U.S. CFTC Is Charging Tether and Bitfinex $42.5M

The United States Commodity and Futures Trading Commission (CFTC) has fined stablecoin issuer Tether and its associated crypto exchange, Bitfinex. Both entities will pay a combined fine of $42.5 million for alleged violation of regulatory requirements.

In an announcement published Friday, the CFTC said Tether had made “untrue or misleading statements and omissions of material fact” regarding its widely used stablecoin, USDT.

The stablecoin issuer had since launch claimed that its token was 100% backed by equivalent fiat assets. But according to the CFTC, Tethers only had equivalent fiat reserves for only 27.6% of the time over a 26-month period between 2016-2018.

The company failed to disclose this information to the public, and also the fact that its reserves were being held by unregulated entities and was a mixture of fiat and non-fiat financial products.

The CFTC also alleged that Tether mixed USDT “reserve funds with Bitfinex’s operational and customer funds,” even though there was no documented agreement or contract between the two entities.

Another allegation is that Tether retained an accounting firm to audit its reserves on a date that they selected in advance. On one occasion, this advance notice allowed Bitfinex to remit $382 million into Tether’s bank account, just before the audit, further hiding the fact that the token was not sufficiently backed. Tether has been fined $41 million for the alleged false claims.

Meanwhile, the CFTC alleged in a separate order that Bitfinex illegally operated as a Futures Commission Merchant (FCM), offering certain derivatives products to retail U.S. customers. According to the U.S Commodity Exchange Act (CEA), only authorized entities can offer such products.

Bitfinex will pay a $1.5 million fine for the violation and also set up “additional systems” to ensure that it does not facilitate such unlawful retail commodity transactions, according to the CFTC press release.

The CFTC settlement with Tether and Bitfinex follows a similar settlement in February between the entities and the New York Attorney General’s (NYAG) office. On that occasion, the companies were fined $18.5 million and ordered to stop providing services to New York residents.

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