Tether executives said to face criminal probe into bank fraud
bloomberg.com
bloomberg.com
Notably this is for events some time ago. Investigators haven’t gotten far enough ahead to formally file anything relating to the events of March 2020 to present, when Tether added ~$60 billion in tokens and claimed to be one of the largest commercial paper holders in the world.
(No one in the commercial paper sector has heard of them)
To be clear, by saying it is from some time ago I am not dismissing it. This is extremely serious for Tether.
"“Given our portfolio composition in commercial paper, we believe that it is quite important to respect the privacy of the banking partners that we work with.” That’s not a thing! That’s not a thing at all! Every money-market fund just lists all of its holdings, by size and issuer and CUSIP! Tether has broken new ground in the concept of commercial-paper privacy rights!"
...
"Tether has traded between $0.9996 and $1.0009 over the last seven days, including during yesterday’s interview. That’s a pretty tight range given that, you know, anyone can watch the interview."
https://twitter.com/TheLastBearSta1/status/14183024655571107...
These dudes are a complete scam but as long as BTC goes to the moon nobody seems to care.
edit: Note the difference between "trade" for dollars and "redeem" for dollars
If Tether can’t redeem, and trades break the peg, then ultimately either exchanges go insolves or anyone holding tether has to write off their holdings. Or both.
Show me the burns.
My point wasn’t that the redemptions routinely happen. My point was that it does matter if no one can redeem, because eventually that will cause the peg to break and USDT to become worthless.
I wasn’t arguing redemptions will be honoured en masse.
Though interestingly Tether supply has gone very slightly down since June.
Also, I say "they can", but we have zero proof of this ever happening.
No-one has claimed them (and, IIRC, some are in the order of $5K USD, so not too trivial).
(1) US persons and entities cannot redeem, period, so that leaves out all of Coinbase doesn't it? [edit] originally I mentioned FTX but of course they're based on Antigua and Barbuda and Hong Kong. [1 - Section 3/ and 3/3].
(2) Only individuals Tether deems as customers at their sole discretion are permitted to redeem. [1 - Section 9/ - "Tether in its absolute and sole discretion may determine that you are a customer of TIL or TLTD"]
(3) Tether may delay redemptions arbitrarily at their sole discretion. [1 - Section 3/]
(4) Tether may substitute whatever is in their reserves in lieu of cash at their sole discretion, and themselves admit to only having 3% of the cash needed to satisfy the "obligations" (and I air-quote say that because ... [1 - Section 3/]
(5) Holding tether tokens is not a claim to any backing assets. Any redemptions are strictly goodwill.
(6) Tether has identified their absconding with all the funds as a risk in their white paper [2 page 10].
This is all on their website. [1] Roughly speaking nobody has tried to redeem any - for obvious reasons. They know they can't.
To your point it's the largest exchanges with their hands in this particular cookie jar, and their fates are entwined. The exchanges are holding the bags, Binance alone has 17,000,000,000 USDT. They won't do anything to potentially upset the peg, and are incentivized to do whatever they can to maintain it. Otherwise, to your point, RIP.
[1] tether.to/legal
[2] https://tether.to/wp-content/uploads/2016/06/TetherWhitePape...
Usually you at least come up with FUD that sounds reasonable to an outsider.
Obviously many people (some that I know personally) have "redeemed" USDT for a USD wire via Tether. Tether may be fraudulent but it wouldn't have held up until now without some aspect of credibility. There are many 8 figures+ redemptions going on, sometimes multiple times a day.
I have not seen a single piece of evidence of this, and I have not seen any burns to line up with this. If you'd like to provide some I'll happily retract my statement.
For what it's worth 8 figures is small potatoes, Bitfinex literally grabbed 800M worth of their reserves one time, so we know they have some money in the piggy bank. They have some cash, but way, way, way less than they would require for a semblance of actual legitimacy.
Otherwise, everything I posted is directly from their legal page and whitepaper.
