A smartphone shows the market value of Tether through The Crypto App.
Guillaume Payen | SOPA Pictures | LightRocket | Getty Images
Cryptocurrency companies Tether and Bitfinex reached an agreement with the New York Attorney General’s office to pay a $ 18.5 million fine to resolve a monitored legal dispute.
The top law enforcement official had investigated the companies for allegations that moved hundreds of millions of dollars to cover up the apparent loss of $ 850 million in corporate and customer funds. Tether and Bitfinex, a popular digital currency exchange, are owned by the same company, Ifinex.
Tether and Bitfinex will have to stop trading with New Yorkers and submit quarterly transparency reports, the attorney general’s office said. This is a major development in the cryptographic industry and concludes a long legal battle that began in April 2019.
What is Tether?
Tether is the company behind a well-known “stablecoin” of the same name. This symbol should be supported individually by US dollars, with the idea that it is much more stable than most digital currencies that have huge price fluctuations.
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 support all outstanding tether tokens. Critics have also raised fears that the fixing tokens would be used to manipulate bitcoin prices, a claim Tether has repeatedly denied.
New York Attorney General’s Office Letitia James said it found that Tether sometimes had no reserves to back the dollar peg of his cryptocurrency. He said that since mid-2017, the company had no access to banking and was misleading customers on liquidity issues.
In a 2019 filing, the attorney general said Bitfinex handed over $ 850 million to a Panamanian entity called Crypto Capital without disclosing it to investors. Bitfinex and Tether executives then participated in a series of transactions that opened Tether’s cash reserves at Bitfinex.
“Bitfinex and Tether recklessly and illegally covered massive financial losses to maintain their plan and protect their results,” James said in a statement Tuesday.
“Tether’s claims that his virtual currency was fully backed by US dollars at all times was a lie,” he added.
“These companies overshadowed the real risk to investors and were operated by unlicensed and unregulated individuals and entities working in the darkest corners of the financial system.”
Tether does not admit any foul
Tether and Bitfinex refused to admit any wrongdoing on Tuesday, but said they “share the attorney general’s goal of increasing transparency.”
“Contrary to online speculation, two and a half years later it was not found that Tether had ever issued crumbs without supporting or manipulating cryptocurrency prices,” the companies said in a statement on Tether’s website.
A company spokesman was not immediately available when CNBC contacted for further comments.
Earlier this month, Bitfinex said it had returned the remaining balance of a $ 550 million loan to Tether.
Cryptocurrency investors have been closely monitoring the New York fraud probe, which has gained more interest recently in light of Bitcoin’s meteoric rise.
There are now about 34.8 billion fixing tokens in circulation, according to CoinMarketCap data, up from 2 billion three years ago. The cryptocurrency has a market capitalization of $ 34.6 billion.
Bitcoin fell 10% on Tuesday, trading at $ 48,713. The world’s most valuable digital currency was already falling before the New York attorney general’s announcement.