Crypto exchange Bitfinex and stablecoin operator Tether have asked a New York court to compel the state's attorney general to deny a request for information submitted by crypto industry publication CoinDesk.
Under New York's Freedom of Information Law, members of the public can submit requests for access to government records, such as court documents or records pertaining to legislators and their work.
CoinDesk filed a Freedom of Information Law request, or FOIL, for documents detailing Tether's reserve breakdown. Bitfinex and Tether produced this information to the NYAG in May of this year as part of its settlement agreement with the agency — an agreement which closed a months-long legal fight between the two over whether parent company iFinex co-mingled funds and misrepresented the reserve backing of USDT.
According to CoinDesk, Tether's attorneys initially asked the NYAG FOIL officer to deny the request, and they complied. CoinDesk then appealed that decision and saw success when FOIL Appeals Officer Kathryn Sheingold granted access to the documents.
Now, Tether is attempting to block access to the documents on the grounds that handing over the requested information would compromise its competitive edge.
The Block had filed similar requests for information and has since been informed by a FOIL officer that the requests may be exempt from disclosure based on a law that allows an agency to "deny access to records or portions thereof 'that are trade secrets or are submitted to an agency by a commercial enterprise or derived from information obtained from commercial enterprise and which if disclosed would cause substantial injury to the competitive position of the subject enterprise.'"
The argument goes that in detailing who the firm works with to make money and the methods it uses in those relationships would be akin to revealing "trade secrets." The FOIL process allows agencies to deny records that would compromise "trade secrets."
In its petition, Tether claims that providing the requested information would compromise its investment strategy, which other firms could use to close the competitive gap between themselves and Tether:
"The same is true for Tether’s internal investment strategy...The full detail of the investment strategy behind how Tether achieves its returns, and the counterparties and issuers it works with to achieve them, is a key part of its business and one it does not want to reveal to the broader public. The competitive advantages Tether gains from its investment strategy would be wiped away if competitors had full visibility into Tether’s investments."
The company also claims the information in the documents would compromise its relationship with partners that are critical to the aspects of its business that draw customers:
"Bitfinex and Tether have spent years cultivating non-public relationships with financial institutions around the globe that are capable of processing a high volume of high value transactions efficiently.... This excellent customer experience is central to Bitfinex and Tether’s success in the marketplace, but could easily be replicated by competitors were the companies’ network of financial relationships publicly disclosed."
But CoinDesk says that in its request it specifically only asked for information Tether already committed to making public. Tether published a breakdown of its reserves earlier this year. The CoinDesk request clarified that the publication isn't interested in any other documents related to the reserves, only the backing breakdown sent to the NYAG in May. The source of the additional information requests is unknown at this time.
"I’m specifically only looking for information about what is backing Tether’s reserves, including the document Tether claims to have sent OAG in May 2021," the request stated, as CoinDesk reported Tuesday. "I do not currently need any other documents about the investigation or about the OAG’s ongoing monitoring of Tether’s reserves over the next two years."
In its petition, Tether argued this information is already accessible to the public in a form that doesn't compromise the firm's competitive advantage. Furthermore, by making documents related to the settlement public, bad actors would have access to compliance information that could enable them to poke holes in the firm's compliance system.
In a statement to The Block, Tether said: "In any other industry, this type of proprietary, competitively sensitive information would be clearly and strongly protected, and the same should be true for us and for any other company in the crypto ecosystem. Therefore, we vigorously oppose the notion that proprietary information of our company, or any company in our community, should be made public simply to satisfy Internet trolls or other detractors.."
The documents will remain private until fifteen days after a judge decides whether Tether should be exempt from the FOIL requests, according to a New York FOIL officer.
“We were disappointed, but not surprised, to see that Tether has filed a proceeding to block the release of documents sought pursuant to CoinDesk’s Freedom of Information Law request, after the Office of the Attorney General agreed with CoinDesk on release of those documents," Lance Koonce of Klaris Law, which is representing CoinDesk, said in a statement. "We look forward to seeing the OAG’s decision vindicated in court."