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Tether was hit with more legal repercussions amid rising concerns about its fiat currency backing. The stablecoin issuer is set to pay $41 million as settlement for allegations that it lied about its reserves. In the same case, Bitfinex received an accompanying charge.
The CFTC Strikes against Tether and Bitfinex
The news dropped this Friday when the Commodity and Futures Trading Commission (CFTC) issued a press release on the matter. Earlier in the day, the agency settled charges against Tether, alleging “untrue and misleading statements” relevant to their token. The company has also received a cease-and-desist order to refrain from further violations of the Commodity Exchange Act.
Tether isn’t the only target. The agency also settled charges against cryptocurrency exchange Bitfinex for engaging in illegal digital asset transactions on their platform. Furthermore, it allegedly operated as a futures commission merchant without proper registration.
Bitfinex will have to pay a $1.5 million civil penalty for their activity. This is small next to the exchange’s $41 million fees, which are smaller than its $69B market cap. Still, the CFTC describes their charges as “decisive” actions that will help promote integrity in the US market.
“This case highlights the expectation of honesty and transparency in the rapidly growing and developing digital assets marketplace,” said acting CFTC Chairman Rostin Behnam. Vincent McGonagle– the CFTC’s Acting Director of Enforcement– adds that they will use anti-fraud enforcement over digital assets when required.
The CFTC’s charges against Tether and Bitfinex are not necessarily unrelated. The order against Tether finds that they “commingled” their reserves with Bitfinex’s customer funds. They also transferred their token reserves to Bitfinex when the exchange needed the money due to a so-called “liquidity crisis.” The CEO of Bitfinex Phil Potter has also confirmed that he is a majority owner of Tether, leaving room for suspicion.
Tether’s Legal Trouble
Tether has been under pressure from multiple directions, from authorities’ numerous charges against them to the SECs stablecoin concerns. Third-party investigations have failed to find an adequate source of Tether’s funds, yet the company continues dismissing all criticism.
In February, both Bitfinex and Tether agreed to pay an $18.5 million fine to New York Attorney General Letitia James. The fine was in response to similar allegations. However, the New York District Court dismissed later claims against Tether that they’d manipulated markets alongside Bitfinex.
Meanwhile, Tether risks being classified as a security by the SEC and subject to more stringent regulation. SEC chairman Gary Gensler refers to stablecoins as his top regulatory priority in the crypto space.