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I don't understand why this is something they can settle rather than something that gets them completely shut down.

by tdeck 5y ago

BitwiseFool 5y ago
I'm not saying they shouldn't be shut down, but I genuinely wonder how that process would work. People don't have an account with Tether itself, so how would they be able to compel people to "return?" the Tethers and get their cash back?
- skybrian 5y ago
  In theory, by announcing a changeover period and a deadline for turning them in? If they don’t, it’s on them. A similar thing was done when upgrading national currencies to the Euro: https://europa.eu/european-union/about-eu/euro/exchanging-national-currency_en https://europa.eu/european-union/about-eu/euro/exchanging-na...
- WalterSear 5y ago
  * They don't need to? If Tether, the company, disappeared, the market can decide what to do with the, now entirely unbacked, Tether cryptocurrency. * Tether, the company, can freeze specific Tethers they have issued, making them unusable as currency. Whoever shuts them down might be able to force them to do this en masse.
  - BitwiseFool 5y ago
    That's the thing, though, Tether is supposed to be holding all these assets and individuals are able to redeem Tethers proportionally. Leaving aside the strict notion of 1 Tether = 1 Dollar convertibility, just closing up shop would mean all those actual real world assets now belong to... who exactly?
    - WalterSear 5y ago
      I'm confused as to what 'real world assets' you are referring to. If Tether goes away, any value goes with it, like a gift card to Blockbuster's. Fwiw, it's likely just the pretence of redemption that would go away - it may never have been really there. Tether is explicit that they only redeem Tethers at their discretion. While they also specify that they will only redeem them for high value, non-US parties, I suspect this is misdirection. There is no evidence of any appreciable redemption going on, though they have announced the burning of $1.5 billion Tethers - all in the last six months. According to Tether, this is because they just 'keep them for later'. https://cointelegraph.com/news/tether-explains-why-it-hasnt-burned-any-usdt https://cointelegraph.com/news/tether-explains-why-it-hasnt-... https://cointelegraph.com/news/bitfinex-is-constantly-printing-more-tether-none-of-it-has-ever-been-burned https://cointelegraph.com/news/bitfinex-is-constantly-printi...
silexia 5y ago
I agree completely, the founders should be criminally prosecuted and the fines should be multiple times all time profits from the illicit activity.
300bps 5y ago
Or why outright lying that every Tether was backed by a U.S. dollar is termed “misleading”. It’s incredible - they had 4x as much Tether as dollars backing it and lied about audits taking place that never happened.
- BbzzbB 5y ago
  More than 7x ("at one point")
  - deleted 5y ago
    [deleted]
  - WalterSear 5y ago
    That was then. This is now: https://pbs.twimg.com/media/FBwhKnmXEAE1whT?format=jpg&name=medium https://pbs.twimg.com/media/FBwhKnmXEAE1whT?format=jpg&name=...
    - BbzzbB 5y ago
      The fact the number of Tethers in circulation basically never goes down even when the crypto market gets more then halved says it all as far as I'm concerned, but without an investigation it is speculation. I was referring to the ratio highlighted by the article.
_3u10 5y ago
The SEC is in the business of protecting investors not destroying peoples savings over a few inaccuracies. Why would misleading statements ever result in a shutdown of a company instead of a fine?
- wmf 5y ago
  It's debatable whether Tether has a few inaccuracies or massive fraud.
- deleted 5y ago
  [deleted]
- tdeck 5y ago
  Because the "misleading statement" (i.e. deliberate lie) is the entire basis of Tether's business. The service they claim to provide is fiat backing for their cryptocurrency and they didn't do that. That's not "a few inaccuracies", it's fraud.
  - _3u10 5y ago
    Isn’t the basis of the business that tethers are exchangeable for USD? Have they failed to provide USD when asked?
    - tdeck 5y ago
      Essentially yes. They throw up all kinds of roadblocks to make it difficult to exchange tether for cash in order to preserve the facade. Just one article I found: https://www.google.com/amp/s/micky.com.au/irredeemable-why-is-it-so-difficult-to-sell-one-tether-for-1/ https://www.google.com/amp/s/micky.com.au/irredeemable-why-i...
