The Hong Kong-based exchange said on Aug. 2 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.
It said customers 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.
Both elements of the plan are open to legal challenge, lawyers said.
Imposing losses on customers who were not hacked appears to go against the company's terms of service, said Ryan Straus, a Fenwick & West lawyer who advises financial technology companies on regulation and co-authored the U.S. chapter of a book on bitcoin law.
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 breach.
"The depository ... is obligated to return, on demand, the same monetary objects deposited," he said, quoting a line from his book.
The exchange's tokens could also be problematic, said Zach Zweihorn, a lawyer at DavisPolk who specializes in U.S. securities and trading laws.
The way they are currently being described - 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.
"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," said Zweihorn.
The U.S. Securities and Exchange Commission did not return a request for comment.
Bitfinex did not respond to requests for comment on either issue.
"ROBBED"
Bitfinex's website acknowledges there are "protocol level details" still to be worked out for the tokens, and that U.S. residents can sell but not buy them for the time being.
"I feel like I was robbed," a 33 year-old investor who had a five-figure U.S. dollar amount on the platform told Reuters.
He said he took a 36 percent "haircut" across all assets, including U.S. dollar reserves, and as a U.S. trader he couldn't properly deal in the IOU token.
"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," said the user, who works in the financial services industry.
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 liquidation.
"This is the closest approximation to what would happen in a liquidation context," it told traders in a blog post a week ago, while the tokens gave them some hope of ultimately recovering their losses.
Traders will be aware of the fate of Tokyo-based crypto-currency exchange Mt Gox, which suffered the biggest bitcoin theft of all time in 2014, and consequently went bankrupt. Traders have not recovered any losses, and court proceedings are still ongoing.
"People are afraid to see their assets completely frozen if they sue Bitfinex too early," said 28-year-old Nathan Bourgeois, who is based in France and moderates a 2,000-member traders' messaging group called Whaleclub under the username dr Helmut.
He said he thought people would agree to the deal if there was a chance of getting some of their money back.
But Patrick Murck, a fellow at Harvard University's Berkman Klein Center for Internet & Society, said the Bitfinex plan was unlikely to survive a legal challenge.
"It might be a pyrrhic victory. You might still end up with less money," said Murck, who is also co-founder of the Bitcoin Foundation and its former general counsel, but the "odds are fairly low" that nobody will test it in court.
"It takes one grumpy hold-out ... to blow the whole thing up,” he said.
(Reporting by Clare Baldwin; Additional reporting by Hera Poon and Tris Pan; Editing by Will Waterman)