The Commodity Futures Trading Commission (CFTC) fined Bitfinex and Tether more than $42 million on allegations the USDT stablecoin was not fully backed at all times and that Bitfinex violated a previous agency order.
The federal commodities regulator settled charges with the sibling crypto companies on Friday, barring both firms from “any further violations of the Commodity Exchange Act (CEA) and CFTC regulations.”
According to a CFTC press release, Tether’s stablecoin was fully backed by reserves for only one-quarter of the time over a 26-month period between 2016 and 2018. Further, Tether comingled reserve funds with the company’s corporate funds and held reserves in non-cash products.
“At various times, Tether maintained some of the Tether Reserves in bank accounts other than the Tether Bank Accounts. Tether represents that, at times, it also included receivables and non-fiat assets among its counted reserves; and further represents that Tether has not failed to satisfy a redemption request for tether tokens,” an order attached to the release said.
The New York Attorney General’s office reported similar findings in an investigation into Tether and Bitfinex that was settled earlier this year.
“The order also finds that, instead of holding all USDT token reserves in U.S. dollars as represented, Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves,” the press release said.
Spokespeople for Tether and Bitfinex did not immediately return a request for comment.
In a statement published shortly after the CFTC release, the firm contested the claims.
“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. As Tether represented in the Order, it has always maintained adequate reserves and has never failed to satisfy a redemption request,” Tether wrote.
The CFTC said it also settled commodities charges against Bitfinex in a simultaneous action.
“The order finds Bitfinex engaged in illegal, off-exchange retail commodity transactions in digital assets with U.S persons on the Bitfinex trading platform and operated as a futures commission merchant (FCM) without registering as required,” a press release said.
Bitfinex will pay $1.5 million and institute “additional systems” to ensure it does not facilitate unlawful commodities transactions again, the press release said.
In a concurring statement, CFTC Commissioner Dawn Stump said she agreed with the agency’s findings but expressed concern about the CFTC’s role in regulating stablecoins specifically.
“We should seek to ensure the public understands that we do not regulate stablecoins and we do not have daily insight into the businesses of those who issue such,” Stump said. “But in pursuing and settling this matter, do we provide users of stablecoins with a false sense of comfort that we are overseeing those who issue and sell these coins such that they are protected from wrongdoing?”
Stump questioned whether the CFTC was broadening its jurisdiction versus protecting investors.
UPDATE (Oct. 15, 15:18 UTC): Adds context.
UPDATE (Oct. 15, 15:21 UTC): Adds statement from Tether.
UPDATE (Oct. 15, 15:26 UTC): Adds statement from CFTC Commissioner Dawn Stump.