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CFTC Orders Tether and Bitfinex to Pay Fines Totaling $42.5M

200 points by VHRanger 5y ago

EVa5I7bHFq9mnYK 5y ago
If someone knew for sure that USDT is not backed by USD, and is going to crumble, she could go ahead and short the USDT/USD trading pair. Easy money! Yet somehow the USDT/USD trades at 1.000 in a free market. Don't believe the fluff, believe the money.
optimalsolver 5y ago
Tether's collapse will be to Mt. Gox what Little Boy was to a firecracker.
- randomhodler84 5y ago
  I’m not so sure it will collapse (now), this settlement adds legal clarity. The CFTC has set their parameters in the settlement and will enforce compliance, BitFinex/Tether paid a fine. Tether will be stronger through greater reserve and investment grade requirements, and more transparent.
  - arcticbull 5y ago
    Nah it certainly doesn't. This only covers up to February 2018. At the time they only had $2B in issued USDT, and of course, they remain under investigation by the DOJ and SEC.
    - randomhodler84 5y ago
      Fair enough, I guess there are other battles still at play. Let’s see where this goes :-)
      - arcticbull 5y ago
        Every day is a fresh adventure haha.
- reginold 5y ago
  Open question: Has this been priced in by the market?
  - WalterSear 5y ago
    It's not remotely priced in. The BTC price is currently held up by USDT inflows, rather than USD. Tether issuance notifications are the most reliable leading indicator in crypto: they are all you need to trade BTC. Most people in crypto aren't even aware of the problem. Most of the ones that are, refuse to accept the situation and get very emotional when it's brought up.
    - toomuchtodo 5y ago
      If Tether went to zero today, what would the true price of BTC be?
      - arcticbull 5y ago
        It's very difficult to say because the waterfall of cascading liquidations would shut down exchanges. It would take quite a while for things to settle down enough for a real fiat market to exist. The whole market is propped up by stacked leverage.
      - WalterSear 5y ago
        Given that it's being issued specifically to manipulate the market (it's not just a 'whale'), and the fact it's involved in 70% of crypto trades, I can't see a way to put a floor on it.
    - reginold 5y ago
      Neat where do you track Tether issuance notifications?
      - abrodersen 5y ago
        The canonical method would be to call the `totalSupply()` method on Tether's ERC20 contract.
jdsully 5y ago
> Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018 With how shady they acted I would have assumed that number was 0%. A bit shocked it wasn't a total scam to be honest, even if they did misrepresent that it was in fiat not risky investment assets.
- vmception 5y ago
  CFTC/FDIC/OCC/NYAG/Congress/all bank users: Collateral requirements for everything we regulate are like 4%. You need $4000 to trade with $100,000. Also everyone: omg tether was not 100% collateralized by fiat dollars at all times, sometimes, but also not at all times! I just feel like the arguments are weak. Tether was controversial because it was centralized at all and requires ongoing trust and its collateral is not verifiable except by the state's subpoenas. Then the argument moved to something much more .... tolerant of their existence but requires completely ignoring how all the rest of finance works to make it an issue with Tether. Strange. At this point I can acknowledge that the market can bear it. Tether, like everything non-crypto, are vulnerable to bank runs, and that works. If people actually wanted fiat, then Tether could be in trouble. But Tether users do not want fiat and redemptions barely occur. People don't want to accept the reality that Tether actually works as stated. Like if you just assume it works as described, using the investigations of multiple US agencies, then it makes sense! Tethers are created when people deposit fiat on Bitfinex, deposit directly with the Tether issuer, sometimes by Tether issuer when Tether trades at a premium (in exchange for other cryptos that are not dollars), and sometimes arbitrarily. But its better to assume the first 3 everytime a big tether print occurs, than to always assume the last one, because the formers are what all the US regulators and enforcement agencies have also found to have occurred most of the time. Not that hard. It is a trusted system, like everything else we are used to. They change their contract to reflect any deviation from 100% usd collateralization and that's not that controversial. Fractional systems also work. Ideology doesn't make something else suddenly not work.
  - randomhodler84 5y ago
