The CFTC has fined Tether $41 million. Bitfinex has also been fined $1.5 million.
This was officially announced by the Commodity Futures Trading Commission.
Fines for Tether and Bitfinex, the CFTC’s action
The US authority accused the company that issues the most widely used stablecoin on the market of:
“untrue or misleading statements and omissions of material fact in connection with the U.S. dollar tether token (USDT) stablecoin”.
Whereas the Bitfinex exchange allegedly operated without the proper licences. For this reason, the authority writes:
“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”.
What happened to Tether
According to the authority, during a period between 1 June 2016 and 25 February 2019, Tether allegedly did not have sufficient cash reserves to cover every USDT token in circulation.
In fact, Tether stated to investors that for every USDT in circulation there was a corresponding amount of fiat money, safely stored in Tether’s accounts.
In reality, Tether’s reserves amounted not only to cash but also to other means such as debt securities. Moreover, despite Tether’s assurances to submit to audits, the CFTC notes that Tether’s reserves have never been audited.
As for Bitfinex, these are the facts according to the CFTC:
“The Bitfinex order finds that from at least March 1, 2016 through at least December 31, 2018, Bitfinex offered, entered into, executed, and confirmed the execution of illegal, off-exchange financed retail commodity transactions with U.S. persons that were not eligible contract participants (ECPs) under the CEA”.
According to the authority, Bitfinex did not have the proper licences to carry out the trading activities that were permitted on the platform.
Bitfinex will therefore have to commit to remedying its critical issues by December 31, 2021.
Tether: reserves remain confirmed
According to Tether, the CFTC’s investigation shows that Tether’s tokens have always been covered. What is disputed is that the reserves were not entirely in cash and all in Tether’s bank account.
The company writes in an official statement:
“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 for Bitfinex:
“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”.
Tether points out that the facts refer to the past. The company reacted by agreeing to the demands that came from the authorities:
“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”.
These points were also echoed by Tether’s general counsel Stuart Hoegner:
The CFTC only credits backing in bank accounts in the name of #Tether . The CFTC did _not_ find 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. 5/8
— Stuart Hoegner (@bitcoinlawyer) October 15, 2021
“This is old news, and the CFTC’s order both recognizes that these issues were fully resolved when our disclosures were updated more than 2½ years ago and found no violations related to our current operations.
Tether is fully backed, as our assurance attestations prove definitively. Tether has never refused a redemption to a customer. And Tether is now moving forward with audited financials, which for a long period were not available to us.
With a market cap of just shy of $70B, we look forward to continuing to provide our customers with the most innovative, liquid, and popular stablecoin”.