
of tethers by individuals or entities in New York until November 27, 2018 - one year after Mr.
Service, version dated November 27, 2018. The OAG believes that this is the first date on which
the Tether Terms of Service specifically prohibited New York individuals or entities from
redeeming tethers.
the Tether Terms of Service, version dated January 3, 2018, which is after the date that Mr.
Hoegner stated that Tether ceased servicing New York or U.S. persons. That version of the
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Terms of Service does not specifically prohibit New York individuals or entities from redeeming
tethers.
21. The OAG's investigation has determined that a number of Respondents' trading
firm clients, with offices in New York, have transacted in tethers in significant quantities
22. The OAG's investigation has also determined that as late as 2019, Respondents
entered into at least one written agreement to loan tethers to a New York-based virtual currency
trading firm.
Metropolitan Commercial Bank, and transacted in those accounts thereafter. During that time
period, transactions were initiated in those accounts by a senior executive of Respondents located
in New York.
documentation for Metropolitan Commercial Bank, including business account checklists and
produced to the OAG by Respondents following the Court's order directing production of
Bank and transacted in those accounts until at least April 2018. During that time period,
New York.
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documentation for Signature Bank. These documents were not produced to the OAG by
Respondents following the Court's order directing production of materials relevant to personal
jurisdiction.
accounts at Noble Bank, a division of Noble Markets LLC ("Noble"), which was headquartered
in New York. During that time period, transactions were initiated in those accounts by an
28. The OAG' s investigation has determined that in December 2017, Respondents
made a several-million dollar investment in an affiliated entity of Noble called Noble Talents
LLC. The OAG has reason to believe that Noble Talents LLC was operated by Noble executives
Respondents' investment.
30. The OAG's investigation has also determined that in 2017, Respondents entered
into several "sponsored pool agreements" with Noble and third-party virtual currency trading
firms for the purpose of settlement of virtual currency transactions in U.S. dollars. In certain of
those agreements, Respondents agreed to the following New York choice-of-venue provision:
But, for the convenience of the parties any and all disputes hereunder shall be resolved
exclusively in state or federal courts within the State of New York in the Borough of
Manhattan and the parties hereby accept the existence of personal jurisdiction over them
in such jurisdiction and agree not to assert that any such court in the Borough of Manhattan
is an inconvenient forum.
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Respondents' General Counsel Stuart Hoegner and a third-party virtual currency trading firm. In
that correspondence, Hoegner is discussing the trading firms' edits to a draft version of a
sponsored pool agreement. Among the edits proposed by the trading firm was the addition of the
trading firm's New York address in the "Notices" provision. Mr. Hoegner reviewed and agreed
to the revisions.
32. Attached hereto as Exhibit Q is the final, signed version of the sponsored pool
33. The OAG's investigation has determined that in January 2019, Bitfinex opened a
trading account with a New York-based virtual currency trading firm. Compiled at Exhibit Rare
redacted versions of email communications between this firm and Respondents from January
2019. These documents do not appear to have been produced to the OAG by Respondents
following the Court's order directing production of materials relevant to personal jurisdiction.
34. Tethers are traded on the virtual currency trading platform Poloniex, which is
owned and operated by Circle Internet Financial, which is licensed by the New York Department
of Financial Services.
35. Tethers are traded on the virtual currency trading platform Bittrex, which was
open to New York traders until April 2019, when its operator was directed to cease operations in
36. The OAG's investigation has determined that at least two virtual currency tokens
currently listed for trading on the Bitfinex trading platform are issued by New York-based virtual
currency companies.
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Respondents' founder and Chief Financial Officer Giancarlo Devasini and a representative of a
trading client in New York concerning that client' s repeated requests for a cash withdrawal in
late 2018 and early 2019. This document was not produced to the OAG by Respondents
following the Court's order directing production of materials relevant to personal jurisdiction.
