Tether Cryptocurrency Backing and Audit Claims Class Action

Cryptocurrencies provide new options for investment and payments. However, their new arrangements offer downsides for users, including the lack of established routines of operation, oversight, and regulation. This class action brings suit against two sets of companies, one related to the cryptocurrency Tether and the other related to the Bitfinex exchange, alleging that they made false claims relating to Tether and its backing.

Two classes have been defined for this action:

• The Nationwide Class is all persons who bought Tether tokens between 2014 and the present.
• The Nevada Subclass is all residents of Nevada who bought Tether tokens between 2014 and the present.

The two sets of defendants include companies related to Tether (Tether Holdings Limited, Tether Limited, Tether International Limited, and Tether Operations Limited) and companies related to the Bitfinex cryptocurrency platform (iFinex, Inc., BFXNA, Inc., and BFXWW, Inc.).

Tether was promoted as a “stablecoin,” that is, a cryptocurrency with a value tied to a real-world currency. The complaint alleges that the companies “have consistently maintained on their website, blog posts, court filings, social media accounts, and elsewhere that Tether tokens are backed one-to-one by sufficient reserves in U.S. dollars. Defendants have also promised, in the interest of transparency, to undergo routine audits of Tether’s reserves.”

However, the complaint claims that neither of these representations are true: “To date, Tether maintains less than 4% in cash reserves and has yet to undergo a single professional audit.”

Two regulatory agencies—the New York State Office of the Attorney General (NYOAG) and the Commodities Futures Trading Commission (CFTC)—have investigated the companies.

NYOAG’s investigation began in November 2018, the complaint alleges, “relating to a series of conflicted corporate transactions, which were not disclosed to investors, whereby Bitfinex took at least $700 million of Tether’s cash reserves in an attempt to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals.”

The complaint quotes NYOAG’s findings as saying that Bitfinex and Tether “recklessly and unlawfully covered[ ]up massive financial losses to keep their scheme going and protect their bottom lines” by moving hundreds of millions of dollars between them. The complaint also alleges that NYOAG found that Tether tokens were not in fact fully backed by US dollars.

The NYOAG settlement with the companies requires the companies to pay a fine of $18.5 million, to discontinue any trading with New Yorkers, and to submit quarterly reports.

According to the complaint, the CFTC also charged that Tether did not maintain the reserves it claimed to have and that it did not have the routine, professional audits it said it would have. It required Tether to pay a penalty of $41 million.

However, the complaint alleges that the trading with New Yorkers continues, and that very little of the reserves it purports to have are in cash. The complaint quotes a financial commentator who purportedly reviewed a representation of Tether’s reserves as saying, “The 1:1 peg to the USD is … not remotely credible.”

Article Type: Lawsuit
Topic: Contract
Tags: Breach of Contract, Cryptocurrency, Misrepresentations or False Statements