800m is still a drop in the bucket compared to the 64billion issued tether.
In order to believe this, you have to believe that Leticia James got the data from the NYAG subpoenas, and then ignored the fact that Tether has no backing.
So no, not "more likely".
> New York Attorney General Letitia James’ office says it found that Tether sometimes held no reserves to back its cryptocurrency’s dollar peg. It said that, from mid-2017, the company had no access to banking and misled clients about liquidity issues. [2]
It also depends on what you believe the role of that settlement was. Some speculated it was a trial balloon for a federal suit.
[1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
[2] https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-settle...
Yes. It says that tether held securities/receivables denominated in dollars rather than actual dollars, despite Tether's claim that they held dollars.
I could not find anywhere that the settlement claimed "no reserves", despite CNBC's quote. [edit: It came out of the AG press release, not the settlement. As near as I can tell the settlement makes no representation that tether is unbacked, only that it is unbacked directly by US dollars, which was the Tether advertising up until 2017.]
> 18/ Because Tether did not have a significant bank relationship in its name from at least March 2017 until September 15, 2017, it could not directly process any fiat deposits for purchases of Tethers by customers on either the Tether website or via the Bitfinex trading platform.
And yet in that period they issued some 400M tethers.
It makes them un-backed by US Dollars in a bank account.
It does not make them un-backed by securities denominated in US dollars, which was my point. It's also likely why she never pursued a fraud case.
I would say the evidence in a settlement or plea deal would be of equivalent quality whether a criminal or civil trial.
Further, I'd suspect the majority of folks who accept plea deals in criminal matters don't end up in prison either.
Temporarily being unable to transfer USD to fulfill redemption requests is not the same thing as being unbacked. Having USD-denonimated commercial paper backing the tether is still having something of value backing it, which is in a different universe from tether being unbacked.
People need to be more careful to not make inflammatory accusations, that are not substantiated, about an operation. This is true even if there are numerous red flags associated with the operation.
The fraud was they said, on their website, for years, that they had 1 USD in their bank accounts as liquid currency for every USDT outstanding. They unequivocally did not - at numerous times.
> “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system." - Letita James, NYAG.
Their new wording about 'reserves' was not in place at the time. They changed the wording in March of 2019. The wording at the time was:
> "Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USDT is always equivalent to 1 USD."
This was also the wording at the time Bitfinex grabbed $800M out of their bank account and left them an IOU.
That was a lie, and it's not my claim, it's Letitia James'
Finally re: commercial paper, I haven't seen a shred of evidence they own a single scrap of it. In fact the FT seems to be unable to find anyone else who has seen evidence of it either, despite their being ostensibly the 6th or 7th largest holder of commercial paper in the world sandwiched up between Vanguard and JP Morgan. Could they be? I guess. On a scale of 1 to 10 how likely do I think that is? About a zero.
That there is evidence of fraud does not justify making an unsubstantiated allegation that the tether was unbacked. No reasonable reading of "unbacked" would find it consistent with the tether being backed by USD-denominated commercial paper as opposed to USD.
I am not here to defend Tether, just careless language used when criticizing a party.
>>Finally re: commercial paper, I haven't seen a shred of evidence they own a single scrap of it.
That's an entirely fair statement. Like I said, I am not here to defend Tether. If anything, being careless with criticisms undermines the credibility of critics, and makes it harder for their salient arguments to be heard. So if you do have a good case against Tether, I'd suggest sticking only to the facts so that the case gets a fair shake.
Source: https://www.federalreserve.gov/monetarypolicy/reservereq.htm
That’s “backing” more real than shiny yellow metal.
Chuckles... I'm in danger.
The simpler answer is Tether's commercial paper was issued by Bitfinex, or some shell company owned by Bitfinex.
Pull this stunt once, maybe twice, more?
URL for if their site comes back online: https://tether.to/tether-responds-to-bloomberg-article/
It's like getting Capone on tax evasion.
Once they've got them behind bars they can start untangling the clusterf*ck.
