The iFinex – Tether market manipulation trial continues. Last week, Judge Katherine Failla of the Southern District of New York chose Roche Cyrulnik Freedman as Acting Senior Counsel, and four civil actions were joined in one class action: Leibowitz v. IFinex Inc.
In the complaints, iFinex subsidiary Bitfinex and related stablecoin Tether (USDT) are accused of manipulating the Bitcoin market in 2017 – something the company has vigorously denied.
Combination of old and new
It doesn’t look like ordinary civil action. As Failla observed when announcing her lead counsel decision on February 27 via conference call, she said the case combines the old and the new:
“The cryptocurrency law is fairly new [with] a lot of questions and not a lot of resolution, but there are a lot of laws established there too with regards to pleading requirements, with regard to traditional antitrust and RICO matters and the Commodities Exchange Act. “
The case has reached an inflection point where the groups of claimants competing for primacy must now merge and face iFinex Inc. directly. Now is the right time to ask: What types of challenges do litigants face?
A major obstacle
Felix Shipkevich, a lawyer specializing in legal and regulatory issues related to cryptocurrency at Shipkevich PLLC, told Cointelegraph: “I am pessimistic [i.e., plaintiffs] will be able to overcome the obstacle of proving the market manipulation of a decentralized currency like Bitcoin. ”
The scope of market manipulation may differ from industry to industry, said Shipkevich. It is one thing to prove market manipulation with commodity futures, but another to prove it with equity securities. Cryptocurrencies are still so new that it is unclear how the courts will deal with market manipulation.
“Allegations of price manipulation under the Commodity Exchange Act (CEA) are difficult to prove,” said statement to Cointelegraph by Anne Termine, lawyer for Covington & Burling LLP and former chief counsel for the Commodity Futures Trading Commission (CFTC) from the United States. ) execution division. She added: “Proving price manipulation fees where Bitcoin is the underlying commodity just adds another layer of complexity.”
To prove market manipulation, there are generally four “strands”, or factors, that must be taken into account, said Shipkevich. Two of these problems can be problematic for the complainants: was there a misleading intention to manipulate the market? In other words, did people agree to raise or lower the price of a commodity? Due to the decentralized nature of crypto exchanges and registers, this could be difficult to prove in the case of Bitcoin.
Is there price domination?
Another factor is market dominance. A business must generally be able to dominate a market to manipulate it. If you buy all the crypto in an initial coin supply, it’s a closed loop, and the path to dominating or monopolizing that market becomes a real possibility, said Shipkevich. But how do you prove price dominance over the BTC, which had a market capitalization of $ 166 billion on March 6? It could be difficult. Term added to the concept:
“Price manipulation requires proof of the ability to create / cause artificial prices and proof that the defendants, in fact, made the price of the futures contract – the Bitcoin futures contract, in this case – artificial . Although the facts can be used to establish the specific intent required and the capacity to cause artificial prices, proving that an artificial price did take place can often be a difficult and technical analysis without purpose. “
What seems clear, however, is that Tether continues to play an inordinate role in Bitcoin trading. In December 2019, BTC trading with the USD represented 76.2% of the total volume of BTC traded in fiat or stable currencies, according to the CryptoCompare Exchange review of December 2019. It was even higher in the past. and at least suggests the possibility of leverage if not domination. As Ohio professor John Griffin told Newsweek in November, “Crypto can be easily repelled by big whales.” In a statement sent to Cointelegraph, Tether’s general counsel, Stuart Hoegner, vehemently denied any wrongdoing:
“Tether and its affiliates have never used Tether tokens or issues to manipulate the cryptocurrency market or token pricing. All Tether tokens are fully guaranteed by reserves and are issued in accordance with market demand and not for the purpose of controlling the pricing of cryptographic assets. “
Problems with stablecoins in general
Sidharth Sogani, founder and CEO of Crebaco Global Inc., a crypto and blockchain credit rating and audit company, told Cointelegraph that stable coins, in general, are detrimental to cryptocurrencies and fiat currencies because ‘They’ create the manipulation and creation of artificial wealth, resulting in economic inflation. “
Regarding Tether, in particular, the company is incorporated in the British Virgin Islands, which does not inspire confidence from the point of view of regulatory compliance, said Sogani. The country risk assessment for the British Virgin Islands and the Cayman Islands is category C, according to Crebaco standards, adding:
“There are more chances of fraud, MLMs [multi-level marketing schemes] and scams in these countries due to the lack of regulation of digital assets. “
Since 2014, iFinex – Tether has been essentially self-regulated. In its intelligence reports, Crebaco uncovers serious deficiencies in the compliance, reserves and circulation of the USDT in numerous exchanges and portfolios, Sogani informed Cointelegraph.