38. The OAG's investigation has determined that from 2014 until at least 2018, one
of Respondents' most senior executives, who was also one of their largest shareholders, resided
39. The OAG's investigation has also determined that, during the relevant time
period, several individuals or entities that are located in, and do business from, New York were
40. In 2017, Respondents engaged Friedman LLP to conduct a review of the tether
cash reserves. Friedman LLP is an accounting and advisory firm with offices in New York, New
Jersey, and Pennsylvania. Certain of the activities related to the engagement took place in New
York. The result of Friedman LLP's review of the tether cash reserves was published to the
market on September 28, 2017, and was available to New York users of the Bitfinex trading
41. Attached hereto as Exhibit Tis a true and correct copy of the "Tether Analysis
42. In 20 18, Respondents engaged Freeh Sporkin & Sullivan, LLP to conduct a
review of the tether cash reserves. Freeh Sporkin & Sullivan, LLP is a law firm with offices in
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New York, Washington D.C., and Florida. The result of the review was published to the market
on June 20, 2018, and was available to New York users of the Bitfinex trading platform and New
43. Attached hereto as Exhibit U is a true and correct copy of the document published
to the market. That document remains available on Respondents' website and is accessible at
l 5.I UN 18.pdf.
44. The OAG's investigation has determined that in late 2017 Respondents retained
New York-based firm SW Public Relations to be its "PR Agency of Record" in order to, among
other things, make public statements on Respondents' behalf regarding the operation of the
Bitfinex trading platform and the cash-backing of tethers. SW Public Relations represents that it
45. Attached as Exhibit Vis true and correct copy of a press release, dated December
1, 2017 entitled "SW Public Relations Named Agency of Record for Bitfinex."
46. Attached hereto as Exhibit W is a true and correct copy of email correspondence
47. Pursuant to the Court's direction to produce documents and information relevant
to matters of personal jurisdiction, Respondents made seven productions to the OAG consisting
of 14,347 documents. The last such production was transmitted to the OAG on July 3, 2019.
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48. Based on its initial review, the OAG believes that 2317 of the documents
49. As of this filing, the OAG is still in the process of completing its review of the
documents recently produced by Respondents pursuant to the Court' s direction. Based on the
OAG's review to date, the productions include documents establishing that the Bitfinex trading
platform was used by a significant number of individual "verified" New York residents from
50. The OAG understands that "verified" users of the Bitfinex trading platform
include individuals who have submitted at least some personally identifying information and
51. The OAG's investigation has determined that users of the Bitfinex trading
platform can also be "unverified" - meaning that Respondents did not collect personally-
identifying information from the user that would allow Respondents to know the identity or
location of the user. The OAG understands that "unverified" users of the Bitfinex trading
52. To date, it appears that Respondents have not produced documents or information
to the OAG regarding those "unverified" accounts, including information regarding any
produced by Respondents suggested that Respondents have on several occasions contracted with
vendors and other entities operating from New York, during the relevant time period. The
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54. In the last week of April 2019, reports began to emerge on social media and
elsewhere that Respondents planned to engage in an " initial exchange offering." Respondents
claimed that their "initial exchange offering" would result in the issuance of virtual currency
tokens traded under the symbol "LEO." Respondents represented that they "commenced on May
8, 2019 to sell up to 1 billion USDt of newly-created [LEO] tokens," and that by May 10, 2019,
they had "completed a private sale of 100% of outstanding [LEO] tokens in exchange for 1
55. Compiled at Exhibit X are true and correct copies of public statements by
Respondents regarding their "initial exchange offering," dated May 10 and May 17, 2019,
respectively.
56. Compiled at Exhibit Y are true and correct copies of statements posted to
offering."
57. Attached hereto as Exhibit Z is a true and correct copy of a document entitled
"Initial Exchange Offering of LEO Tokens For Use on iFinex Trading Platforms, Products, and
58. The White Paper includes a "Forward Looking Statement" disclaimer: "Forward-
Looking Statements. Certain statements contained in this document may constitute forward-
information involve known and unknown risks and uncertainties, which may cause actual events
information."