    - orthecreedence 5y ago
      Wait, has anybody ever in the entire existence of Tether actually withdrawn their USDT for USD??
- toofy 5y ago
paulgb 5y ago
I'm more surprised that anyone still holds Tether, unless they're stuck with it. The company has been caught in lies several times before, it's not as if a $41M fine will turn them honest.
- knownjorbist 5y ago
  Lending rates for USDT on the major decentralized lending platforms are more favorable than other stablecoins.
  - sdhfjgjh 5y ago
    The lending rates are higher because lenders are paid a premium for owning a potentially worthless (USDT denominated) credit. The idiom that comes to mind is "picking up pennies in front of a steamroller".
    - gammarator 5y ago
      Basic question: why doesn't this affect the currency pair exchange rate? If lending rates reflect the (realistic!) idea that holding 1 USDT is less valuable than holding 1 USD, how does 1 USDT trade at par?
      - ZephyrBlu 5y ago
        I'm assuming because a lot of people would lose a lot of money if it stops trading 1:1.
      - sdhfjgjh 5y ago
        If the price is under $1, the backer can purchase the coins with reserves and pocket the difference. The price will only depart from the peg if selling forces the market price down and the backer doesn't have enough reserves to purchase tokens sold beneath the peg. This scenario is similar to a bank run and would require high selling volume to set if off. The lending rates are determined by a separate mechanism and reflect the probability of a future departure from the peg.
deleted 5y ago
[deleted]
Kranar 5y ago
The CFTC doesn't have that authority; a company can only get shut down for a criminal offense and Tether is not accused of any crime. Only the Department of Justice can prosecute or investigate crimes, the CFTC is an independent agency and as such has no authority to do so. All the CFTC can do is levy a fine, so both parties are fairly indifferent as to whether that money comes from a judgement or from a settlement. There could be some minor benefit of not having to admit any "wrongdoing" for press release purposes, but overall it makes no difference.
- RNCTX 5y ago
  > The CFTC doesn't have that authority; a company can only get shut down for a criminal offense and Tether is not accused of any crime. Fraud is a crime.
  - honksillet 5y ago
    Yeah, so the DOJ would need to prosecute.
  - dragonwriter 5y ago
    > Fraud is a crime. CFTC does not prosecute crimes. CFTC could make a referral to DoJ, but where a regulatory agency can both engage in civil enforcement actions and make criminal referrals, even when it does both in the same case, the civil action will usually be filed and often resolved before any visible action (indictment, etc.) on the criminal referral. So, the resolution of the civil case doesn’t mean anything with regard to any potential criminal charges.
- hncommenter13 5y ago
  Not a lawyer, but I'm not sure that's correct. Per the CFTC's Enforcement website, they can bring civil enforcement actions in court--without the other party present aka ex-parte--seeking to freeze and enjoin the operations of a person or entity they can convince a judge is violating the Commodity Exchange Act. From [0]: "At the conclusion of an investigation, the Division may recommend that the Commission initiate administrative proceedings or seek injunctive and ancillary relief on behalf of the Commission in United States District Courts around the country. Administrative sanctions may include orders imposing civil monetary penalties, suspending, denying, revoking or restricting registration and exchange trading privileges, and orders of restitution. The Commission also may obtain temporary restraining orders and preliminary and permanent injunctions in Federal court to halt ongoing violations. Other relief may include appointment of a receiver, a freeze of assets, restitution, and disgorgement of unlawfully acquired benefits. The CEA also provides that the Commission may obtain certain temporary relief on an ex parte basis (that is, without notice to the other party). When those enjoined violate court orders, the Division may seek to have the offenders held in contempt. When the Division obtains evidence that criminal violations of the CEA have occurred, it may refer the matter to the Department of Justice for prosecution. [0] https://www.cftc.gov/LawRegulation/Enforcement/OfficeofDirectorEnforcement.html https://www.cftc.gov/LawRegulation/Enforcement/OfficeofDirec... Here's an example: https://www.investmentexecutive.com/news/from-the-regulators/cftc-shuts-down-alleged-forex-fraud/ https://www.investmentexecutive.com/news/from-the-regulators...
