Suing Bitfinex Could Lose Traders More, Not Less

Bitfinex’s compensation measures could sink in court before seeing results, with traders already talking of legal action following their 36% ‘haircut’.
Traders Feel ‘Robbed’

TradersThe exchange has sought to compensate $72 million in stolen funds by replacing 36% of customer balances with its own BFX tokens.

“The BFX tokens will remain outstanding until repaid in full by Bitfinex or exchanged for shares of iFinex Inc,” an update stated August 6.

The move was met with immediate criticism. Now, legal concerns surrounding the nature of the tokens and what traders could do with them – particularly in the US – have been augmented by threats from traders themselves to pursue criminal proceedings against Bitfinex. Securities trading specialist attorney Zach Zweihorn told Reuters.
If they are issuing an equity interest in their parent company, I don’t really think the fact that it’s evidenced through an electronic token […] really changes the analysis of whether it’s a security.
The nature of BFX tokens will dictate whether or not Bitfinex requires a license to issue them to traders in the US, Reuters asserting however that this was “highly likely.”

Traders themselves have also come out to voice their frustration en masse.

“Basically they took customers’ funds in order to try to stay afloat. Nowhere in their terms of service did it mention that this was a possibility,” one investor said, adding that he “felt like he was robbed.”

Damage Control

Nonetheless, rebutting the concerns, other parties are warning that the tokens would ultimately provide a more likely source of compensation than legal action. Taking the embattled exchange to court could cause the cancellation of the plan, leaving an even bigger black hole unfilled.

“It might be a pyrrhic victory,” Bitcoin Foundation co-founder Patrick Murck said. “You might still end up with less money.”

Additionally, Reddit has become a predictably vast discussion board about the issue, with users also taking the opportunity to defend Bitfinex’s original plan.

“Those of you who think taking legal action will get you 100% of your money, you’re wrong,” user u/theswapman wrote.
Any forcing of them to make good on large sums will push them through that costly process where you just get a slow-motion haircut […] Injunctions or any moves to force them into the process before implementing the haircut+token plan will not get more than 64% of your funds back.
Bitfinex meanwhile is pressing ahead with the incremental reopening of its exchange platform.

“We are aware that many questions remain and we intend to discuss the theft, the distribution of losses, and our recovery plan in follow-up announcements. We are trying to be as transparent as we can be while we continue to try to make the best of a terrible situation,” it stated August 10.