The U.S. regulator of derivatives markets issued more than $42 million in fines to Tether Holdings Ltd. and affiliated crypto exchange Bitfinex for lying about the stability of the Tether stablecoin and engaging in illegal transactions.
Tether is accused of making untrue and misleading statements about the quality of the reserves that back its stablecoin, USDT, falsely claiming that it was fully backed by fiat currency assets, according to the U.S. Commodity Futures Trading Commission (CFTC).
Tether has to pay a $41 million penalty and desist from any other violations of the CFTC and Commodity Exchange Act.
The U.S. regulator also claims that the Bitfinex crypto exchange engaged in illegal, off-exchange retail commodity transactions in digital assets with U.S. traders on the Bitfinex trading platform and operated as a futures commission merchant without registering as required.
Bitfinex will pay a $1.5 million fine and is required to implement and maintain systems to prevent illegal retail commodity transactions, according to CFTC.
Tether is one of the most popular stablecoins — digital assets that pin their value to stable fiat currencies like the U.S. dollar. They are important to the larger crypto market including Bitcoin and Ether because traders use stablecoins to park uninvested funds to shield them from the volatile prices of other crypto assets.
USDT tokens are controlled by iFinex, Inc., the owner of Bitfinex. iFinex was founded in Hong Kong in 2012 and is registered in the British Virgin Islands. Tether is called a stablecoin because it was originally designed to be worth US$1, maintaining $1 in reserves for each tether issued.
The CFTC found that Tether only held sufficient reserves of dollars to back outstanding tether tokens for about a quarter of the time during a 26-month sample between 2016 and 2018.
“Instead of holding all USDT token reserves in U.S. dollars as represented, Tether relied upon unregulated entities and certain third parties to hold funds comprising the reserves; commingled reserve funds with Bitfinex’s operational and customer funds, and held reserves in non-fiat financial products,” CFTC said.
The regulator also noted that Tether failed to complete routine, professional audits of its reserves.
Neither Tether nor Bitfinex, which are controlled by the same parent company, admitted or denied the findings.
Tether challenged CFTC’s statement on its website, saying the agency’s findings were that Tether’s dollar reserves were not all in cash in a bank account always titled in Tether’s name, rather than that the tokens were not fully backed.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
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