Thing is untangling the clusterf*ck is likely a multinational, mutli-party, multi-year effort but lying to Wells should be cut and dried. Remember it took 17 countries cooperating to unwind Liberty Reserve and that was a fraction of the scale and audacity. This will allow them to end it the fastest way possible.
Edit: summary: 8 people founding the tether company, 7 of them with a criminal background. Lying and denying and then admitting after they have no other option. Yeah, seems like a nice company…
It is incredible the mental gymnastics people in the cryptocurrency business go through to defend this group of crooks.
"All this is extremely dangerous to everyone, the entire crypto community
BTC could go to 1k if we don't act fast"
• CFO of Bitfinex & Tether, previously during a Tether crisis.
https://www.zerohedge.com/crypto/what-effect-would-tether-be...
(Yes, I know it's zerohedge, but this is a decent article)
Tether usually has 2-3x the volume of bitcoin in any given day. And no one seems to know anything about how it works. So in my estimation, it probably is a scam...
That ZH article's ifs, possiblies, and maybes are doing a lot of heavy lifting.
Is the Bitcoin price up? Queue the Tether FUD.
There are now >$60Bn worth of Tether coin issued. With that much money they'd be a very serious private financial institution, and yet they only have 13 employee's. They have never been audited by any independent third party. They have repetitively lied about who owns the company (the same people who own Binance, the world's largest crypto exchange own Tether, and yet did not disclose that until it was found out). They have receptively changed their story on what backs Tether coin (originally each coin had $1 in a bank account to back it, now it's majoritively unspecified "commercial paper").
There is nothing which proves that Tether actually is backed by anything and the billions in new Tether coin which are minted could very well be worthless.
Also, there is nothing which proves that Tether actually isn't backed by anything.
I see a lot of people jumping to conclusions about a topic they are self admittedly ignorant about. Perhaps wait for the DOJ to do their jobs if you don't have insider knowledge.
In response to -dsr's sarcasm below (rate limit), I've got a bit of my own.
"I've run a profitable business for years and haven't committed fraud during the time I spent in an unregulated environment. Now that regulators are nearing my doorstep, it's the perfect time to start committing fraud." /s
In 2017, when they were busy securing other banking partners due to accounts being shutdown.
I consider this a gap due to growing pains, as did the NYAG. How would you shutdown Tether temporarily (2-3 months) if a bank ends a relationship?
By refusing to take deposits for new Tether, and by shutting down redemptions if necessary while the banking relationship is sorted out.
Tether doesn't exist ex nihilo; it requires active management to issue and redeem coins. If it ever cannot live up to its "fully backed" claim, then continuing to operate under a pretense is fraudulent.
I agree and expect that is the lesson the $18M fine taught them.
The key point is, they had a legitimate reason for under-collateralizing during the biggest bull run in crypto history at that point. 2014-2017 was the perfect period to begin fraudulent activity if they were really interested in it.
I guess the question is, what is the best time to commit fraud in the crypto space, earlier or later (during-post increased regulatory scrutiny)?
When I see that a company founded by criminals has lied, I tend to assume that they will be lying again. I think that is a fairly safe bet.
This was while they did have a banking relationship. What was the exscuse then?
There's no evidence against it.
There's nothing proving that the boogyman doesn't exist either.
There is a lot of circumstantial evidence though. To wit:
* Tether was previously caught lying, in a manner that is attuned to how many big frauds start (you hit a small road bump, so you lie to cover up the road bump, figuring you'll be able to make up the shortfall before too long. But now your lying projections are going faster than your ability to catch up, so what was originally a "small" lie is now a "big" lie). Tether had had the cash, until it was stolen from them, and they started lying to pretend that it wasn't stolen.
* Notably, Tether has yet to provide any audited statement of their claimed finances, in over 4 years. Even the attestations that they have come out with don't actually provide much in the way of reassurance.