JumpCrisscross 5y ago
> why this is something they can settle rather than something that gets them completely shut down I'm a Tether sceptic. I wouldn't want to be the regulator (note: not prosecutor, different standards) to shut it down. There was a moment when I suspected Tether may hold U.S. dollar money market securities. That would mean a collapse could spill to our financial markets. But that doesn't seem to be the case. The only people who would get hurt in its wake seems to be those who choose to keep using Tether despite the screaming warnings. Those same people would make you public enemy No. 1 for bringing down the house of cards. So given the problem is contained to the people who oppose its solution, there isn't a great argument for allocating regulatory resources to this over anything else.
AlexanderTheGr8 5y ago
Tether is not a US-based company. So does US have the authority to shut them down?
- 35fbe7d3d5b9 5y ago
  There is an entire branch of the Department of Treasury designed to enforce stiff sanctions and financial penalties against people, companies, and even countries that defy US regulations. If the federal government decides Tether needs shut down, it won't be a struggle.
  - 35fbe7d3d5b9 5y ago
    Since I didn't really talk through this before, a bit of an effort post. OFAC sanctioned Suex, a crypto exchange based in the Czech Republic, less than a month ago[1]. As far as I can tell it is gone from the face of the earth. Here's why: > As a result of today’s designation, all property and interests in property of the designated target that are subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. Additionally, any entities 50% or more owned by one or more designated persons are also blocked. In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action. suex.io. 676 IN SOA ns-648.awsdns-17.net. awsdns-hostmaster.amazon.com. 1 7200 900 1209600 86400 suex.io's hosting is gone due to OFAC's ruling: Amazon is barred from providing them service. They used to take Visa & Mastercard[2] – even if they were online today, they wouldn't find a payment processor in the world willing to touch them: that would expose the payment processor to OFAC sanctions which is as close to "existential risk" as you can get in finance. Suex was listed on the SDN list[3]. As a result no US based exchange can touch any crypto from those addresses. If, say, you wanted to cash out that crypto by sending it to Coinbase, they'd be legally required to freeze it and deny you access to it: otherwise, they're at risk of OFAC sanctions. Every bank in the US monitors the OFAC SDN list, and as a result, they will be monitoring transactions. If Suex attempted to move their money into a bank account controlled by the US, they'd be blocked. But most likely their accounts are already frozen, because OFAC jurisdiction attaches when funds pass through any US financial institution or any foreign financial institution owned by a US person. OFAC has recently decided that the mere presence of US dollars in a financial transaction is sufficient to establish jurisdiction: if Suex had their entirely foreign owned bank process any transactions in dollars, this would cause a US counterparty to indirectly provide financial services to an SDN. This risks sanctions at their foreign-owned bank. At the end of the day, most global financial institutions assume a US nexus is present and deny any service to targets of US sanctions – the risk is much lower. To wrap this up, OFAC has published an interesting guide[4] to sanctions that directly relate to cryptocurrency, and it's well worth a read. [1]: https://home.treasury.gov/news/press-releases/jy0364 https://home.treasury.gov/news/press-releases/jy0364 [2]: https://web.archive.org/web/20210414074952/https://suex.io/ https://web.archive.org/web/20210414074952/https://suex.io/ [3]: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20210921 https://home.treasury.gov/policy-issues/financial-sanctions/... [4]: https://home.treasury.gov/system/files/126/virtual_currency_guidance_brochure.pdf https://home.treasury.gov/system/files/126/virtual_currency_...

