The Tether Bitfinex Fiasco Has Come to an End
Both companies have been under serious investigation for the last few years after having been accused of working to cover up an $850 million loss of both corporate and client funds. As a result of the settlement, both Tether and Bitfinex will no longer be allowed to do business in New York, nor can they offer their services to residents of the state.
Tether is the creator of the one of the world’s primary stable currencies. It is allegedly tied to the U.S. dollar, which prevents it from being susceptible to price swings and volatility like common virtual assets such as BTC and Ethereum. However, according to Attorney General Letitia James of New York, the company has never held any dollars in its reserve account. Thus, the currency was not backed by fiat. In addition, she claims that the company had no access to standard banking services throughout 2017 and ultimately lied to investors about liquidity.
James explained in a statement:
Bitfinex and Tether recklessly and unlawfully covered up massive financial losses to keep their scheme going and protect their bottom lines. Tether’s claims that its virtual currency was fully backed by U.S. dollars all the time was a lie. 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 idea of a cover up first emerged through a filing in 2019. The attorney general claimed that Bitfinex had handed over roughly $850 million to a company called Crypto Capital in Panama. The moving of funds occurred without the knowledge of investors and nobody was told that the money was being relocated, which was an alleged breach of the company’s protocols.
Trying to Move Forward
While both entities are agreeing to settle the case, neither is admitting to doing anything wrong. However, they both agreed that transparency was key to all future operations. In a statement, Tether explained to its users:
We share the attorney general’s goal of increasing transparency. Contrary to online speculation, after two and a half years, there was no finding that Tether ever issued tethers without backing or to manipulate crypto prices.
Initially, Tether was accused of potentially boosting bitcoin’s price during 2017 in a research paper published by University of Texas finance professor John Griffin. The document suggests that those who owned Tether during the time would often use the stable currency to purchase BTC the minute it showed any signs of a slump. This would inadvertently tie BTC to the U.S. dollar and help to – temporarily at least – boost its price.