* Their claimed asset breakdown, the closest thing any of us have to being able to being able to validate their claims, is presented in the form of 2 pie charts with vague labels, one of which is so bad that no one knows what it's supposed to mean ("reverse repo notes").
* Doing the math in the above point, they claim to be one of the largest consumers of commercial paper. They haven't said whose commercial paper they're buying, and no one has reported transacting with them. Supposedly this is for privacy, but it is the standard in the entire industry to just list all of your holdings for transparency's sake [1].
* Also, Tether has increased its issuance to the tune of several billion dollars a month. That's the kind of extraordinary claim that requires extraordinary evidence to back it up.
[1] Unless you're Bernie Madoff and you're promising awesome financial returns with your secretive trading strategy. Except it also turned out that said strategy was a literal Ponzi scheme. Note that "we're not telling you what we're investing in" is generally one of the red flags for a fraud.
My understanding is funds in a bank account were seized and the account closed. Describing the shortfall that followed, while they tried to recover said funds, as fraud, is a tremendous mischaracterization.
Did somebody at Bloomberg have a BTC short position blowup? They have a long history of publishing FUD to manipulate markets in their favor. I hear people are still looking for the mythical SuperMicro "spy chips"... lol
The group ... didn't do that. They kept the BTC and said "sucks to be you".
They covered up pertinent facts that would seriously question their liquidity and/or solvency.
Let me put it like this: suppose you were selling your house to me for $1 million. If I had $1 million in We Are Criminals Shadow Bank, Ltd., and I've been struggling for weeks to get them to give me any of my money back, how would you feel if I told you that I had $1 million in cash without mentioning any of those details? That's exactly what Tether did.
If you still feel that calling that fraud is a mischaracterization, well, I have a bridge to sell you. I mean, I've been having a bit of trouble with the recorder of deeds over it, but that should get straightened out any day now, so it shouldn't matter, don't worry about it.
I thought Tether & BitFinex were the two partners? Am I wrong?
I think these are both bad arguments. If the most used stablecoin is used for most BTC volume as well as other crypto trades, you'd expect it to be more.
>. And no one seems to know anything about how it works
What? People do know how it works, or at least as much as with many other projects.
This seems impossible because at their scale, that would make them, like, the 5th largest commercial paper investor on Wall Street. How could commercial paper investors not heard of them?
Every single time that ifinex was upfront about where the money was going, their bank accounts would be closed with little notice.
I can understand why they would stay tight lipped about where they are stashing $60B+.
Once Tether implodes, it takes the entire bitcoin market with it.
https://coinmarketcap.com/currencies/tether/
https://coinmarketcap.com/currencies/usd-coin/
https://coinmarketcap.com/currencies/multi-collateral-dai/
Tether is at 60billion market cap compared to Usdc 30 billion and dai around 5 billion. Should probably look at volumes aswell.
I think we would get a major crash if tether fails, but I also think it will recover with usdc and other stable coins that have more legitimacy.
For now, its a house of cards that no one can really afford to remove their stake from. Those who have to use tether, are in a very precarious position.
In the end people who leave their funds at exchanges will be the one with the short end of the stick.
Why should an exchange go broke because something they trade falls in value?
(They don't.)
For instance, the attestations no longer claim that they hold backing funds.
It always amazes me that the whole house of cards continues to stand and hasn’t completely blown up.
The risk is still right there.
My understanding was that Coinbase was 1:1 dollars, and they actually had that money in banks, etc. Then, they ended transparency and the 1:1 peg. This is when people suspect they started getting debt to buy BTC - but this is presumably legal, right?
Do they have any obligation to be transparent - being a publicly traded company?
The problem is there's a lot for the HN community to like in it, if you're willfully blind to it's hypercapitalist and manipulative nature: fun technical challenges, little-guy-vs-the-world. I get it, I really do.
And of course, there's so many problems with smart contracts - even the core idea of permanent, irrevocable transactions where bugs can leave you destitute and without anyone to speak to. And no way to unwind them. [1] Unless you're big enough, I guess, and can just fork the chain like Vitalik did with the DAO.
