Tether and Bitfinex agree to pay $18.5m penalty after New York probe

Cryptocurrency Tether and exchange Bitfinex have agreed to pay an $18.5m penalty after New York’s attorney-general accused them of covering up “massive” financial losses.

The groups at the centre of one of the highest-profile investigations in the US concerning the cryptocurrency sector have also been barred from operating in New York, according to a settlement revealed on Tuesday by Letitia James, the state’s attorney-general.

Tether, a so-called stablecoin that is meant to be pegged to the price of one dollar, and cryptocurrency trading platform Bitfinex, concealed the loss of about $850m and then later made a “false statement” indicating the funds were “safeguarded”, James said on Tuesday.

“Bitfinex and Tether recklessly and unlawfully covered up massive financial losses to keep their scheme going and protect their bottom lines,” James said.

“Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie,” she added. “These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”

The investigation found that, no later than mid-2017, Tether “had no access to banking, anywhere in the world, and so for periods of time held no reserves to back Tethers in circulation at the rate of one dollar for every Tether, contrary to its representations.”

The settlement said Bitfinex in 2018 lost access to about $850m held at a Panama-based entity known as Crypto Capital, causing the exchange to endure “critical liquidity issues”. Bitfinex made up for the shortfall by “transferring hundreds of millions of dollars from tether”, according to the settlement.

“At no time did Bitfinex or tether disclose to the market that tether had transferred at least $625m to Bitfinex, or that Bitfinex had experienced critical liquidity issues because of loss of approximately $850m to Crypto Capital,” the settlement said.

Tether is one of the most successful cryptocurrencies and acts as an important link between the traditional currency market and digital tokens because each unit is meant to be worth one dollar.

The amount of tether in circulation has surged as the trading in cryptocurrencies has picked up rapidly over the past few months. There are almost 35bn units of the so-called stablecoin in circulation, according to website CoinMarketCap.

Tether and Bitfinex are “owned and operated by a small group of executives and shareholders that are located around the world”, according to the settlement.

The groups said on Tuesday they “admit no wrongdoing.”

“The settlement resolves allegations about public disclosures related to a loan tether made to Bitfinex when Bitfinex was encountering challenges accessing approximately $850m in Bitfinex funds held by a payment processor in 2018,” they added.

“The loan was made to ensure continuity for Bitfinex’s customers. It has since been repaid early and in full, including interest. At no point did the loan impact Tether’s ability to process redemptions.”

Bitcoin’s price showed little reaction to Tuesday’s settlement and traded more than 10 per cent lower on the day at below $49,000.

Additional reporting by Eva Szalay

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