A smartphone displays the Tether market value on the via The Crypto App.
Guillaume Payen | SOPA Images | LightRocket | Getty Images
Cryptocurrency firms Tether and Bitfinex have reached an agreement with the Attorney General’s Office in New York to pay a $ 18.5 million fine to settle a well-watched legal dispute.
The state’s top law enforcement official is investigating the allegations that they have moved hundreds of millions of dollars to cover the apparent loss of $ 850 million in mixed client and corporate funds. Tether and Bitfinex – a popular digital currency exchange – are owned by the same company, Ifinex.
Tether and Bitfinex should halt trading activity with New Yorkers and submit quarterly transparency reports, the attorney general’s office said. This is a major development in the crypto industry and concludes a protracted legal battle that began in April 2019.
What is Tether?
Tether is the company behind a well-known “stablecoin” of the same name. The sign is meant to be supported one-on-one by US dollars, and the idea is that it is much more stable than most digital currencies with a large price fluctuation.
Many crypto investors use tether to buy bitcoin and other virtual tokens. However, there were concerns about whether Tether had enough cash reserves to support all the tether tokens in circulation. Critics also feared that tether tokens would be used to manipulate bitcoin prices, Tether has repeatedly denied.
The attorney general’s office in New York, Letitia James, said Tether sometimes had no reserves to support the dollar pen of his cryptocurrency. It is said that from mid-2017, the company has had no access to banking and is misleading customers about liquidity issues.
The Attorney General’s Office said in 2019 that Bitfinex handed over $ 850 million to a Panama entity called Crypto Capital without disclosing it to investors. Managers of Bitfinex and Tether allegedly made a series of transactions that opened up Tether’s cash reserves to Bitfinex.
“Bitfinex and Tether have recklessly and illegally covered large financial losses to keep their scheme going and protect their core,” James said in a statement Tuesday.
“Tether’s claims that the virtual currency was fully backed by US dollars at all times were a lie,” she added.
“These companies obscure the real risk facing investors, and are managed by unlicensed and unregulated individuals and entities trading in the darkest corners of the financial system.”
Tether admits no offense
Tether and Bitfinex on Tuesday declined to admit any wrongdoing, but said: “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 ever issued ters without support, or to manipulate crypto-prices,” the companies said in a statement on Tether’s website said.
A spokesman for the companies was not immediately available when CNBC contacted him 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 recently gained more interest in light of the meteoric rise of bitcoin.
According to data from CoinMarketCap, there are now about 34.8 billion tether tokens in circulation, up from 2 billion three years ago. The cryptocurrency has a market capitalization of $ 34.6 billion.
Bitcoin was 10% lower on Tuesday and traded at $ 48,713. The world’s most valuable digital currency is tumbling even before the attorney general’s announcement in New York.