    Yeah! And the reserve requirements were suspended during the pandemic for banks anyway. Tether is, at least on chain, completely open and auditable. You can trace every token, in ways the global banking system is opaque. A fine, some regs and compliance, and capital still flows.
asah 5y ago
The takeaway: tether executives are explicitly engaging in dangerous and shady behavior, and you can't trust any statements made by them.
qeternity 5y ago
The important thing about all these Tether settlements is that they are for very specific periods of time, which were well before the most recent parabolic issuance in USDT. It's anyone's guess what they are currently sitting on.
buildbuildbuild 5y ago
This is a slap on the wrist. Tether's current market cap is $68.5 billion of printed money that users assume is really held in bank reserves. Expect a massive cryptocurrency crash if Tether's regulatory downfall finally occurs; a majority of exchange trading pairs are between currencies and USDT. (not financial advice)
- iskander 5y ago
  >a majority of exchange trading pairs are between currencies and USDT. (not financial advice) Is that actually true? In my (limited) experience I have seen ETH and USDC much more frequently than USDT. There also seems to be a recent migration to algorithmic stablecoins like RAI which aren't pegged to the dollar but are (supposedly) designed to limit fluctuation in value. I suspect that without regulatory action against both USDC and decentralize stable tokens that crypto would recover from a Tether collapse.
  - buildbuildbuild 5y ago
    My source was a cursory look at https://coinranking.com/markets https://coinranking.com/markets but I admittedly could dig deeper to verify this. I agree that prices would recover after a short term Tether-induced crash, and markets would almost certainly shift to DAI and similar decentralized stablecoins.
    - iskander 5y ago
      Wow, you're right, USDT is much more prevalent in the largest markets than I would have suspected. Is this a first mover effect? As far as I can tell USDT is the shakiest and least compelling stable.
      - humaniania 5y ago
        There are a bunch of sketchy unlicensed exchanges that are heavily invested in utilizing USDT. The Tether meltdown should be quite the show. All of those outstanding balances have to be reconciled somehow. Or they'll just close up shop and disappear and years later people will maybe get a small % back, like with MTGOX.
IG_Semmelweiss 5y ago
Can someone imagine a world where the fine for tether is sufficiently large , that they dont have a capacity to pay it, and thus, blowing up the entire thing ?
- mrh0057 5y ago
  The whole long blows up when enough people try to withdraw tether for dollars and they don’t have enough to cover. As long as that doesn’t happen it will be alive. Works just like a Ponzi Scheme or a run on a bank.
- unreal37 5y ago
  No, because Tether can issue it's own coins to pay for it. Like trying to fine the US Government.
  - dragontamer 5y ago
    > No, because Tether can issue it's own coins to pay for it. To a point, and that point is far larger than any of us imagined. But the Titan / Titanium collapse shows that you can't print money forever (or in the case of Titan / Titanium: print money automatically). It only takes a small downturn to make everything go to crap.
  - roywiggins 5y ago
    They still have to pay the fine in dollars, though. If you fine Tether a trillion dollars, they'll need to find people willing to pay them one trillion dollars in exchange for newly-minted (and obviously unbacked) Tether. If you fined Tether one quadrillion dollars, they could mint a quadrillion Tether but they definitely won't have a quadrillion dollars to hand over. Also, if you can't pay a fine without dipping into your depositors' money you are insolvent by any reasonable definition.
- robot_no_419 5y ago
  That's like imagining a world where governments hold billionaires and CEOs accountable for their greed and crime and their tax evasion. In other words, a pipe dream.
unreal37 5y ago
No regulator or government official wants to see Tether destroyed, so they have to act all shocked and surprised before moving on to the next Facebook Privacy scandal.
arcticbull 5y ago
