Tether has settled a four-year dispute with the New York Department of Justice. Is the result just a fine?


If Tether pays the fine, it means that its financial fraud has been committed.

Original title: “[ChainDeExclusive] New York Department of Justice ends 4 years of entanglement: Bitfinex is fined and prohibited from operating in New York, which may indirectly promote the acceleration of CBDC processes in various countries”
Written by: Mori Goro

Yesterday (February 23), the New York judicial authorities imposed a fine of $18.5 million on Tether, which issued encrypted digital currencies, and its exchange Bitfinex. New York State prohibited Tether and Bitfinex from conducting business with customers residing in the state and required The reserves and transaction descriptions are reported quarterly for the next two years to monitor its operational transparency.

The reason is that the company’s air currency does not have enough dollar support, and fraudulent behavior when explaining to users. The authorities once again emphasized the issue of investor protection in the field of digital currency investment. Attorney General James stated:

“(Tether, etc.) companies conceal the real risks faced by investors, and operate without a license in the darkest corner of the financial system and do not accept supervision. The results of this lawsuit also show that those who conduct digital currency transactions in New York State believe that It is impossible to avoid legal sanctions.

We sued Coinseed for fraud last week and ordered it to close. This week, we will take action to end the illegal activities of Bitfinex and Tether in New York.

These legal actions have sent a clear message: whether it comes from traditional banks, cryptocurrency trading platforms, or any other type of financial institution, we will abide by the law and suppress the greed of capital. “

Two years of investigation, four years of entanglement finally settled

The New York State Judiciary filed a lawsuit against Tether and Bitfinex in April 2019. The dispute has lasted for 2 years. After the trial ended, Tether reached a settlement after receiving a fine recently.

Although the New York Office of the Attorney General (OAG) filed a lawsuit in 2019, its “concern” on Bitfinex actually started very early.

USDT (also known as Tether USD), known as a stable currency, shows that Shanghai has always been regarded as equivalent to the US dollar, so the market price has always been relatively stable, and the market performance is even safer and more stable than Bitcoin.

According to data from the research company Coin Market Cap, Tether’s market value is $34 billion, ranking third.

In 2017, due to market pressure and strengthening USTD’s market confidence, Tether issued the company’s cash reserve certification documents, but then discovered that the cash was not deposited until the morning after the company’s documents were released.

In November 2018, Tether once again “announced” the company’s cash reserve statement. This time the certificate came from Deltec Bank & Trust Ltd. in the Bahamas. However, the money was withdrawn just the day after the specification was published.

The exposure of the matter originated from the bankruptcy of the Canadian digital currency exchange QuadrigaCX and directly attracted the attention of OAG. According to the “Martin Treaty (the Martin ACt)” passed by the New York Financial Bureau, OAG began an investigation of Tether.

Cotton, the founder of QuadrigaCX, died suddenly in December 2018. However, only Cotton knew the secret key of the exchange, which directly led to the lock-up of US$190 million in assets. After the user ran, he pulled out Crypto Capital, the payment processing company behind the exchange registered in Panama. .

But unfortunately, a large amount of Crypto Capital’s funds were frozen, and Bitfinex assisted, and directly sent the customer and corporate account balances of US$850 million to Crypto Capital.

OAG’s investigation report shows that in the months of the end of 2018, its executives have been begging Crypto Capital to return nearly $1 billion in assets.

After fruitless, Bitfinex subsequently had to transfer $850 million from its parent company Tether to fill the hole. This huge amount of funds comes from the issuance of stable coins. After the incident, Tether issued hundreds of millions of dollars in USTD.

Tether has always stated that the amount of US dollars it holds is the same as the market value of the stable currency issued. However, OAG found that the total amount of “reserves” held by Tether has not been reached at all, and OAG has grasped that Tether has no account in any bank in the world.

On April 30, 2019, Tether’s general counsel responded to the New York State Department of Justice, stating that the company has approximately 74% of USDT cash reserves. It can be seen on the New York State Justice System website. The USDT, which claims to be one-to-one with the U.S. dollar, has 26% of its assets in air currency.

Among them, 26% of USDT reserve funds were misappropriated by Bitfinex to fill the operation of the exchange. Then, on May 4, the news that Bitfinex planned to issue about 1 billion U.S. dollars of platform currency in order to make up for the misappropriated USDT reserve was exposed. It caused quite a shock and USTD also lost the trust of investors.

In April 2019, OAG proposed to prohibit the transfer of assets between Bitfinex and Tether owned and controlled by the same group of individuals. In its official response to the “Response Briefing” submitted by the New York Stock Exchange on December 4, Bitfinex repeatedly questioned OAG’s regulatory power.

In July 2020, the New York Supreme Court again rejected the claim that U.S. law does not apply to the cryptocurrency exchange Bitfinex, and ruled:

If you want to start business in New York, Bitfinex and Tether and other virtual currency trading platforms and cryptocurrencies operating around the world will still be under the jurisdiction of OAG;

According to Article 352 of the Martin Act, the “tether” of stablecoins and other virtual currencies are “commodities,” and it is pointed out that under the Act, virtual currencies may also constitute securities;

OAG has established the factual predicates necessary to maintain the injunction and requires the production of documents and information related to its investigation before a formal lawsuit is filed.

The consequences may not only affect New York, but also stablecoins

Although this judgment only indicates that Tether cannot conduct transactions and activities in New York State, this judgment directly confirms Tether’s financial fraud. If Tether pays a fine, it means that USTD is recognized as an air currency, causing shocks. Will be devastating.

Yesterday, Bitcoin fell from its record high of nearly 58,000 US dollars to 47,700 US dollars in just 24 hours. This is a trend. For details, please refer to the previous report of Linkde: Institutional investors lost 130 in the largest market decline in history. One hundred million U.S. dollars.

Everyone’s confidence in digital currency is still based on the fact that digital currency can really be exchanged from banks to equivalent legal tender through the platform, especially for the 1:1 USTD, this layer of protection is gone, which is no different from “air” .

After New York State, the global digital currency market is bound to have a shock. Other states in the United States and global digital currency regulators may take the opportunity to suppress the overheated global digital currency investment atmosphere on the grounds of protecting the interests of investors.

The central bank may act to leave room for CBDC development

The most likely scenario is that it is impossible to directly control Bitcoin at the national level, but after the global central bank digital currency boom in 2020, the demand for CBDC issuance is getting higher and higher. For details, please refer to the previous report : The new crown accelerates the CBDC process, and 20% of the world’s population is expected to hold CBDC within 3 years .

Global central banks may take this opportunity to issue real “stable coins” and draw 90% of the air coins in the currency circle. Because judging from this incident, those seemingly dangling blockchains and stablecoins are nothing but the case, and they cannot escape financial market supervision.

The bursting of the USTD bubble is at least pulling the complex digital currency off the altar. Central banks are likely to accelerate the advancement of CBDC projects in the spirit of learning.

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