I don't understand why this is something they can settle rather than something that gets them completely shut down.

by tdeck 5y ago

I don't understand why this is something they can settle rather than something that gets them completely shut down.

I'm not saying they shouldn't be shut down, but I genuinely wonder how that process would work. People don't have an account with Tether itself, so how would they be able to compel people to "return?" the Tethers and get their cash back?

skybrian 5y ago
In theory, by announcing a changeover period and a deadline for turning them in? If they don’t, it’s on them. A similar thing was done when upgrading national currencies to the Euro: https://europa.eu/european-union/about-eu/euro/exchanging-national-currency_en https://europa.eu/european-union/about-eu/euro/exchanging-na...
WalterSear 5y ago
* They don't need to? If Tether, the company, disappeared, the market can decide what to do with the, now entirely unbacked, Tether cryptocurrency. * Tether, the company, can freeze specific Tethers they have issued, making them unusable as currency. Whoever shuts them down might be able to force them to do this en masse.
- BitwiseFool 5y ago
  That's the thing, though, Tether is supposed to be holding all these assets and individuals are able to redeem Tethers proportionally. Leaving aside the strict notion of 1 Tether = 1 Dollar convertibility, just closing up shop would mean all those actual real world assets now belong to... who exactly?
  - WalterSear 5y ago
    I'm confused as to what 'real world assets' you are referring to. If Tether goes away, any value goes with it, like a gift card to Blockbuster's. Fwiw, it's likely just the pretence of redemption that would go away - it may never have been really there. Tether is explicit that they only redeem Tethers at their discretion. While they also specify that they will only redeem them for high value, non-US parties, I suspect this is misdirection. There is no evidence of any appreciable redemption going on, though they have announced the burning of $1.5 billion Tethers - all in the last six months. According to Tether, this is because they just 'keep them for later'. https://cointelegraph.com/news/tether-explains-why-it-hasnt-burned-any-usdt https://cointelegraph.com/news/tether-explains-why-it-hasnt-... https://cointelegraph.com/news/bitfinex-is-constantly-printing-more-tether-none-of-it-has-ever-been-burned https://cointelegraph.com/news/bitfinex-is-constantly-printi...

silexia 5y ago

I agree completely, the founders should be criminally prosecuted and the fines should be multiple times all time profits from the illicit activity.

300bps 5y ago

Or why outright lying that every Tether was backed by a U.S. dollar is termed “misleading”. It’s incredible - they had 4x as much Tether as dollars backing it and lied about audits taking place that never happened.

BbzzbB 5y ago
More than 7x ("at one point")
- deleted 5y ago
  [deleted]
- WalterSear 5y ago
  That was then. This is now: https://pbs.twimg.com/media/FBwhKnmXEAE1whT?format=jpg&name=medium https://pbs.twimg.com/media/FBwhKnmXEAE1whT?format=jpg&name=...
  - BbzzbB 5y ago
    The fact the number of Tethers in circulation basically never goes down even when the crypto market gets more then halved says it all as far as I'm concerned, but without an investigation it is speculation. I was referring to the ratio highlighted by the article.

_3u10 5y ago

The SEC is in the business of protecting investors not destroying peoples savings over a few inaccuracies. Why would misleading statements ever result in a shutdown of a company instead of a fine?

wmf 5y ago
It's debatable whether Tether has a few inaccuracies or massive fraud.
deleted 5y ago
[deleted]
tdeck 5y ago
Because the "misleading statement" (i.e. deliberate lie) is the entire basis of Tether's business. The service they claim to provide is fiat backing for their cryptocurrency and they didn't do that. That's not "a few inaccuracies", it's fraud.
- _3u10 5y ago
  Isn’t the basis of the business that tethers are exchangeable for USD? Have they failed to provide USD when asked?
  - tdeck 5y ago
    Essentially yes. They throw up all kinds of roadblocks to make it difficult to exchange tether for cash in order to preserve the facade. Just one article I found: https://www.google.com/amp/s/micky.com.au/irredeemable-why-is-it-so-difficult-to-sell-one-tether-for-1/ https://www.google.com/amp/s/micky.com.au/irredeemable-why-i...
  - orthecreedence 5y ago
    Wait, has anybody ever in the entire existence of Tether actually withdrawn their USDT for USD??
toofy 5y ago

paulgb 5y ago

I'm more surprised that anyone still holds Tether, unless they're stuck with it. The company has been caught in lies several times before, it's not as if a $41M fine will turn them honest.