This settlement only covers up until February 2018. At that time they only had $2B-ish in issued Tethers (as compared to $65B ish now). $850M of their assets were seized in an AML sting shortly after that, in mid 2018 [1], they've been fined $42.5M [this article and 2] by the CFTC and another $18.5M by the NYAG [3]. Basically they've had to forfeit almost half of their assets up to [edit] Mid-2018. They remain under investigation for bank fraud by the DOJ [4] and for something unspecified by the SEC. [5] I suspect this party is just beginning. [edit] By the way, I love how each party here is framing this. > Tether: "As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times." > CFTC: "In fact Tether reserves were not “fully-backed” the majority of the time." [1] https://fortune.com/2019/05/03/cryptocurrency-new-york-attorney-general-bitfinex-reginald-fowler/ https://fortune.com/2019/05/03/cryptocurrency-new-york-attor... [2] https://www.coindesk.com/policy/2021/10/15/cftc-fines-tether-and-bitfinex-425m-for-untrue-or-misleading-claims/ https://www.coindesk.com/policy/2021/10/15/cftc-fines-tether... [3] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlement_agreement_-_execution_version.b-t_signed-c2_oag_signed.pdf https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen... [4] https://www.cnbc.com/2021/07/26/doj-reportedly-probes-crypto-company-tether-for-possible-bank-fraud.html https://www.cnbc.com/2021/07/26/doj-reportedly-probes-crypto... [5] https://www.coindesk.com/policy/2021/09/24/sec-hints-at-tether-probe-in-records-request-denial/ https://www.coindesk.com/policy/2021/09/24/sec-hints-at-teth...
- prepend 5y ago
  > reserves were not all in cash and all in a bank account titled in Tether’s name, at all times Truly a bizarre statement for Tether to make. are they counting bank accounts in other people’s names? How would that affect the question at hand. This sounds like junkie logic.
  - davidgerard 5y ago
    > are they counting bank accounts in other people’s names? yes, it was a personal account in the name of iFinex general counsel Stuart Hoegner. And various holdings at non-banks, e.g. the $850m that disappeared at Crypto Capital Corp.
tkfu 5y ago
Have you ever heard of "The Narcissist's Prayer"? It goes like this: That didn't happen. And if it did, it wasn't that bad. And if it was, that's not a big deal. And if it is, that's not my fault. And if it was, I didn't mean it. And if I did... You deserved it. Tether defenders are really working their way through the steps here. 18 months ago, it was "That didn't happen." (Tether is 100% backed by USD cash.) 6 months ago, it "wasn't that bad." (It might not be 100% USD cash, but it's cash-equivalent assets like short-term commercial paper.) Now that there's strong evidence the commercial paper is just fake money shuffling between Tether/Binfinex/other shady crypto investments we get "that's not a big deal." (Look at the way banks work! They only need 4% collateral! Tether's probably got at least that much...) Next step is finding out that their actual liquidity isn't capable of holding up under a real-life stress test, and the defenders will be talking about "not my fault." (This was a once-in-a-lifetime crash, they couldn't have foreseen it, crypto's still way better than the fiat banking system!) When thousands of people lose their retirements in a gigantic defi crash, it'll be "you deserved it." (Everyone knows crypto is risky, you shouldn't have believed Tether was the same as USD.)
- onlyrealcuzzo 5y ago
  > It is difficult to get a man to understand something when his salary depends on his not understanding it.
- A4ET8a8uTh0 5y ago
  I am commenting here, because I want to save this "And if.." list, because it is beautiful in its simplicity and yet we see it played out over and over again.
  - yorwba 5y ago
    HN also has a "favorite" button you can use to save things for later.
    - vtail 5y ago
      Where is that favorite button? I have never seen that functionality.
Andrew_nenakhov 5y ago
People on reddit and twitter are like, "great, now that Tether FUD is over, leave it behind and go for $100k!" - of course it is over. U in FUD stands for Uncertainty, and now it is Certain that Tether is a fraud. The only thing I can't understand is why the price still pumps.
- jstx1 5y ago
  Seriously - Bitcoin is more than 8% up today and about 50% up compared to 3 weeks ago. It's almost back to the all-time high from April. How does anyone explain any of this?
  - ur-whale 5y ago
    > How does anyone explain any of this? Suppose you hold a big bunch of USDT (Tethers) right now. What would be be doing in light of these news? Exactly.
    - osense 5y ago
      Why not just convert to USDC / BUSD / some other stablecoin?
      - webinvest 5y ago
        Or Dai or Gemeni Dollars?
      - Jasper_ 5y ago
        How do you convert if nobody wants to buy your USDT?
  - timerol 5y ago
    Bitcoin's price "in USD" makes more sense as a price "in USDT". It's completely unsurprising that Bitcoin went up relative to USDT after this news. The big question is when the peg of 1 USDT ~= 1 USD (or USDC) is going to break. Tether is going to do everything they can to maintain that peg as long as possible.
deleted 5y ago
[deleted]
humaniania 5y ago
And crypto manipulators are trying to spin the recent price increase as positive news with absolutely no regard to how a similar price ramp up happened on MTGOX before it went down completely from insolvency. Has Bitfinex pricing decoupled from the prices on legit exchanges yet?
