US Department of Justice goes after Tether executives

The U.S Department of Justice has accused the Tether executives of committing bank fraud and misleading banks during operations.
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Key Takaways

  • The US Department of Justice wants to bring Tether executives to book.
  • Tether is brawled in controversy since its inception.
  • Will the latest investigation cause panic selling? 

YEREVAN( – The U.S Department of Justice is tightening the noose around the neck of Tether.

It has accused the Tether executives of committing bank fraud and misleading banks during operations. The current J.D investigation focuses on conduct that occurred years ago when the Tether was still relatively new. In addition, the federal prosecutors are investigating to see if Tether hid from banks that its transactions were linked to cryptocurrency.

Should the charges stick, it will result in a criminal case. For a crypto giant like Tether, this could have widespread consequences on the entire crypto industry. There is over $62 billion worth of Tether in circulation, linked to more than half of all Bitcoin trades.

Commenting on the news, the company issued a statement.

“Tether routinely has an open dialogue with law enforcement agencies, including the DOJ, as part of our commitment to cooperation and transparency,” 

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The Tether Controversy 

For years now, Tether has been brawled in controversy. As the most widely-used stablecoin, it has received as much criticism as it has garnered support.

On more than one occasion, Tether was criticized for not being honest and transparent enough.

Tether claimed its inhouse token USDT was backed by U.S. dollars 1:1. However, for a substantial period, it refrained from providing any proof of its holdings. Finally, on 14 March 2019, Tether changed its backing claims to include loans to affiliate companies. Until then, it claimed USDT was backed 100% by the US Dollar.

Now, it reduced that claim to 74%. However, despite coming partly clear on USDT’s backing, it still did not release much information until two months ago.

When Tether published a breakdown of its underlying collateral, it painted a different picture than the one investors had hoped for. Although cash and cash equivalents were 75.85% of total reserves, only 3.87% of that was actual cash. The rest comprised of Treasury bills, repo notes, fiduciary deposits, etc.

This implies that no more than 2.9% of actual U.S. dollars back each USDT token. Not exactly what investors want to hear.

Moreover, investigations launched against Tether found that Tether had no backing from any bank when it published an audit report in 2017. Tether had claimed to have a 100% backed reserves.

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Tether settled with the New York Attorney General Office (NYAG)

After playing a tug-of-war for some time, Tether had no choice but to eat a humble pie.

Along with iFinex owned Bitfinex, Tether settled with New York Attorney General Office (NYAG) in February after almost a 2-year long court battle. NYAG took Bitfinex to court after accusing it of misappropriating $850 million worth of funds. According to the Attorney General’s office, Bitfinex tried to borrow from Tether to cover it up.

The NYAG cut right through the cheese, calling Tether liars.

 “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.”,

it wrote in the statement.

Although Tether agreed to settle with the New York Attorney General’s office, it still did not admit to any wrongdoings.

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Tether Manipulated the price of Bitcoin 

Tether allegedly manipulated Bitcoin’s price for years by printing unlimited and unbacked USDT.

Since no actual USD backed some of the USDT in circulation, they are practically worthless. By issuing unlimited amounts of USDT and injecting them into BTC, ETH, LTC, etc., Tether caused the price of cryptocurrencies to pump higher. By creating false demand, it also created a FOMO phenomenon, causing the price of BTC to skyrocket.

The majority of the funds that flow into Bitcoin come from Tether. It also has the highest volume of all cryptocurrencies in the market. If the US Authorities deal with Tether in a manner that limits its presence, its effect on the industry will be huge.

In the meantime, some Twitter users sense foul play in the actions of the US Department of Justice. Tying the news to the recent performance of USDT, fans accuse the authorities of planting the information to cause panic selling and send the price crashing down.

Tether still needs to come out of this mess. For now, however, they seem to be in real trouble.

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