New York bans Bitfinex and Tether after $18.5m settlement

New York bans Bitfinex and Tether after $18.5m settlement

New Yorkers will no longer allow trading from Bitfinex or Tether

New York’s attorney general is coming down on an area of the crypto market that’s long been shady:

We’re ending @bitfinex and @Tether_to’s virtual currency trading in New York after the companies covered up about $850 million in losses around the globe and deceived the market by overstating reserves. Those trading virtual currencies in New York cannot avoid our laws, period.

The statement doesn’t paint a pretty picture.

The OAG’s investigation found that, starting 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. In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’

The events run back to 2018 and Tether highlights that it admitted to no wrongdoing:

Tether and Bitfinex are pleased to have reached a settlement of legal proceedings with the New York Attorney General’s Office. Under the terms of the settlement, we admit no wrongdoing. The settlement amount we have agreed to pay to the Attorney General’s Office should be viewed as a measure of our desire to put this matter behind us and focus on our business.

Over the past two and a half years, we worked in full cooperation with the Attorney General’s Office and provided more than 2.5 million pages of documentation to answer their questions and bring this matter to a close. 

The settlement resolves allegations about public disclosures related to a loan Tether made to Bitfinex when Bitfinex was encountering challenges accessing approximately US$850 million in Bitfinex funds held by a payment processor in 2018. These events are by now well known. 

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.

The Attorney General’s Office concluded, in essence, that we could have done better in publicly disclosing these events. Contrary to online speculation, after two and half years there was no finding that Tether ever issued tethers without backing, or to manipulate crypto prices.

Putting aside the Attorney General’s characterization of these disclosure issues as misrepresentations or violations of any legal obligation, we share the Attorney General’s goal of increasing transparency.  For that reason, last year we voluntarily provided the Attorney General with information about the composition of Tether’s reserves, and we proposed that as part of the settlement agreement, we would disclose-both to the Attorney General’s office and to the public-additional information about Tether’s reserves. We do not make this commitment reluctantly; we embrace it.

We are pleased that our customers have shown loyalty and commitment to our businesses over the past two years, while this investigation was ongoing.  The market capitalization of tethers has grown from US$2 billion to in excess of US$34 billion over that time period, and Bitfinex has seen dramatic growth, as well, particularly this year. We look forward to both companies continuing to lead the industry and serve our customers.

We wish to thank the personnel at the New York Attorney General’s Office for their cooperation and professionalism.

Stablecoins like tether are going to find themselves in an increasingly difficult regulatory situation if/when central banks issue digital currencies. Governments aren’t going to give up control of their ability to issue, monitor and regulate currencies.

The crypto market might as well get all the bad news out today. I think the dip buyers are going to show up imminently. It’s a classic bull market move — up the escalator and down the elevator.

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