- graeme 5y ago
  No, no decoupling. I wondered if the runup was like MTGOX. It’s plausible, but if so then someone is providing the dollars for everyone selling into USD on Coinbase etc. Whereas MTGOX’s prices were all self referential right? By the time it started freezing up One other possibility is that Tether is playing the CME futures and making money from the pump up. I suspect they’re insolvent but it’s possible they aren’t and are merely crooks. The crypto markets interface with real money now
- webinvest 5y ago
  MTGOX was essentially one large bug bounty for any hacker that had the means and ways of collecting the jackpot. Once the bug bounty was several million dollars…
ur-whale 5y ago
> Totaling $42.5M Which is essentially peanuts for the folks being Tether who will chalk it up to "cost of doing business". How do people come up with theses "punitive" numbers?
codebolt 5y ago
This was my favorite part, just wow: > Further, at least until 2018, Respondent’s internal accounting system for tracking fiat balances, including bank balances for USDt reserves, primarily consisted of a spreadsheet (the “Reserve Spreadsheet”). The Tether executive team was ultimately responsible for the Reserve Spreadsheet. The Reserve Spreadsheet required manual updates and was not always kept up to date in real time. Respondents were aware of the limitations of the Reserve Spreadsheet. For example, in an internal chat on June 15, 2016, Tether’s then-Chief Strategy Officer informed Respondents’ CFO and other employees stated that the: “transparency page needs to be dealt with ASAP . . . I am surprised the issuance address is not updated dynamically, btw . . . and how often does the bank balance get updated?”
- Turbots 5y ago
  So they probably had an Excel sheet on a shared drive, right?
ThinkBeat 5y ago
I am completely ignorant here. I read an article not that long ago where a journalist was trying to figure out where Tether kept its money (if there was any). The main characters seem to be distributed in different parts of the world and were not inclined to be interviewed. This corporate entity seems to be highly convoluted, which means its hard to know what jurisdiction they fall under. My question: How is Tether compelled to pay this? What happens if they do not? Can they just terminate whatever US subsidieres there may be and keep operating the same? Do they need a corporate component in the US, if so why?
- samizdis 5y ago
  > I read an article not that long ago where a journalist was trying to figure out where Tether kept its money (if there was any). I think that you might be referring to this one [1] from Bloomberg on Oct 7: Anyone Seen Tether’s Billions? It generated plenty of discussion on HN [2]. I mention it here because I enjoyed the article and the style in which it was written, if you don't mind a little snide humour in discussing a potentially serious problem. (The article was also archived [3].) Bloomberg commentator Matt Levine discussed the article in his Money Stuff column of the same day, Looking for Tether's Money [4]; it provides background and explanation of the mechanics of Tether, which I found to be educational. (That column was also archived [5].) [1] https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether https://www.bloomberg.com/news/features/2021-10-07/crypto-my... [2] https://news.ycombinator.com/item?id=28784745 https://news.ycombinator.com/item?id=28784745 [3] https://archive.is/LdRL6 https://archive.is/LdRL6 [4] https://www.bloomberg.com/opinion/articles/2021-10-07/matt-levine-s-money-stuff-looking-for-tether-s-money https://www.bloomberg.com/opinion/articles/2021-10-07/matt-l... [5] https://archive.is/cQVJl https://archive.is/cQVJl
NicoJuicy 5y ago
I'm really disappointed that the EU hasn't launched an investigation yet ( at least, not that I heard) Should have been done 5 years ago.
yawaworht1978 5y ago
I have 2 questions about this. Is it ever legal for a company to hold assets in a personal account of an owner/employee? Karpeles did the same, didn't he? And if it's legal, how does the bank do due diligence on the source of wealth? The other thing is, people say Mt gox collapsed, but it recovered. True, however the recovery was very slow and many people took a large hit. I understand if the Mt gox btc are still there, most can be made whole. Now people say btc can collapse just like Mt gox, but Mt gox collapsed because it was hacked, the btc themselves have been stolen. How would btc collapse if tether is stopped being used by exchanges? The people holding tether would simply not be paid whatever cryptocurrencies they bought with tether? I understand people just use it as a gateway and hold only for few seconds, right?

