Companies behind the stablecoin, Tether, have settled charges from U.S. derivatives regulator the Commodity Futures Trading Commission (CFTC) — which alleged that the companies made misleading claims about the crypto being fully backed by U.S. dollars.
The CFTC settled with the companies that operate Tether, requiring them to pay US$41 million to resolve allegations that they made untrue or misleading statements and omissions in connection with the U.S.-dollar tether token.
Specifically, the CFTC’s order found that “Tether misrepresented to customers and the market,” when it came to claims that Tether was fully backed by U.S. dollars. The order also found failings to disclose that the crypto’s reserves included unsecured receivables and non-fiat assets.
In fact, the CFTC said that Tether only had sufficient reserves to back its tokens 27.6% of the time from 2016 through 2018. The regulator also found that the firms didn’t have audits carried out as promised.
Additionally, the regulator said that Tether co-mingled reserve funds with operational and customer funds of the crypto-trading platform Bitfinex, and that Tether supplied reserve funds to Bitfinex when the trading platform was facing a liquidity crisis.
Separately, the CFTC also settled with Bitfinex, which agreed to pay US$1.5 million to settle allegations that it engaged in illegal transactions with U.S. investors and operated without registration.
“This case highlights the expectation of honesty and transparency in the rapidly growing and developing digital assets marketplace,” said Rostin Behnam, acting chairman of the CFTC, in a statement.
Earlier this year, Tether and Bitfinex also settled allegations with New York’s attorney general concerning the disclosure of the lifeline that Tether provided to Bitfinex in 2018. Under that settlement, they agreed to pay US$18.5 million, among other sanctions.
In a statement, Tether stressed that the settlement with the CFTC involves issues that occurred back in 2018.
“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,” it said, adding that Tether “always maintained adequate reserves and has never failed to satisfy a redemption request.”
In terms of the CFTC’s findings in relation to Bitfinex, the firms said, “This inquiry arose during a markedly different time in our ecosystem, and focused on the same types of challenges that many in our industry faced at the time.”