Bitfinex’s plan to impose losses on all its trading customers for the stolen by hackers of $72 million in Bitcoin rests on two flawed pillars, according to counselors. The Hong Kong-based digital currency exchange said that hackers had stolen 119,756 bitcoins from some clients’ accounts, the second-biggest such hack in dollar terms, and later said it would spread the losses across all its customers, whether or not they had been hacked or even held bitcoin. Consumers would forfeit 36 percent of their holdings and be given “BFX tokens” instead that could be redeemed by the exchange or converted to shares in its parent company iFinex. Striking losses on customers who were not hacked emerges opposing the company’s terms of service, said Ryan Straus, a Fenwick & West lawyer who advises financial technology companies on regulation.
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 rupture. The way they are currently being explained 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. The U.S. Securities and Exchange Commission did not return a request for comment, The Company did not respond to requests for comment on either controversy. Bitfinex’s website acknowledges there are details still to be resolved for the tokens, and that U.S. residents can sell but not buy them for the time being.
Bitfinex is nevertheless hoping that traders will be patient and accept that they won’t get a better deal if legal challenges force it into eradication. Traders will be aware of the fate of Tokyo-based digital-currency exchange Mt Gox, which suffered the biggest bitcoin fraud of all time in 2014, and consequently went bankrupt. Traders have not recovered any damages, and court proceedings still continuous.