200 points by VHRanger 5y ago

If someone knew for sure that USDT is not backed by USD, and is going to crumble, she could go ahead and short the USDT/USD trading pair. Easy money! Yet somehow the USDT/USD trades at 1.000 in a free market. Don't believe the fluff, believe the money.

optimalsolver 5y ago

Tether's collapse will be to Mt. Gox what Little Boy was to a firecracker.

randomhodler84 5y ago
I’m not so sure it will collapse (now), this settlement adds legal clarity. The CFTC has set their parameters in the settlement and will enforce compliance, BitFinex/Tether paid a fine. Tether will be stronger through greater reserve and investment grade requirements, and more transparent.
- arcticbull 5y ago
  Nah it certainly doesn't. This only covers up to February 2018. At the time they only had $2B in issued USDT, and of course, they remain under investigation by the DOJ and SEC.
  - randomhodler84 5y ago
    Fair enough, I guess there are other battles still at play. Let’s see where this goes :-)
    - arcticbull 5y ago
      Every day is a fresh adventure haha.
reginold 5y ago
Open question: Has this been priced in by the market?
- WalterSear 5y ago
  It's not remotely priced in. The BTC price is currently held up by USDT inflows, rather than USD. Tether issuance notifications are the most reliable leading indicator in crypto: they are all you need to trade BTC. Most people in crypto aren't even aware of the problem. Most of the ones that are, refuse to accept the situation and get very emotional when it's brought up.
  - toomuchtodo 5y ago
    If Tether went to zero today, what would the true price of BTC be?
    - arcticbull 5y ago
      It's very difficult to say because the waterfall of cascading liquidations would shut down exchanges. It would take quite a while for things to settle down enough for a real fiat market to exist. The whole market is propped up by stacked leverage.
    - WalterSear 5y ago
      Given that it's being issued specifically to manipulate the market (it's not just a 'whale'), and the fact it's involved in 70% of crypto trades, I can't see a way to put a floor on it.
  - reginold 5y ago
    Neat where do you track Tether issuance notifications?
    - abrodersen 5y ago
      The canonical method would be to call the `totalSupply()` method on Tether's ERC20 contract.

jdsully 5y ago

> Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018 With how shady they acted I would have assumed that number was 0%. A bit shocked it wasn't a total scam to be honest, even if they did misrepresent that it was in fiat not risky investment assets.

vmception 5y ago
CFTC/FDIC/OCC/NYAG/Congress/all bank users: Collateral requirements for everything we regulate are like 4%. You need $4000 to trade with $100,000. Also everyone: omg tether was not 100% collateralized by fiat dollars at all times, sometimes, but also not at all times! I just feel like the arguments are weak. Tether was controversial because it was centralized at all and requires ongoing trust and its collateral is not verifiable except by the state's subpoenas. Then the argument moved to something much more .... tolerant of their existence but requires completely ignoring how all the rest of finance works to make it an issue with Tether. Strange. At this point I can acknowledge that the market can bear it. Tether, like everything non-crypto, are vulnerable to bank runs, and that works. If people actually wanted fiat, then Tether could be in trouble. But Tether users do not want fiat and redemptions barely occur. People don't want to accept the reality that Tether actually works as stated. Like if you just assume it works as described, using the investigations of multiple US agencies, then it makes sense! Tethers are created when people deposit fiat on Bitfinex, deposit directly with the Tether issuer, sometimes by Tether issuer when Tether trades at a premium (in exchange for other cryptos that are not dollars), and sometimes arbitrarily. But its better to assume the first 3 everytime a big tether print occurs, than to always assume the last one, because the formers are what all the US regulators and enforcement agencies have also found to have occurred most of the time. Not that hard. It is a trusted system, like everything else we are used to. They change their contract to reflect any deviation from 100% usd collateralization and that's not that controversial. Fractional systems also work. Ideology doesn't make something else suddenly not work.
- randomhodler84 5y ago
  Yeah! And the reserve requirements were suspended during the pandemic for banks anyway. Tether is, at least on chain, completely open and auditable. You can trace every token, in ways the global banking system is opaque. A fine, some regs and compliance, and capital still flows.

