Tether will pay $41 million to settle allegations by the US Commodity Futures Trading Commission (CFTC) that it made untrue or misleading statements when it claimed its stablecoins were fully backed by fiat currencies.
The CFTC said in a statement Friday that between June 2016 and February 2019, Tether misrepresented to customers and the cryptocurrencies markets that it had “sufficient US dollar reserves” to back every token when, in fact, its reserves were not fully backed the majority of the time.
In addition, the CFTC said, Tether failed to disclose that it included unsecured receivables and non-fiat assets as part of its reserves, falsely telling investors it would conduct routine audits to show it maintained 100 per cent of reserves at all times, even though its reserves were not audited.
“This case highlights the expectation of honesty and transparency in the rapidly growing and developing digital assets marketplace,” acting CFTC chairman Rostin Behnam said in a statement.
Tether was investigated by the New York attorney general for claims about its backing, setting with the agency in February. Under the terms of that settlement, Tether is prohibited from doing business in New York state.
Tether said in a statement emailed to The Verge on Friday that the CFTC order “found no issues relating to Tether’s current operations,” adding that issues in the agency’s order were resolved when Tether updated its terms of service in February 2019.
“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,” Tether’s statement continues. “As Tether represented in the Order, it has always maintained adequate reserves and has never failed to satisfy a redemption request.”
The inquiry by the CFTC “arose during a markedly different time in our ecosystem,” according to Tether, and dealt with challenges it says were common in the digital currency industry at the time.
Tether is a digital currency known as a stablecoin, typically backed by a fiat currency like the US dollar or the Euro. They’re used mainly as payment vehicles and viewed as more stable (hence the name) than other digital currencies because they’re backed.
CFTC commissioner Dawn D. Stump said in a concurring statement that she agreed with the terms of the settlement, as “there were misrepresentations regarding the assets backing Tether, specifically that the USDt tokens were backed 1-to-1 by US dollars. The evidence establishes that this assurance provided to tether customers was not 100% true, 100% of the time.”
But Stump added she was concerned that the settlement might cause confusion among investors, noting that the CFTC “does not regulate stablecoins, and we do not have daily insight into the businesses” involved with stablecoins. Stump questioned whether “the actions of the CFTC in entering into this settlement with the Tether respondents create a false sense of security for those investing in stablecoins?”
The CFTC also announced Friday that Bitfinex, a cryptocurrency exchange affiliated with Tether, has been fined $1.5 million for “illegal, off-exchange retail commodity transactions in digital assets” with Americans, in violation of the terms of a 2016 order from the CFTC.
In a statement, Tether said the CFTC’s findings regarding Bitfinex “relate to the timing and implementation of its ban on U.S. customers,” noting the CFTC’s order found no violations after December 2018.