A report by The Wall Street Journal revealed the illegal actions of Bitfinex and Tether in 2018. This is one of the legal problems and controversies that have characterized Tether since its launch in 2014.
One of the past legal issues with Tether was when New York banned its operation in the state. At New York State Attorney General’s Office investigated the company in 2018 for providing loans to investors and offering unregistered securities.
Some of these problems later put Tether and its sister company Bitfinex in a difficult position as they can no longer access banking services. The company allegedly falsified documents for support and even provided shell companies to confuse the banks.
WSJ Covered Information In Email
While investigating the issues surrounding Tether and Bitfinex in 2018, the Wall Street Journal accessed several emails sent back and forth to request banking support. In WSJ reportcompanies try to hide their identities by using other individuals or fake companies to defraud the banks.
The effort led to further problems with regulators resulting in the seizure of assets worth millions of dollars and connections to terrorist groups.
In one email, Stephen Moore, one of the owners of Tether Holdings Ltd, warned of USDT traders in China trying to use fake contracts and sales invoices to defraud the bank. In Moore’s words, using a fake signed document to open an account is much cleaner.
Tether And Bitfinex Problems In 2018
Tether Holding LTD is behind USDT, a stablecoin worth over $70 billion. Tether USDT ranks number one among stablecoins but occupies the third position in market capitalization among all crypto assets.
Being a stablecoin pegged to USD, Tether USDT must have the same amount of reserves as USD to back up each coin in circulation. This means that for every 1 USDT out there, there must be 1 USD in the Federal Reserve backing it up.
But Tether’s problems started when the US government discovered they had lied about backing up coins in circulation with USD reserves. The Commodity Futures Trading Commission investigated the stablecoin and found false claims.
The CFTC announced that from 2016 to 2018, Tether only held 27.6% of all USD-equivalent coins. However, Tether’s reserves are dependent on third parties and unregulated entities that hold the funds that make up the reserves, and Tether shares its reserves with Bitfinex.
Bitfinex is one of the largest crypto exchanges in the world, founded in 2012. Its services include retail crypto traders, institutional investors, and trading options such as margin and spot trading. In particular, the exchange is registered in the British Virgin Islands.
Since its inception, the exchange has recorded incidents of hacking and Bitcoin price manipulation on its platform. For example, the exchange experienced a hacking incident in 2015 that resulted in the loss of 1,500 BTC worth $400,000.
In 2016, the exchange was fined $75,000 by the US Commodity Futures Trading Commission for offering funded commodity transactions. The commission accused him of violating the Commodity Exchange Act for failing to register as a Futures Commission Trader.
In the following year 2017, Wells Fargo cut the wire transfer of the exchange which led Bitfinex to record a delay in the USD withdrawal process which was also announced. After Wells Fargo’s ban, Taiwan’s Bitfinex bank also dropped it, leaving Noble Bank International to handle its banking needs. But in 2018, the NBI also ended its relationship leaving Bitfinex.
In 2018, the exchange experienced serious problems with its banking relationship, which led to several illegal attempts to reconnect to the bank. In 2019, New York Attorney General Letitia James accused Bitfinex of using Tether, an affiliated company, to cover $850 million in losses that proved its deep ties to the stablecoin company.
Featured image from Pixabay and chart from Tradingview.com