New York State Attorney General Letitia James said her office obtained a court order against iFinex Inc., the operator of Bitfinex virtual asset trading platform and Tether Ltd., which issues 'tether' virtual currency, amid allegations they defrauded investors of hundreds of millions of dollars.

An order from the Manhattan Supreme Court says the companies can no longer issue U.S. dollar backed assets amid an ongoing investigation and orders the companies not to destroy any documents.

"Our investigation has determined that the operators of the Bitfinex trading platform, who also control the tether virtual currency, have engaged in a coverup to hide the apparent loss of $850 million of co-mingled client and corporate funds," James said in a press release. "New York State has led the way in requiring virtual currency businesses to operate according to law."

According to court filings, the companies no longer have access to $850 million in co-mingled client and corporate funds  that they turned over to a Panamanian entity called Crypto Capital Corp. without any written agreement.

The AG alleges that Bitfinex and Tether executives, in order to fill the gap, engaged in a series of conflicted actions where Bitfinex gave itself access to $900 million of Tether's cash reserves, which Tether told investors had backed the virtual currency on a '1-to-1' basis.

Court filings show that Bitfinex has already taken about $700 million of Tether's cash reserves, which prosecutors say Bitfinex was treating like a slush fund.

Bitfinex officials were not immediately available for comment.