The New York Attorney General (NYAG), Letitia James, today announced an $18.5m settlement of its fraud case against the cryptocurrency exchange Bitfinex and its affiliated entity, stablecoin issuer Tether.
The NYAG launched its case in April 2019, alleging that the two entities had hidden a $900m emergency loan from Tether to Bitfinex, leaving the Tether stablecoin only partially backed, despite public assurances from both Bitfinex and Tether that the stablecoin was backed one-for-one by dollars held in bank accounts.
“Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie”
In today’s settlement agreement, NYAG James provided new evidence that Tether and Bitfinex had lied outright about the reserve backing in the past.
“Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie,” James said.
“These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”
According to the NYAG, Tether’s previous assurances about its reserve backing were deliberately deceptive.
“In the face of persistent questions about whether the company actually held sufficient funds, 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’,” James said in a press release accompanying the announcement of the settlement.
“In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification’,” James said.
“We will stand up to corporate greed whether it comes out of a traditional bank, a virtual currency trading platform, or any other type of financial institution”
Under the settlement agreement, Bitfinex and Tether have committed for the next two years to substantiate Tether’s reserve accounts to the NYAG, as well as verifying that client, reserve and operational accounts are segregated.
Additionally, Tether must offer public disclosures, by category, of the assets backing tethers, including disclosure of any loans or receivables to or from affiliated entities, the NYAG said.
“We will stand up to corporate greed whether it comes out of a traditional bank, a virtual currency trading platform, or any other type of financial institution,” said New York Attorney General Letitia James.
In a statement, Tether and Bitfinex said they were pleased to have reached a settlement of legal proceedings with the NYAG.
“Under the terms of the settlement, we admit no wrongdoing,” Bitfinex and Tether said.
“The settlement amount we have agreed to pay to the Attorney General’s Office should be viewed as a measure of our desire to put this matter behind us and focus on our business.”
“The market capitalization of tethers has grown from US$2bn to in excess of US$34bn over that time period, and Bitfinex has seen dramatic growth, as well, particularly this year. We look forward to both companies continuing to lead the industry and serve our customers.”
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