Paradise Papers connection sparks massive bitcoin lawsuit

A new lawsuit that could roil the volatile, multibillion-dollar market for cryptocurrency stems from a link between executives revealed in the Paradise Papers.

The lawsuit alleges that crypto exchange Bitfinex and its sister company Tether manipulated the crypto market, harming traders and benefiting themselves.

The suit was filed in October in a federal court in New York on behalf of investors who lost money during last year’s precipitous crash in bitcoin’s value.

At the heart of the lawsuit is a connection found in the Paradise Papers: two leading executives of Bitfinex, Giancarlo Devasini and Philip Potter, were also beneficial owners of Tether, which provided a more secure type of cryptocurrency called stablecoins that were purportedly backed by U.S. dollars.

“Right in the height of the bitcoin bubble, the Paradise Papers comes out and shows that Tether and Bitfinex are controlled by the same people,” said Kyle Roche, the lead attorney filing the complaint. “The fact that this overlapping ownership structure was hidden until November 2017 is shocking.”

The suit charges that stablecoins from Tether were used to inflate the value of the cryptocurrency on the Bitfinex exchange, and that Tether misled investors by claiming that stablecoins were fully backed by U.S. dollars when it did not, in fact, hold equal amounts of dollars to stablecoins in its reserves.

It maintains that Bitfinex and Tether’s potential liability – if damages caused by bitcoin’s crash were tripled under antitrust laws and the Racketeer Influenced and Corrupt Organizations Act (RICO) – could surpass a trillion dollars.

Bitfinex and Tether say they disclosed their shared ownership prior to the Paradise Papers and maintain that the lawsuit is meritless.

Joe Morgan, a spokesman for Bitfinex and Tether, provided a court filing that the companies submitted to a federal court in California in April 2017 in an unrelated case against Wells Fargo that disclosed that…

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