New York Attorney General’s Investigation
In October, Shipkevich told Cointelegraph that he was not surprised that a class action was brought against Tether and Bitfinex, given the lawsuits these entities have been facing by the New York Attorney General during the last year.
The New York State Attorney General’s Office Investigated The Company For Potential Securities And Commodity Fraud After The Company Transferred Tether’s Reserves To The Bifinex Subsidiary After Losing $ 850 Million To to user buyouts. In a December 13 case, lawyers for Bifinex and Tether said that the NYAG had no power to investigate the companies because “the fasteners are not securities or goods”.
Why the Roche group?
The issues in this case are not entirely clear, and this may have been included in the selection by Failla de Roche Cyrulnik Freedman as lead counsel. According to the transcript of the conference call, the judge had four criteria in mind for choosing a lead lawyer: “The work accomplished by the lawyer, the experience of the lawyer, knowledge of the applicable law and the resources that have or will be hired. “Here, any of the three competing companies would have been enough, she said.
Related: The Best Cryptocurrencies Are Exponentially More Liquid Than Ever
However, the definition of the class of injured differed in some companies. As noted by Cointelegraph, two of the rival legal groups – Roche Cyrulnik Freedman LLP and Kirby Mcinerney LLP – have defined the class action of their respective injured parties at large, while a third, Robbins Geller Rudman & Dowd LLP, has restricted its class definition. to investors in Bitcoin and Bitcoin futures. According to Brian Cochrane of Robbins Geller:
“Roche has defined him as anyone with cryptography in the past six years. It’s overworked – way too wide. The future Bitcoin and Bitcoin are closer to my definition of the class. Not all cryptos need to be included. It would simply be taking money from real victims and giving it to others. “
Failla, however, decided against this narrower definition of the casualty class: “I cannot agree with a class as narrow as that originally defined by the Robbins Geller company, and my concern here is that they cut the line too early in the matter. “Robbins Geller was therefore eliminated. Then Failla had to choose between Roche and Kirby.
It was a close call, she said, but after looking at companies’ labor products in other cases, the judge said the Roche firm “would best shed light on the problems, new and old, that I thought I was involved in this litigation … So, I grant their request for appointment as principal counsel. “
A significant case?
Will this likely be an important case for the world of cryptography? “In general, yes,” replied Shipkevich, but not as important as some other cases, such as Telegram or others involving the Securities and Exchange Commission, the CFTC or the states. “This case is at such an early stage that it is difficult to say whether it will be a previous case of market manipulation in the world of cryptography.”
According to Sogani, the USD remains by far the largest stablecoin and is listed on all major exchanges and portfolios. “All [court] This decision will have a direct impact on the industry. In addition, Termine told Cointelegraph:
“Some courts have held that Bitcoin is a commodity in interstate commerce, but that is by no means a problem solved. It is useful that the agency responsible for applying the CEA, the CFTC, has publicly argued that Bitcoin is a commodity. How a jury will see the question is not a certainty. As such, any court decisions on each of these issues will be closely monitored by the industry. “
The case is complex, added Termine, and the fees here go beyond price manipulation – they also include fraudulent manipulation. Second, what must be alleged and proven in private prosecutions, such as this one, is often different from what is required when a government agency such as the CFTC takes legal action.
Related: Tether Stablecoin: Can the Crypto Market Live Without It?
Shipkevich would not dare to say whether a settlement – as opposed to a court decision – in this case is likely. “But if I were Tether, I would plead until I ran out of money. To settle would be to declare the hunting season open, “he told Cointelegraph. The company could expect to be besieged by lawsuits.
Next steps
The defense, led by Walden Macht & Haran LLP, can be expected to now file a motion to dismiss the case. This process, which would culminate in argument before Failla, could take six months.
If the defense wins, iFinex – Tether wins the case. If the group of complainants survives the motion, however, things could really heat up. Applicants take depositions, they have access to trading data and all kinds of scenarios could emerge. When Cointelegraph asked iFinex Inc. to comment on this story, a spokesperson for the company replied:
“We have no further comments at this time beyond our last statement and we look forward to submitting the facts to the Court and responding to the baseless allegations in the court forum.”
Bring a pickaxe to a shootout
The SEC and CFTC both agree that Bitcoin is a commodity and should be regulated as such – and there is an established law to determine if and when the price of a commodity has been manipulated.
However, Bitcoin is not an important commodity like oil or silver, and as recently as October, CFTC president Heath Tarbert speculated that a cryptocurrency could go down ‘security to a commodity and “change back and forth”. The cryptocurrency law is also still “new,” as Failla observed – that is, it is a work in progress. It is therefore not surprising that proving price manipulation – with regard to something as elusive as BTC – could be a difficult task for the injured parties in this case.
