A smartphone displays the Tether market value through the Crypto application.
Guillaume Payen | Pictures SOPA | LightRocket | Getty Images
Cryptocurrencies Tether and Bitfinex have reached an agreement with the New York Attorney General’s office to pay a $ 18.5 million fine to settle a supervised legal dispute.
The top state official has investigated the companies in connection with allegations that they have moved hundreds of millions of dollars to cover the apparent loss of 850 million dollars from mixed funds of customers and corporations. Tether and Bitfinex – a popular digital currency exchange – are owned by the same company, Ifinex.
Tether and Bitfinex will be required to cease trading with New Yorkers and submit quarterly transparency reports, the attorney general’s office said. It is a major development in the cryptographic industry and ends a long-running 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 is meant to be supported one to one US dollars, the idea being that it is much more stable than most digital currencies that have huge price fluctuations.
Many crypto investors use tether to buy bitcoin and other virtual chips. But there were concerns about whether Tether had enough cash reserves to support all Tether chips in circulation. Critics have also raised fears that the bond tokens have been used to manipulate bitcoin prices, a claim Tether has repeatedly denied.
New York Attorney General Letitia James said she found that Tether sometimes did not have the reserves to support the encryption of his currency. He said that since mid-2017, the company had no access to banking services and misled customers about liquidity issues.
In a 2019 case, the attorney general’s office said Bitfinex handed over $ 850 million to a Panama-based entity called Crypto Capital without disclosing it to investors. Bitfinex and Tether executives then engaged in a series of transactions that opened Tether’s cash reserves to Bitfinex.
“Bitfinex and Tether have recklessly and illegally covered massive financial losses to maintain their scheme and protect their results,” James said in a statement on Tuesday.
“Tether’s claims that his virtual currency was fully backed by US dollars were a lie,” she added.
“These companies hid the real risk faced by investors and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”
Tether does not acknowledge any wrongdoing
Tether and Bitfinex declined to admit wrongdoing on Tuesday, 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 tethers without support or to manipulate crypto prices,” the companies said in a statement on the Tether website.
A company spokesman was not immediately available when contacted by CNBC for further comments.
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 probe, which has gained more interest recently in light of bitcoin’s meteoric rise.
There are currently about 34.8 billion tether chips in circulation, according to CoinMarketCap, 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 most valuable digital currency in the world was already collapsing before the announcement of the New York Attorney General.