knownjorbist 5y ago
Lending rates for USDT on the major decentralized lending platforms are more favorable than other stablecoins.
- sdhfjgjh 5y ago
  The lending rates are higher because lenders are paid a premium for owning a potentially worthless (USDT denominated) credit. The idiom that comes to mind is "picking up pennies in front of a steamroller".
  - gammarator 5y ago
    Basic question: why doesn't this affect the currency pair exchange rate? If lending rates reflect the (realistic!) idea that holding 1 USDT is less valuable than holding 1 USD, how does 1 USDT trade at par?
    - ZephyrBlu 5y ago
      I'm assuming because a lot of people would lose a lot of money if it stops trading 1:1.
    - sdhfjgjh 5y ago
      If the price is under $1, the backer can purchase the coins with reserves and pocket the difference. The price will only depart from the peg if selling forces the market price down and the backer doesn't have enough reserves to purchase tokens sold beneath the peg. This scenario is similar to a bank run and would require high selling volume to set if off. The lending rates are determined by a separate mechanism and reflect the probability of a future departure from the peg.

deleted 5y ago

[deleted]

Kranar 5y ago

The CFTC doesn't have that authority; a company can only get shut down for a criminal offense and Tether is not accused of any crime. Only the Department of Justice can prosecute or investigate crimes, the CFTC is an independent agency and as such has no authority to do so. All the CFTC can do is levy a fine, so both parties are fairly indifferent as to whether that money comes from a judgement or from a settlement. There could be some minor benefit of not having to admit any "wrongdoing" for press release purposes, but overall it makes no difference.

RNCTX 5y ago
> The CFTC doesn't have that authority; a company can only get shut down for a criminal offense and Tether is not accused of any crime. Fraud is a crime.
- honksillet 5y ago
  Yeah, so the DOJ would need to prosecute.
- dragonwriter 5y ago
  > Fraud is a crime. CFTC does not prosecute crimes. CFTC could make a referral to DoJ, but where a regulatory agency can both engage in civil enforcement actions and make criminal referrals, even when it does both in the same case, the civil action will usually be filed and often resolved before any visible action (indictment, etc.) on the criminal referral. So, the resolution of the civil case doesn’t mean anything with regard to any potential criminal charges.
hncommenter13 5y ago
Not a lawyer, but I'm not sure that's correct. Per the CFTC's Enforcement website, they can bring civil enforcement actions in court--without the other party present aka ex-parte--seeking to freeze and enjoin the operations of a person or entity they can convince a judge is violating the Commodity Exchange Act. From [0]: "At the conclusion of an investigation, the Division may recommend that the Commission initiate administrative proceedings or seek injunctive and ancillary relief on behalf of the Commission in United States District Courts around the country. Administrative sanctions may include orders imposing civil monetary penalties, suspending, denying, revoking or restricting registration and exchange trading privileges, and orders of restitution. The Commission also may obtain temporary restraining orders and preliminary and permanent injunctions in Federal court to halt ongoing violations. Other relief may include appointment of a receiver, a freeze of assets, restitution, and disgorgement of unlawfully acquired benefits. The CEA also provides that the Commission may obtain certain temporary relief on an ex parte basis (that is, without notice to the other party). When those enjoined violate court orders, the Division may seek to have the offenders held in contempt. When the Division obtains evidence that criminal violations of the CEA have occurred, it may refer the matter to the Department of Justice for prosecution. [0] https://www.cftc.gov/LawRegulation/Enforcement/OfficeofDirectorEnforcement.html https://www.cftc.gov/LawRegulation/Enforcement/OfficeofDirec... Here's an example: https://www.investmentexecutive.com/news/from-the-regulators/cftc-shuts-down-alleged-forex-fraud/ https://www.investmentexecutive.com/news/from-the-regulators...

