Tether and Bitfinex Pay CFTC Fines Totaling $42.5 Million
Posted on 10/16/2021
Tether agreed to pay US$ 41 million to settle allegations it lied in claiming its digital tokens were fully backed by fiat currencies. Tether is the globe’s largest issuer of stablecoins. Tether is widely used to trade Bitcoin and other tokens. The Tether CFTC order finds that since its launch in 2014, Tether has represented that the tether token is a stablecoin with its value pegged to fiat currency and 100% backed by corresponding fiat assets, including U.S. dollars and euros. However, the Tether order finds that from at least June 1, 2016 to February 25, 2019, Tether misrepresented to customers and the market that Tether maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. In fact Tether reserves were not “fully-backed” the majority of the time. The order further finds that Tether failed to disclose that it included unsecured receivables and non-fiat assets in its reserves, and that Tether falsely represented that it would undergo routine, professional audits to demonstrate that it maintained “100% reserves at all times” even though Tether reserves were not audited.
The CFTC press release states, “The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against Tether Holdings Limited, Tether Limited, Tether Operations Limited, and Tether International Limited (d/b/a Tether) for making untrue or misleading statements and omissions of material fact in connection with the U.S. dollar tether token (USDT) stablecoin. The order requires Tether to pay a civil monetary penalty of $41 million and to cease and desist from any further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
The CFTC today also issued a separate order simultaneously filing and settling charges against iFinex Inc., BFXNA Inc., and BFXWW Inc. (d/b/a Bitfinex) in connection with their operation of the Bitfinex cryptocurrency trading platform. The order finds Bitfinex engaged in illegal, off-exchange retail commodity transactions in digital assets with U.S persons on the Bitfinex trading platform and operated as a futures commission merchant (FCM) without registering as required. It further finds that, through this same conduct, BFXNA Inc. violated Part VII. A. of the CFTC’s June 2, 2016 order.”
Tether’s statement, “Statement on Tether’s Settlement with the CFTC
Following several years of investigation and access to extensive information about the companies and their operations, the CFTC has concluded its review. The CFTC’s Order found no issues relating to Tether’s current operations. In fact, the Order related to certain disclosures about the reserves from more than two and a half years ago. As the Order recognizes, these issues were fully resolved when the terms of service were updated in February 2019.
As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times. As Tether represented in the Order, it has always maintained adequate reserves and has never failed to satisfy a redemption request.
The CFTC’s findings regarding Bitfinex relate to the timing and implementation of its ban on U.S. customers, and the CFTC’s Order makes no finding of a violation after December 2018.
This inquiry arose during a markedly different time in our ecosystem, and focused on the same types of challenges that many in our industry faced at the time. As many companies around the world do, Tether agreed to resolve this matter in order to move forward and focus on the future. We are grateful that the market has consistently demonstrated its trust and confidence in Tether.
We will continue to earn that confidence and lead the industry in innovation and transparency.”