Legal challenges could sink Bitfinex recovery plan

posted almost 6 years ago
Bitfinex's plan to impose losses on all its trading clients for the theft by hackers of $72M in BTC rests on two flawed pillars, according to lawyers. The Hong Kong-based exchange said customers would forfeit 36 percent of their holdings and be given "BFX tokens". Both elements of the plan are open to legal challenge, lawyers said.

Imposing losses on customers who were not hacked appears to go against the company's terms of service, said Ryan Straus, a Fenwick & West lawyer who co-authored the U.S. chapter of a book on bitcoin law.

The terms state "bitcoins in your multi-signature wallets belong to and are owned by you", which Straus said implied a special banking relationship with clients that the Bitfinex plan would breach. "The depository ... is obligated to return, on demand, the same monetary objects deposited," he said, quoting a line from his book.

The exchange's tokens could also be problematic, said Zach Zweihorn, a lawyer at DavisPolk who specializes in U.S. securities and trading laws.The way they are currently being described - redeemable by the exchange or convertible to shares in iFinex - places them somewhere between a bond and a security and makes it highly likely that issuing them and trading them would require licenses in the U.S. that Bitfinex doesn't have.

"If they are issuing an equity interest in their parent company, I don't really think the fact that it's evidenced through an electronic token ... really changes the analysis of whether it's a security," said Zweihorn.
Tags: opinion, bitcoin