asah 5y ago

The takeaway: tether executives are explicitly engaging in dangerous and shady behavior, and you can't trust any statements made by them.

qeternity 5y ago

The important thing about all these Tether settlements is that they are for very specific periods of time, which were well before the most recent parabolic issuance in USDT. It's anyone's guess what they are currently sitting on.

buildbuildbuild 5y ago

This is a slap on the wrist. Tether's current market cap is $68.5 billion of printed money that users assume is really held in bank reserves. Expect a massive cryptocurrency crash if Tether's regulatory downfall finally occurs; a majority of exchange trading pairs are between currencies and USDT. (not financial advice)

iskander 5y ago
>a majority of exchange trading pairs are between currencies and USDT. (not financial advice) Is that actually true? In my (limited) experience I have seen ETH and USDC much more frequently than USDT. There also seems to be a recent migration to algorithmic stablecoins like RAI which aren't pegged to the dollar but are (supposedly) designed to limit fluctuation in value. I suspect that without regulatory action against both USDC and decentralize stable tokens that crypto would recover from a Tether collapse.
- buildbuildbuild 5y ago
  My source was a cursory look at https://coinranking.com/markets https://coinranking.com/markets but I admittedly could dig deeper to verify this. I agree that prices would recover after a short term Tether-induced crash, and markets would almost certainly shift to DAI and similar decentralized stablecoins.
  - iskander 5y ago
    Wow, you're right, USDT is much more prevalent in the largest markets than I would have suspected. Is this a first mover effect? As far as I can tell USDT is the shakiest and least compelling stable.
    - humaniania 5y ago
      There are a bunch of sketchy unlicensed exchanges that are heavily invested in utilizing USDT. The Tether meltdown should be quite the show. All of those outstanding balances have to be reconciled somehow. Or they'll just close up shop and disappear and years later people will maybe get a small % back, like with MTGOX.

IG_Semmelweiss 5y ago

Can someone imagine a world where the fine for tether is sufficiently large , that they dont have a capacity to pay it, and thus, blowing up the entire thing ?

mrh0057 5y ago
The whole long blows up when enough people try to withdraw tether for dollars and they don’t have enough to cover. As long as that doesn’t happen it will be alive. Works just like a Ponzi Scheme or a run on a bank.
unreal37 5y ago
No, because Tether can issue it's own coins to pay for it. Like trying to fine the US Government.
- dragontamer 5y ago
  > No, because Tether can issue it's own coins to pay for it. To a point, and that point is far larger than any of us imagined. But the Titan / Titanium collapse shows that you can't print money forever (or in the case of Titan / Titanium: print money automatically). It only takes a small downturn to make everything go to crap.
- roywiggins 5y ago
  They still have to pay the fine in dollars, though. If you fine Tether a trillion dollars, they'll need to find people willing to pay them one trillion dollars in exchange for newly-minted (and obviously unbacked) Tether. If you fined Tether one quadrillion dollars, they could mint a quadrillion Tether but they definitely won't have a quadrillion dollars to hand over. Also, if you can't pay a fine without dipping into your depositors' money you are insolvent by any reasonable definition.
robot_no_419 5y ago
That's like imagining a world where governments hold billionaires and CEOs accountable for their greed and crime and their tax evasion. In other words, a pipe dream.

unreal37 5y ago

No regulator or government official wants to see Tether destroyed, so they have to act all shocked and surprised before moving on to the next Facebook Privacy scandal.

arcticbull 5y ago

This settlement only covers up until February 2018. At that time they only had $2B-ish in issued Tethers (as compared to $65B ish now). $850M of their assets were seized in an AML sting shortly after that, in mid 2018 [1], they've been fined $42.5M [this article and 2] by the CFTC and another $18.5M by the NYAG [3]. Basically they've had to forfeit almost half of their assets up to [edit] Mid-2018. They remain under investigation for bank fraud by the DOJ [4] and for something unspecified by the SEC. [5] I suspect this party is just beginning. [edit] By the way, I love how each party here is framing this. > Tether: "As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times." > CFTC: "In fact Tether reserves were not “fully-backed” the majority of the time." [1] https://fortune.com/2019/05/03/cryptocurrency-new-york-attorney-general-bitfinex-reginald-fowler/ https://fortune.com/2019/05/03/cryptocurrency-new-york-attor... [2] https://www.coindesk.com/policy/2021/10/15/cftc-fines-tether-and-bitfinex-425m-for-untrue-or-misleading-claims/ https://www.coindesk.com/policy/2021/10/15/cftc-fines-tether... [3] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlement_agreement_-_execution_version.b-t_signed-c2_oag_signed.pdf https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen... [4] https://www.cnbc.com/2021/07/26/doj-reportedly-probes-crypto-company-tether-for-possible-bank-fraud.html https://www.cnbc.com/2021/07/26/doj-reportedly-probes-crypto... [5] https://www.coindesk.com/policy/2021/09/24/sec-hints-at-tether-probe-in-records-request-denial/ https://www.coindesk.com/policy/2021/09/24/sec-hints-at-teth...

