Bitfinex says it repaid $550 million Tether crypto loan central to fraud probe

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Cryptocurrency exchange Bifinex said Friday it repaid a half billion-dollar loan at the center of a fraud probe opened by the New York Attorney General’s office three years ago.

Bitfinex settled its remaining debt—$550 million out of a total $750 million—borrowed from its sister firm Tether in January, the company said in statement. Tether is the issuer of a popular, if controversy-prone “stablecoin,” a digital currency designed to maintain a fixed price; in this case, a one-to-one peg with the U.S. dollar.

“We are pleased to be in a position to pay off the loan in its entirety,” said Stuart Hoegner, Bitfinex’s general counsel, in an email to Fortune. “Our performance has made it possible to repay the remaining balance of the outstanding revolving credit facility early.”

While Hoegner did not elaborate on the recent financial performance of Bitfinex, a private concern registered in the British Virgin Islands, it doesn’t require much sleuthing to figure out where the funds may have come from. The price of Bitcoin and other cryptocurrencies such as Ethereum have rocketed upward to hit all-time highs in recent months, a bull run that likely supplied the exchange with ample funds.

In an April 2019 court order, New York Attorney General Letitia James alleged that iFinex, the parent company that operates both Bitfinex and Tether, possibly defrauded cryptocurrency investors by engaging “in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.”

Bitfinex lost access to the $850 million in question when the funds got tied up with Crypto Capital, a Panamanian payment processor with which it did business, investigators said. Bitfinex quietly tapped Tether’s cash reserves as a “corporate slush fund…to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals,” they alleged.

Bitfinex has been wrapped up in legal proceedings since the investigation started. In January, the company said it expected to finish turning over relevant documents to the Attorney General’s office by mid Feb.

“We are having a productive and constructive dialogue with the New York Attorney General’s Office, and we look forward to continuing those discussions,” Hoegner told Fortune.

Tether, a virtual currency popular among traders, is the industry’s third biggest with a total market value of nearly $30 billion, according to Messari, a cryptocurrency tracking tool. For comparison, at press time, the total market value of Bitcoin exceeded $700 billion and Ethereum clocked in at just under $200 billion.

Skeptics frequently claim that Tether is not fully backed by reserves, an allegation the company has been unable to dismiss since it has never provided a proper audit. Others fear malicious actors could be using Tether for cryptocurrency market price manipulation.

“Tether is fully backed at all times by its reserves, which includes traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties,” Hoegner told Fortune.