Bitfinex, the world’s largest cryptocurrency trading platform, has hired Steptoe & Johnson, a heavy-hitting, international law firm based in Washington, D.C., to try to put an end to what their PR firm calls “a campaign of mistruth.”

According to an earlier statement issued by Ronn Torossian, CEO of 5W, the PR company representing the exchange, Bitfinex is “signaling to those who engage in this activity that they are serious about protecting the truth and their business.”

Steptoe & Johnson is known for its work in the digital currency space. The firm leads the Blockchain Alliance, a coalition of blockchain companies and U.S. and international law enforcement agencies around the world.

Although Bitfinex did not spell out exactly whom it was threatening to take legal action against, the announcement comes at a time when blogger Bitfinex’ed has been persistently denouncing the company in a series of detailed Medium posts and ongoing tweets. Other critics have been taking their swings at Bitfinex as well.

“To date, every claim made by these bad actors has been patently false and made simply to agitate the cryptocurrency ecosystem,” Stuart Hoegner, in-house counsel for Bitfinex, said in the announcement. “As a result, Bitfinex has decided to assert all of its legal rights and remedies against these agitators and their associates.”

The Backstory

Bitfinex, incorporated in the Virgin Islands, is closely tied to cryptocurrency company Tether, based in Hong Kong. Both companies are owned and operated by the same individuals, as revealed in recently leaked documents.

Tether issues a token (USDT) that is pegged, or tethered, to the U.S. dollar. Essentially, one USDT is supposed to represent one dollar. By trading their bitcoin or other cryptocurrency for USDT, traders can essentially park their funds in a stable asset to preserve capital. In that sense, Tether works something like a money market account. Tether also allows traders to move their money between exchanges without going through a bank.

Bitfinex does not support bitcoin-to-fiat trading or withdrawals, so if traders on Bitfinex want to sell their bitcoin for fiat, they would have to transfer their bitcoin to a regulated exchange like U.S.-based Coinbase, which links to users’ bank accounts, allowing them to make direct fiat deposits and withdrawals.

In August 2016, Bitfinex was hacked, losing 120,000 BTC, worth roughly $72 million at the time. Rather than declare bankruptcy, the exchange came up with a three-part strategy. First, it spread the loss out evenly among all its customers, giving everyone a 36 percent haircut and then issuing “BFX tokens” as I.O.U.’s to be redeemed at a later date.

Next, in mid-October, Bitfinex offered to allow its customer to convert their BFX tokens to equity in iFinex, the parent company that operates Bitfinex. As a result, roughly a third of all BFX tokens were converted. Finally, in April 2017, Bitfinex bought back all of the remaining BFX tokens and announced it was clear of debt.

Allegations and Concerns

At issue right now is the fact that more than 800 million USDT are in circulation, but so far, Tether has not shown any real proof that it has the money to back up those tokens.

Bitfinex’ed claims Bitfinex/Tether is creating that money out of thin air. He also claims Bitfinex is manipulating the markets through techniques such as spoofing — where a trader puts in a large bid or ask order to make the price of bitcoin go up or down before canceling the order — and wash trading, where an asset is bought and sold simultaneously to give the impression it is in more demand than it actually is.  

He also argues Bitfinex is operating a Ponzi scheme, paying back its debt through accounting tricks, to avoid becoming insolvent after it was hacked in August 2016.

But while Bitfinex is trying to protect its image by threatening legal actions against its critics, Stephen Palley, an attorney at Anderson Kill in Washington, D.C., who focuses on software development, thinks Bitfinex would do better by simply being more transparent.

“Why don’t they just open their books?,” he told Bitcoin Magazine. “What are they afraid of? They are going to have to do that in discovery and litigation anyhow.”

To win in court, Bitfinex would have to prove that the blogger was making claims that were false and unsubstantiated, which would require them to come clean themselves.

“It looks to me like they are using heavy-handed intimidation tactics to shut down someone they claim is inconsequential,” said Palley.

Bitfinex’ed recently tweeted his bitcoin wallet address and said he is seeking donations to defend himself against possible upcoming litigation. One person has already donated 1 BTC (currently worth $11,500).

“This is bloody bananas,” Bitfinex’ed told Bitcoin Magazine, in response to the hiring of Steptoe.

The blogger cited a previous lawsuit filed by Bitfinex, which he claims the exchange had no plans of following through on. In April 2017, Bitfinex filed a lawsuit against Wells Fargo for suspending its U.S. dollar wire transfers. That suit was withdrawn a week later.

“Best to be prepared,” Bitfinex’ed said. “If this is [a] big bluff on their end then money goes to charity, I can’t hold the bitcoins while whistleblowing.”