Tether Ordered by New York Judge to Document USDT Backing

A longstanding crypto price manipulation case between Tether and Bitfinex and some of its users may be turning against the stablecoin firm as the presiding judge has ordered the firm to provide evidence of the USDT backing of its reserves at the time. 


With the case dating back to 2019, Bitfinex, and iFinex, Tether’s parent company, both denied the fact that they were falsely inflating the USDT reserves at the time to manipulate prices. 

In their defense, they told the judge for the case is baseless and that it should be thrown out, considering the fact that they had already provided sufficient documentation to both the United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in their previous enforcement actions against it.

With their defence and earlier permission to withhold the documents, Katherine Polk Failla, the judge for the United States District Court for the Southern District of New York believes providing the required documentation is important to bolster the Plaintiff’s argument and, as such, ordered the defendants to produce it.

While it is unclear whether iFinex and Bitfinex kept the right records to present to the District Court, the company has actually been more transparent with its attestation reports detailing the composition of its reserve.

This new approach to transparency came with the settlement reached with the Office of the New York Attorney General (NYAG) back in February of last year. The company paid the sum of $18.5 million to the regulator and was made to pledge to publish regular updates of its reserve backing, as well as, blocking New York residents from using its products.

While Tether was notably not anticipating a judgment like this, the company recently tapped the services of BDO Italia as the primary attestator for its USDT reserves. With BDO ranked as the fifth largest accounting firm in the world, many consider the move as one of Tether’s most ambitious to gain the trust of regulators around the world.

Image source: Shutterstock


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Bitfinex, Tether Found To Misrepresent USDT Backing And Obscure User Fund Losses

After more than two years of legal battle and investigation, iFinex and stablecoin issuer Tether have agreed to an $18.5 million settlement with the New York Attorney General’s office (OAG) today while admitting to no wrongdoing.

Originally promoted by findings stemming from a 2018 investigative subpoena, the OAG alleged in 2019 that cryptocurrency exchange Bitfinex used funds from Tether,  both of which are run by iFinex, to obscure some $850 million in customer funds losses caused by mismanagement or malicious action by payment processor Crypto Capital.

Bitfinex and Tether have endured a long-standing public relations and legal battle to maintain consumer confidence since the OAG allegations have stoked rumors that tether printing is fraudulent. 

Now, in an agreement announced by the OAG, iFinex, Tether and related entities will have to cease trading activities with residents of New York and will have to pay the $18.5 million in penalties, as well as undertake processes to increase transparency such as mandatory reporting on business functions and public disclosures of the assets backing tether. 

Ultimately, OAG found that Tether misrepresented the backing of its stablecoin.

Tether Misrepresented USDT Backing

“The OAG’s investigation found that, starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations,” per the announcement. “Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as a ‘good faith effort on our behalf to provide an interim analysis of our cash position.’ In reality, however, the cash ostensibly backing tether had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’”

OAG found also that, as of November 2018, tethers were again no longer backed one-to-one by USD in a Tether bank account.

See Also

A report from the Blockchain Transparency Institute indicates that wash trading by cryptocurrency exchanges has dropped significantly this year.

iFinex Was Misleading Clients

The OAG announcement also noted that its suspicions about Bitfinex and Tether obscuring the loss of $850 million in user funds by Crypto Capital turned out to be true.

“On April 26, 2019 — after the OAG revealed in court documents that approximately $850 million had gone missing and that Bitfinex and Tether had been misleading their clients — the company issued a false statement that ‘we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded,’” per the announcement. “The reality, however, was that Bitfinex did not, in fact, know the whereabouts of all of the customer funds held by Crypto Capital, and so had no such assurance to make.”

As a purported stablecoin, tether is often contrasted with bitcoin as a remedy for the latter’s price volatility. Tether tends to fuel misunderstanding about Bitcoin and cryptocurrency in general, and its possible that the revelations from this legal saga will inform current and future users about the inner-workings of USDT and when to remain skeptical.


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Bitfinex Repays Tether $750 Million Loan, Ending Crypto Market FUD

Key Takeaways

  • In April 2018, New York’s justice department had accused Bitfinex and Tether of manipulating finances to cover $850 million in lost funds. 
  • Today, Bitfinex announced a complete repayment of the loan and cancellation of the credit lines between the two companies. 
  • The resolve has removed the last speck of concerns the market had related to the assets backing industry’s largest stablecoin USDT. 

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Bitfinex exchange’s parent company iFinex Inc. made full payment of the $750 million loan it had taken from Tether, putting an end to speculation of wrongdoing that threatened to wind up the company. 

An End to Tether FUD

The two companies, iFinex Inc. and Tether, have ended the $900 million credit line, which allowed iFinex to borrow from the latter. The press release by Bitfinex noted: 

“The loan has now been repaid early and in full and the line of credit has been cancelled.”

Bitfinex had borrowed $750 million from Tether in 2018. In the last two years, the exchange repaid $200 million of the amount and cleared the remaingin$550 million, plus interest today. The loan formed the basis of the justice department’s case against the companies.

In 2018, New York’s attorney general (NYAG) Letitia James filed a case against Tether and iFinex for cooking their books to cover losses of $850 million at the Bitfinex exchange. 

Under James, the Department of Justice (DoJ) accused iFinex of using a $750 million credit to cover lost funds. It also insinuated that Tether had been printing its stablecoin USDT without sufficient backing. 

At the time, $850 million accounted for one-third of the total USDT supply. 

In the latest court proceedings, Tether and iFinex were asked to hand over financial documents to the NYAG by Jan. 15. The process went smoothly, according to the company. More importantly, it also marked the end of the stablecoin providers’s injunctive restrictions for providing loans to Bitfinex.

Today, the company has resolved its largest obstacle. 

The DoJ’s quiet concerning the case suggests that Tether is in the clear.

Tether FUD became popular recently after the stablecoin issuer had allegedly invested its USDT reserves in Bitcoin. Since Tether is one of the most liquid exchange pairs with BTC, a crypto reserve at the firm created a lot of risk for the industry.

Disclosure: The author held Bitcoin at the time of press. 

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