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59. The White Paper also states the following: "Risk Factors. Purchasing the LEO
tokens entails risks and purchasers could lose their entire purchase amount. Certain risks are
60. The White Paper describes a methodology by which Respondents will purchase
On a monthly basis iFinex and its affiliates will buy back an amount of LEO from the
market equal to a minimum of 27% of the consolidated gross revenues of iFinex from the
previous month, in perpetuity until no tokens are in commercial circulation. Repurchases
will be made at then-prevailing market rates. LEO tokens used to pay fees may also be
burned. This excludes Ethfinex and its sub-products, as Ethfinex launched a native
platform token (NEC) in 2017, to which part of its revenues are already allocated.
In addition to the standard burning periods, based on company revenues, iFinex will have
the following additional burning events:
iFine~ and its subsidiaries will use an amount equal to 95% of the recovered net funds from
Crypto Capital (described above) to redeem and burn a corresponding amount of
outstanding LEO tokens. Net recoveries will be calculated by iFinex in good faith and will
be net of legal costs, operational and recovery costs, governmental charges, and reserves
for contingent costs.
iFinex and its subsidiaries may make repurchases in multiple transactions over time in its
judgment so long as it completes the repurchases within 18 months from the day of the
recovery. For example, if iFinex recovers $250m by October 2019, the deadline for the
relative repurchase / burning commitment (of $250m LEO equivalent) will be April 2021.
It is expected that smaller recovered amounts would be utilized for repurchases within a
shorter time frame but that larger recoveries may be utilized throughout the 18-month
period to offer protection from sudden market spikes and will result in a Volume Weight
Average Price (VWAP).
61. The White Paper makes several representations about Respondents' relationship
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released shortly. By the end of 2018, Bitfinex grew concerned that Crypto Capital might
fail to return funds held there, and began negotiating a credit faci lity for a secured,
revolving line of credit on commercially-reasonable terms.
BitFinex [sic] is actively working in various jurisdictions around the world to expedite the
return of these funds, and is confident in the future success of these efforts, although there
is no certainty that BitFinex [sic] will be able to recover these funds. Nevertheless, the
credit facility provides a stop-gap measure in order for Bitfinex to cover operational
shortfalls.
62. The White Paper makes representations about certain "Current Projects" by
The iFinex IEO platform will allow qualified persons with a Bitfinex or Ethfinex account
to contribute to pre-vetted token sales directly from her personal exchange wallet. Projects
that successfully raise capital on this platform are subsequently listed on the two
exchanges, as permitted by applicable law, and token sale participants receive their
subscribed tokens in their exchange wallets. The first token sale is scheduled for June 2019.
This venture will introduce an exchange platform combining the existing securities market
with the distributed ledger technology ecosystem, under the regulations emerging from
some of the world 's most important financial hubs. Through the digitization of securities,
the exchange will be designed to bring liquidity and transferability to assets. It will allow
wider investor audiences to partake in previously inaccessible opportunities and brings
wholly new assets to market. This exchange will only be available to customers permitted
under applicable regulations and will not be available to U.S. customers.
63. The White Paper further states that "This White Paper is being delivered only to
selected persons, and not through any general solicitation or general advertising. You may not,
nor are you authorised to, deliver or disclose the contents of this document to any other person."
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65. Attached hereto as Exhibit AA are true and correct copies of confirmation of hand
delivery of the 354 application and associated papers (Docket Nos. 1, 2-18) to the New York
offices of Morgan, Lewis & Bockius LLP and Steptoe & Johnson LLP, and the overnight
delivery of the papers to the Washington, D.C. office of Steptoe & Johnson LLP, counsel for
66. Attached hereto as Exhibit BB is a true and correct copy of the Affirmation of
Brian M. Whi
~
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RULE 17 CERTIFICATION
I am the attorney who is filing this document. I hereby certify that this document,
exclusive of the caption, table of contents, table of authorities, and signature block contains 3896
&t!(/1~ -:-
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