prepend 5y ago
> reserves were not all in cash and all in a bank account titled in Tether’s name, at all times Truly a bizarre statement for Tether to make. are they counting bank accounts in other people’s names? How would that affect the question at hand. This sounds like junkie logic.
- davidgerard 5y ago
  > are they counting bank accounts in other people’s names? yes, it was a personal account in the name of iFinex general counsel Stuart Hoegner. And various holdings at non-banks, e.g. the $850m that disappeared at Crypto Capital Corp.

tkfu 5y ago

Have you ever heard of "The Narcissist's Prayer"? It goes like this: That didn't happen. And if it did, it wasn't that bad. And if it was, that's not a big deal. And if it is, that's not my fault. And if it was, I didn't mean it. And if I did... You deserved it. Tether defenders are really working their way through the steps here. 18 months ago, it was "That didn't happen." (Tether is 100% backed by USD cash.) 6 months ago, it "wasn't that bad." (It might not be 100% USD cash, but it's cash-equivalent assets like short-term commercial paper.) Now that there's strong evidence the commercial paper is just fake money shuffling between Tether/Binfinex/other shady crypto investments we get "that's not a big deal." (Look at the way banks work! They only need 4% collateral! Tether's probably got at least that much...) Next step is finding out that their actual liquidity isn't capable of holding up under a real-life stress test, and the defenders will be talking about "not my fault." (This was a once-in-a-lifetime crash, they couldn't have foreseen it, crypto's still way better than the fiat banking system!) When thousands of people lose their retirements in a gigantic defi crash, it'll be "you deserved it." (Everyone knows crypto is risky, you shouldn't have believed Tether was the same as USD.)

onlyrealcuzzo 5y ago
> It is difficult to get a man to understand something when his salary depends on his not understanding it.
A4ET8a8uTh0 5y ago
I am commenting here, because I want to save this "And if.." list, because it is beautiful in its simplicity and yet we see it played out over and over again.
- yorwba 5y ago
  HN also has a "favorite" button you can use to save things for later.
  - vtail 5y ago
    Where is that favorite button? I have never seen that functionality.

Andrew_nenakhov 5y ago

People on reddit and twitter are like, "great, now that Tether FUD is over, leave it behind and go for $100k!" - of course it is over. U in FUD stands for Uncertainty, and now it is Certain that Tether is a fraud. The only thing I can't understand is why the price still pumps.

jstx1 5y ago
Seriously - Bitcoin is more than 8% up today and about 50% up compared to 3 weeks ago. It's almost back to the all-time high from April. How does anyone explain any of this?
- ur-whale 5y ago
  > How does anyone explain any of this? Suppose you hold a big bunch of USDT (Tethers) right now. What would be be doing in light of these news? Exactly.
  - osense 5y ago
    Why not just convert to USDC / BUSD / some other stablecoin?
    - webinvest 5y ago
      Or Dai or Gemeni Dollars?
    - Jasper_ 5y ago
      How do you convert if nobody wants to buy your USDT?
- timerol 5y ago
  Bitcoin's price "in USD" makes more sense as a price "in USDT". It's completely unsurprising that Bitcoin went up relative to USDT after this news. The big question is when the peg of 1 USDT ~= 1 USD (or USDC) is going to break. Tether is going to do everything they can to maintain that peg as long as possible.

deleted 5y ago

[deleted]

humaniania 5y ago

And crypto manipulators are trying to spin the recent price increase as positive news with absolutely no regard to how a similar price ramp up happened on MTGOX before it went down completely from insolvency. Has Bitfinex pricing decoupled from the prices on legit exchanges yet?

