Tether and Bitfinex Reach Agreement with New York Attorney General


A smartphone displays the market value of Tether in the app via The Crypto.

Guillaume Payen | Images SOPA | LightRocket | fake 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 resolve a closely monitored legal dispute.

The state’s top law enforcement official had been investigating the firms for allegations that they moved hundreds of millions of dollars to cover the apparent loss of $ 850 million in combined client and business funds. Tether and Bitfinex, a popular digital currency exchange, are owned by the same company, Ifinex.

Tether and Bitfinex will be required to cease doing business with New Yorkers and submit quarterly transparency reports, the attorney general’s office said. It is a major development in the crypto industry and concludes a long-running legal battle that began in April 2019.

What is Tether?

Tether is the company behind a well-known “stable coin” of the same name. That token is meant to be backed one by one by US dollars, the idea is that it is much more stable than most digital currencies that have large price swings.

Many crypto investors use tether to buy bitcoins and other virtual tokens. But there have been concerns about whether Tether had enough cash reserves to back all the tether tokens in circulation. Critics have also raised fears that tether tokens have been used to manipulate bitcoin prices, a claim that Tether has repeatedly denied.

The New York Attorney General’s office Letitia James says it found that Tether sometimes had no reserves to back its cryptocurrency’s dollar peg. He said that, since mid-2017, the company had no access to banking and misled customers about liquidity problems.

In a 2019 filing, the attorney general’s office said Bitfinex gave $ 850 million to a Panamanian entity called Crypto Capital without disclosing it to investors. Executives at Bitfinex and Tether allegedly participated in a series of transactions that opened Tether’s cash reserves to Bitfinex.

“Bitfinex and Tether recklessly and illegally covered up massive financial losses to keep their scheme running and protect its results,” James said in a statement Tuesday.

“Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie,” he added.

“These companies concealed the true risk investors faced and were operated by unlicensed and unregulated individuals and entities that operated in the darkest corners of the financial system.”

Tether does not admit any wrongdoing

Tether and Bitfinex declined to admit any wrongdoing on Tuesday, but said that “we share the Attorney General’s goal of increasing transparency.”

“Contrary to online speculation, after two and a half years no Tether was ever found to issue moorings without backing or to manipulate cryptocurrency prices,” the companies said in a statement on Tether’s website.

A spokesperson for the companies was not immediately available when contacted by CNBC 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 investigation, which has gained more interest recently in light of bitcoin’s meteoric rise.

There are now around 34.8 billion tether tokens in circulation, according to data from CoinMarketCap, up from 2 billion three years ago. The cryptocurrency has a market capitalization of $ 34.6 billion.

Bitcoin was down 10% on Tuesday, trading at a price of $ 48,713. The world’s most valuable digital currency was already falling before the New York attorney general’s announcement.

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