JumpCrisscross 5y ago

> why this is something they can settle rather than something that gets them completely shut down I'm a Tether sceptic. I wouldn't want to be the regulator (note: not prosecutor, different standards) to shut it down. There was a moment when I suspected Tether may hold U.S. dollar money market securities. That would mean a collapse could spill to our financial markets. But that doesn't seem to be the case. The only people who would get hurt in its wake seems to be those who choose to keep using Tether despite the screaming warnings. Those same people would make you public enemy No. 1 for bringing down the house of cards. So given the problem is contained to the people who oppose its solution, there isn't a great argument for allocating regulatory resources to this over anything else.

AlexanderTheGr8 5y ago

Tether is not a US-based company. So does US have the authority to shut them down?

35fbe7d3d5b9 5y ago
There is an entire branch of the Department of Treasury designed to enforce stiff sanctions and financial penalties against people, companies, and even countries that defy US regulations. If the federal government decides Tether needs shut down, it won't be a struggle.
- 35fbe7d3d5b9 5y ago
  Since I didn't really talk through this before, a bit of an effort post. OFAC sanctioned Suex, a crypto exchange based in the Czech Republic, less than a month ago[1]. As far as I can tell it is gone from the face of the earth. Here's why: > As a result of today’s designation, all property and interests in property of the designated target that are subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. Additionally, any entities 50% or more owned by one or more designated persons are also blocked. In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action. suex.io. 676 IN SOA ns-648.awsdns-17.net. awsdns-hostmaster.amazon.com. 1 7200 900 1209600 86400 suex.io's hosting is gone due to OFAC's ruling: Amazon is barred from providing them service. They used to take Visa & Mastercard[2] – even if they were online today, they wouldn't find a payment processor in the world willing to touch them: that would expose the payment processor to OFAC sanctions which is as close to "existential risk" as you can get in finance. Suex was listed on the SDN list[3]. As a result no US based exchange can touch any crypto from those addresses. If, say, you wanted to cash out that crypto by sending it to Coinbase, they'd be legally required to freeze it and deny you access to it: otherwise, they're at risk of OFAC sanctions. Every bank in the US monitors the OFAC SDN list, and as a result, they will be monitoring transactions. If Suex attempted to move their money into a bank account controlled by the US, they'd be blocked. But most likely their accounts are already frozen, because OFAC jurisdiction attaches when funds pass through any US financial institution or any foreign financial institution owned by a US person. OFAC has recently decided that the mere presence of US dollars in a financial transaction is sufficient to establish jurisdiction: if Suex had their entirely foreign owned bank process any transactions in dollars, this would cause a US counterparty to indirectly provide financial services to an SDN. This risks sanctions at their foreign-owned bank. At the end of the day, most global financial institutions assume a US nexus is present and deny any service to targets of US sanctions – the risk is much lower. To wrap this up, OFAC has published an interesting guide[4] to sanctions that directly relate to cryptocurrency, and it's well worth a read. [1]: https://home.treasury.gov/news/press-releases/jy0364 https://home.treasury.gov/news/press-releases/jy0364 [2]: https://web.archive.org/web/20210414074952/https://suex.io/ https://web.archive.org/web/20210414074952/https://suex.io/ [3]: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20210921 https://home.treasury.gov/policy-issues/financial-sanctions/... [4]: https://home.treasury.gov/system/files/126/virtual_currency_guidance_brochure.pdf https://home.treasury.gov/system/files/126/virtual_currency_...