Tether, Bitfinex reaches an agreement with the attorney general of New York

Cryptocurrency companies Tether and Bitfinex reached an agreement with the New York attorney general’s office to pay a $ 18.5 million fine to resolve a closely watched legal dispute.

The state’s top security official was investigating companies on allegations that they had moved hundreds of millions of dollars to cover up the apparent loss of $ 850 million from customers merged with corporate funds. Tether and Bitfinex – a popular digital currency exchange – are owned by the same company, Ifinex.

Tether and Bitfinex will be required to end commercial activities with New Yorkers and submit quarterly transparency reports, said the attorney general’s office. It is a major development in the crypto industry and concludes a long legal battle that began in April 2019.

Tether is the company behind a well-known “stablecoin” with the same name. This token must be guaranteed individually by US dollars, the idea is that it is much more stable than most digital currencies, which have large price fluctuations.

Many crypto investors use tether to buy bitcoins and other virtual tokens. But there have been concerns about whether Tether had sufficient cash reserves to support all of the tether tokens in circulation. Critics also raised fears that tether tokens were used to manipulate bitcoin prices, a claim that Tether has repeatedly denied.

The office of New York Attorney General Letitia James claims to have discovered that Tether sometimes did not hold reserves to support its indexation to the cryptocurrency dollar. He stated that, as of mid-2017, the company had no access to banking services and deceived customers on liquidity issues.

In a 2019 lawsuit, the attorney general’s office said Bitfinex handed over $ 850 million to a Panama entity called Crypto Capital without disclosing it to investors. Bitfinex and Tether executives then allegedly engaged in a series of transactions that opened Tether’s cash reserves to Bitfinex.

“Bitfinex and Tether have covered up massive financial losses in a reckless and illegal way to keep their scheme going and protect their financial results,” James said in a statement on Tuesday.

“Tether’s claims that its virtual currency has always been fully backed by US dollars were a lie,” she added.

“These companies obscured the real risk that investors faced and were operated by unlicensed and unregulated individuals and entities that dealt with the darkest corners of the financial system.”

Tether and Bitfinex refused to admit any wrongdoing on Tuesday, but said “we share the attorney general’s goal of increasing transparency”.

“Contrary to online speculation, after two and a half years there has been no discovery that Tether has issued unsupported tethers or to manipulate crypto prices,” the companies said in a statement on the Tether website.

A company spokesman was not immediately available when contacted by CNBC for further comments.

Earlier this month, Bitfinex said it had paid off the remaining balance of a $ 550 million loan to Tether.

Crypto investors have been closely watching the New York fraud investigation, which has gained more interest recently in light of bitcoin’s meteoric rise.

There are now about 34.8 billion mooring tokens in circulation, according to data from CoinMarketCap, up from 2 billion three years ago. The cryptocurrency has a market capitalization of $ 34.6 billion.

Bitcoin fell 10% on Tuesday, priced at $ 48,713. The world’s most valuable digital currency was already falling before the New York attorney general’s announcement.