graeme 5y ago
No, no decoupling. I wondered if the runup was like MTGOX. It’s plausible, but if so then someone is providing the dollars for everyone selling into USD on Coinbase etc. Whereas MTGOX’s prices were all self referential right? By the time it started freezing up One other possibility is that Tether is playing the CME futures and making money from the pump up. I suspect they’re insolvent but it’s possible they aren’t and are merely crooks. The crypto markets interface with real money now
webinvest 5y ago
MTGOX was essentially one large bug bounty for any hacker that had the means and ways of collecting the jackpot. Once the bug bounty was several million dollars…

ur-whale 5y ago

> Totaling $42.5M Which is essentially peanuts for the folks being Tether who will chalk it up to "cost of doing business". How do people come up with theses "punitive" numbers?

codebolt 5y ago

This was my favorite part, just wow: > Further, at least until 2018, Respondent’s internal accounting system for tracking fiat balances, including bank balances for USDt reserves, primarily consisted of a spreadsheet (the “Reserve Spreadsheet”). The Tether executive team was ultimately responsible for the Reserve Spreadsheet. The Reserve Spreadsheet required manual updates and was not always kept up to date in real time. Respondents were aware of the limitations of the Reserve Spreadsheet. For example, in an internal chat on June 15, 2016, Tether’s then-Chief Strategy Officer informed Respondents’ CFO and other employees stated that the: “transparency page needs to be dealt with ASAP . . . I am surprised the issuance address is not updated dynamically, btw . . . and how often does the bank balance get updated?”

Turbots 5y ago
So they probably had an Excel sheet on a shared drive, right?

ThinkBeat 5y ago

I am completely ignorant here. I read an article not that long ago where a journalist was trying to figure out where Tether kept its money (if there was any). The main characters seem to be distributed in different parts of the world and were not inclined to be interviewed. This corporate entity seems to be highly convoluted, which means its hard to know what jurisdiction they fall under. My question: How is Tether compelled to pay this? What happens if they do not? Can they just terminate whatever US subsidieres there may be and keep operating the same? Do they need a corporate component in the US, if so why?

samizdis 5y ago
> I read an article not that long ago where a journalist was trying to figure out where Tether kept its money (if there was any). I think that you might be referring to this one [1] from Bloomberg on Oct 7: Anyone Seen Tether’s Billions? It generated plenty of discussion on HN [2]. I mention it here because I enjoyed the article and the style in which it was written, if you don't mind a little snide humour in discussing a potentially serious problem. (The article was also archived [3].) Bloomberg commentator Matt Levine discussed the article in his Money Stuff column of the same day, Looking for Tether's Money [4]; it provides background and explanation of the mechanics of Tether, which I found to be educational. (That column was also archived [5].) [1] https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether https://www.bloomberg.com/news/features/2021-10-07/crypto-my... [2] https://news.ycombinator.com/item?id=28784745 https://news.ycombinator.com/item?id=28784745 [3] https://archive.is/LdRL6 https://archive.is/LdRL6 [4] https://www.bloomberg.com/opinion/articles/2021-10-07/matt-levine-s-money-stuff-looking-for-tether-s-money https://www.bloomberg.com/opinion/articles/2021-10-07/matt-l... [5] https://archive.is/cQVJl https://archive.is/cQVJl

NicoJuicy 5y ago

I'm really disappointed that the EU hasn't launched an investigation yet ( at least, not that I heard) Should have been done 5 years ago.

yawaworht1978 5y ago

I have 2 questions about this. Is it ever legal for a company to hold assets in a personal account of an owner/employee? Karpeles did the same, didn't he? And if it's legal, how does the bank do due diligence on the source of wealth? The other thing is, people say Mt gox collapsed, but it recovered. True, however the recovery was very slow and many people took a large hit. I understand if the Mt gox btc are still there, most can be made whole. Now people say btc can collapse just like Mt gox, but Mt gox collapsed because it was hacked, the btc themselves have been stolen. How would btc collapse if tether is stopped being used by exchanges? The people holding tether would simply not be paid whatever cryptocurrencies they bought with tether? I understand people just use it as a gateway and hold only for few seconds, right?