A New York judge has punted on deciding whether crypto exchange Bitfinex and stablecoin issuer Tether need to turn over documents and otherwise comply with a state investigation.

The New York Attorney General’s office (NYAG) is looking into allegations that Bitfinex covered up the loss of nearly $1 billion in client funds by borrowing from Tether’s reserves. While the case has been ongoing since April, Monday’s hearing primarily revolved around whether the NYAG had the authority to conduct its investigation.

On Monday, New York Supreme Court Judge Joel M. Cohen said he needed more time to make a final decision on whether to dismiss the NYAG’s case entirely, or rule the other way and reject Bitfinex and Tether’s motion to dismiss. As such, a preliminary injunction he filed in May will be extended until the final ruling is made available.

“I will extend the injunction … if I dismiss the case then obviously the injunction goes with it. If I don’t dismiss the case the injunction will be extended,” Cohen said, adding:

“The idea is to keep things where they are until the decision of this motion, so the decision is to extend the stay and … extend the injunction.”

If the judge rules in favor of the NYAG’s office, the injunction will likely be extended a further 90 days.

The ruling (or lack thereof) means Bitfinex and Tether can continue operating their businesses as normal, but Tether still cannot lend any more funds to Bitfinex.

The case to date

Stepping back, the NYAG’s office claims that Bitfinex covered up the loss of $850 million held by a payment processor by borrowing from Tether’s reserves, and is trying to obtain documents pertaining to the loan.

The crypto exchange and stablecoin issuer, which share key executives and ownership, maintain that Tether’s decision to extend a $900 million line of credit to Bitfinex was negotiated by independent teams of lawyers, and is not reflective of a cover-up.

On Monday, attorneys for Bitfinex and Tether argued that the NYAG’s office did not have either personal jurisdiction (power over the companies themselves) or subject-matter jurisdiction (power over the issues at hand).

The NYAG’s office, in turn, argued that there is sufficient jurisdiction to investigate whether any harm was done to New York residents.

“The 354 [action] is meant to assist and expedite our investigation,” said John Castiglione, senior enforcement counsel with the NYAG’s office on Monday.

‘As deliberate as it gets’

The NYAG’s office filed in April to uncover more information about the loss, the alleged cover-up and the line of credit that Tether opened. Cohen initially asked the parties to negotiate a narrower injunction, before ruling that Bitfinex and Tether can resume normal operations, though prohibiting any more fund transfers from Tether to Bitfinex.

The respondents filed to dismiss the NYAG’s suit, claiming the attorney general’s office has no jurisdiction over the companies. The NYAG’s office filed documents purporting to show that New York-based entities, including Michael Novogratz’s Galaxy Digital, have used Bitfinex’s services as recently as “early 2019,” and a report from The Block claims a New York resident was able to recently open an account, a claim Bitfinex confirmed in a statement.

“Respondents signed up [to do business] with a virtual currency company in early 2019. That’s as [deliberate] as it gets,” Castiglione said in court.

Bitfinex’s attorneys contend that the New York entities are foreign eligible contract participants (ECPs), entities which may have New York addresses but are not actually based in the Empire State. As such, New York regulators lack jurisdiction, they argue.

UPDATE (July 29, 2019, 23:40 UTC): This article has been updated for clarity.

New York State Supreme Court image via Nikhilesh De for CoinDesk