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Tether and Bitfinex Settle Charges with CFTC for $42.5M

Tether and Bitfinex have been fined for misrepresentation, commingling funds, and operating without a license.

Yesterday, Tether and Bitfinex were fined $41 million and $1.5 million (total $42.5 million), respectively, by the Commodities Futures Trading Commission.

Both the companies were in violation of the Commodity Exchange Act, or CEA, and a prior CFTC order.

Revelations by CFTC

Tether has always maintained that its eponymous stablecoin is 100% backed by corresponding fiat assets.

On the contrary, the CFTC stated that from mid-2016 to Feb. 25, 2019, Tether “misrepresented to customers and the market”. Its reserves were not “fully backed” the majority of the time. The reserves included unsecured receivables and non-fiat assets in its reserves.

The regulator found that the number of fiat reserve assets held by Tether could only back the digital coins in circulation for 27.6% of the days during the 26 months under investigation between 2016 and 2018.

Tether held a significant portion of the reserves in non-fiat financial instruments and also comingled operational and reserve funds.

At the same time, the regulator has accused Bitfinex of facilitating “illegal, off-exchange retail commodity transactions in digital assets with U.S persons that were not eligible contract participants (ECPs) under the CEA” on its platform from March 1, 2016 to December 31, 2018.

The exchange was also found operating “as a futures commission merchant, or FCM, without registering as required.”

Further, it violated an earlier order from 2016 directing it to cease and desist from the aforementioned illicit activities.

CFTC Commissioner Dawn Stump commented, that the settlement could “provide users of stablecoins with a false sense of comfort” as they may falsely interpret that CFTC regulates stablecoins and their issuers.

The starkly visible and important point to note is that the CFTC has referred to the stablecoin as a ‘commodity’ by interpreting it as a commodity under the CEA.

Tether’s Take on the Issue

Tether has released a statement denying any discrepancy in the reserves, wherein it neither admitted nor denied CFTCs charges.

The company claimed that the assets have always been backed by at all times. They were not all in “cash and all in a bank account titled in Tether’s name.”

It said, “As the Order recognizes, these issues were fully resolved when the terms of service were updated in February 2019.”

The company also emphasized that the charges are not based on the current assets.

Tether chose to settle all the disputes by paying all the levied penalties. It “agreed to resolve this matter in order to move forward and focus on the future.”

That’s why both the firms agreed to pay the penalty to settle civil charges from the CFTC.

Earlier Conflicts with Regulators

Earlier this year the Office of Attorney General of the State of New York, mandated that the parent of Bitfinex and Tether, iFinex, pay $18.5 million for commingling client and corporate funds worth $850 million.

All three firms have also been accused of pump-and-dump market manipulation in past.

Just last month, a New York Judge dismissed half of the class action plaintiffs’ claims against Tether and Bitfinex including all the Racketeer Influenced and Corrupt Organizations Act (RICO) cases.

The Tether and Bitfinex saga has caused considerable Fear, Uncertainty, and Doubt (FUD) among investors. The settlement brings an end to the long speculation about Tether and its contentious reserve assets.

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