Hot Water or Not: Embattled Bitfinex Crypto Exchange Launches IEO (Initial Exchange Offering) Platform

Bitfinex, a cryptocurrency trading platform dogged for years by controversy, is launching a platform for the issuing of IEOs (initial exchange offerings).

IEOs are essentially a revamped version of the ICO (initial coin offering) except that rather than being sold directly to investors by issuers who then later seek a listing on exchanges, exchanges themselves assist in the creation of tokens. Listing is virtually guaranteed.

In IEOs, exchanges typically take a percentage of tokens, may charge a listing fee end eventually make money from trading fees.

The new IEO platform in question, Tokinex, will be jointly operated by Bitfinex and Ethfinex, two exchanges which, along with the stablecoin-issuing entity Tether, are owned by parent company iFinex, which is registered in the Virgin Islands.

Ethfinex co-founder Will Harborne reportedly told The Block that the first Tokinex IEO will be issued in days and several tokens issued every month thereafter.

Harborne does not mention accredited investors, and instead says Tokenix IEOs can be immediately purchased by Bitfinex and Ethfinex customers on the platform.

The Block writes that Harborne also reportedly promised, “…strict self-regulation and self-enforcement, especially during this time when they are under public scrutiny due to the NYAG lawsuit.”

iFinex is currently coping with a court case brought against it by the New York Attorney General, whose offices allege the company engaged in fraud by transferring $625 million USD of Tether “reserve funds” to the Bitfinex exchange.

Until a recent change to its Terms of Service, Tether has always promised that every synthetic “USDT” coin it issues into the crypto trading ecosystem is backed 1-to-1 by equivalent US dollars held in reserve.

The company has never produced a credible third party audit of its reserves, however, and academics have claimed that tethers have been used strategically to prop up the price of bitcoin.

iFinex has argued that the transfer of funds from Tether to Bitfinex was arranged so the exchange could cover expenses after Panamanian authorities seized $850 million USD in Bitfinex funds from a payments partner called CryptoCapital.

CryptoCapital’s Reginald Fowler was arrested earlier this month in Arizona and charged with bank fraud and other crimes for allegedly providing billions of dollars worth of “shadow banking” services to Bitfinex.

iFinex has assured customers that the funds seized in Panama are now being “safeguarded” by authorities in Poland, Portugal, the United Kingdom, and the United States.

iFinex has also been arguing that New York regulators have no jurisdiction over the company’s affairs, although it has also admonished the NYAG for not defending the company’s interests in recovering the funds.

The NYAG argues that, contrary to the company’s denials, Bitfinex has in fact been allowing trades from customers in New York despite not being licensed to do so.

Former SEC Internet Enforcement Chief John Reed Stark, recently warned markets and the public that IEO’s directly contravene US securities laws:

“Purveyors, promotors and others associated with IEOs conducted in U.S. markets and involving U.S. investors had best prepare themselves for an SEC IEO enforcement onslaught.”


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