A smartphone displays the Tether market value on the via The Crypto App.
Guillaume Payen | SOPA Pictures | LightRocket | Getty Images
Cryptocurrency firms Tether and Bitfinex reached an agreement with the New York Attorney General’s Office to pay a fine of $ 18.5 million to settle a closely-monitored legal dispute.
The state’s top law enforcement officer had investigated the companies for allegations that they had moved hundreds of millions of dollars to cover the apparent loss of $ 850 million in mixed customer and corporate funds. Tether and Bitfinex – a popular digital currency exchange – are owned by the same company, Ifinex.
Tether and Bitfinex will have to cease trading with New Yorkers and file quarterly transparency reports, the attorney general’s office said. It is a significant development in the crypto industry, concluding a long-running legal battle that began in April 2019.
What is Tether?
Tether is the company behind a well-known “stablecoin” of the same name. That token is meant to be backed one-to-one by US dollars, with the idea that it is much more stable than most digital coins with huge price swings.
Many crypto investors use tether to buy bitcoin and other virtual tokens. But there were concerns about whether Tether had enough cash reserves to support all of the tether tokens in circulation. Critics have also raised concerns that tether tokens were being used to manipulate bitcoin prices, a claim Tether has repeatedly denied.
Attorney General Letitia James’s office in New York says it found that Tether sometimes lacked reserves to support its cryptocurrency’s dollar peg. It said that as of mid-2017, the company had no access to banks and was misleading customers about liquidity issues.
In a 2019 filing, the Attorney General’s office said Bitfinex was handing over $ 850 million to a Panama entity called Crypto Capital without disclosing it to investors. Executives at Bitfinex and Tether were then reportedly involved in a series of transactions that opened Tether’s cash reserves to Bitfinex.
“Bitfinex and Tether recklessly and illegally covered huge financial losses to keep their plan going and protect their profits,” James said in a statement Tuesday.
“Tether’s claim that his virtual currency was fully backed by US dollars at all times was a lie,” she added.
“These companies obscured the real risks investors faced and were managed by unrecognized and unregulated individuals and entities trading in the darkest corners of the financial system.”
Tether does not admit wrongdoing
Tether and Bitfinex declined to admit anything wrong on Tuesday, saying, “We share the Attorney General’s goal of increasing transparency.”
“Contrary to online speculation, after two and a half years, there was no finding that Tether had ever issued tethers without support, or to manipulate crypto prices,” the companies said in a statement on Tether’s website.
A company spokesperson was not immediately available when CNBC reached out for further comment.
Earlier this month, Bitfinex said it had repaid the remaining balance of a $ 550 million loan to Tether.
Crypto investors have been closely following the New York fraud probe, which has recently gained more interest in light of bitcoin’s rapid rise.
According to data from CoinMarketCap, there are now approximately 34.8 billion tether tokens in circulation, compared to 2 billion three years ago. The cryptocurrency has a market cap of $ 34.6 billion.
Bitcoin fell 10% on Tuesday and traded at a price of $ 48,713. The world’s most valuable digital currency tumbled before the attorney general’s announcement in New York.