- defi: images hosted on url's that can disappear
- eth sites: exists since 1970?
- eth auth: a step back, lose keys, lose account. No recovery possible.
...
Can you say what exactly was "innovated"?
Inefficiency - Banks and financial institutions spend billions on opex (ex. BoA spent $53 billion on SG&A and occupancy/equipment in 2020). Well written protocols and decentralized trust can increase efficiency and collapse this number
Permissioned access - For better or for worse, anyone can create financial products and a whole market for it without asking the SEC
Opacity - Instead of using paper/hidden digital ledgers, open source contracts lets one easily follow money flow through code and transactions
Access - Turns out the world is very big and lots of people are either locked out from traditional financial institutions or their preexisting ones just really suck.
(some examples taken from article https://parthchopra.substack.com/p/part-2-why-defi-is-not-a-...)
That are inefficient too, slow and costly. 51% was possible from China anytime until they banned it. Insane workarounds are proposed for easy problems.
Instead of the SEC, some sharks/influencers are ruling the markets. Not a week goes bye without a new hack or malicious ownership of the cloud solution or an on purpose malicious contract or extreme scams ( eg. Tether, USDT, ...). Within a second, all their money is away.
People just hide money with currencies that hide their money trail.
The nr. 1 problem for access to banks is internet access, look at El Salvador. They are suddenly creating internet access that hasn't been there before, creating a fake dogma. They had access to banks, it was just a long drive away. Transferwise could reduce transfer costs, but a big problem is also a faulty governement or eg. In case of Libanon: stable electricity. Crypto doesn't solve any of that.
In the end, it's all about the hype and a lot of the end-users don't understand how it works and aren't protected from their own stupidity.
Which is exactly where eg. Opex helps.
Ps. Copy pasting your answer without a minor edit even just shows how mindless this thing has become.
And what party are you trusting for your insurance?
In which country?
And how can shares take one week to convert? My broker has a deposit account in a German bank, it takes 1 click to convert. The button's name = buy/sell.
I'm not sure if i have ever encountered a problem. I can use methods outside wire transfer to have additional funds deposited immediately.
And the shares on Defi aren't exactly shares, are they. I wouldn't touch a bank that does this and calls it "shares".
As said before, it doesn't solve any problems.
Ps. In case you didn't knew. Knowing the country is important for potential legal action ;)
Now tell me, what country is Binance located. They are one of the biggest in DeFi ? :) And how trustworthy are the "stable coins" backing the different DeFi protocols? :)
Do i need to remind you that you literally copy-pasted your "conclusion"?
You have given me no reason to proof me wrong.
Saying "do your research" is exactly the reason of my conclusion and answering with that statement is another way of saying: ¯\_(ツ)_/¯
Eg. Helium Network HNT - decentralized hotspots?
Like i said, nothing new. Decentralized mesh networks already exists and those solutions are inferior to an ISP forcing a hotspot option, existing options, esim or mobile hotspot.
It's absolute bs that their "Network Coverage" page only shows info about their Blockchain and price, not actual wifi coverage that is of interest for customers, lol.
This is how it should look like: https://fon.com/maps/
Masquerading their Blockchain as a product doesn't make it useful in real-life.
At least give something that is actually useful instead of "i don't know an answer, but check this and that".
We also know people can be irrational so those who depend on Tether to operate simply cannot acknowledge it is a scam.
It's basically like a pyramid scheme where you can buy your way out by shilling hard enough for Bitcoin.
It IS a scam and it is backed by nothing. Only to pump the BTC price artificially.
The unveiling of this scam was seen and covered a mile away and was a long time coming.
To Downvoters: I'm sorry BTC maximalists, but this scandal was waiting to be cracked down and no, it is not FUD, or whatever denial spiral you are going through.
Just read: https://twitter.com/smdiehl/status/1393669812220465162
It is legitimate to raise the Tether concern yet he confidently drops into very binary conclusions driven by his pure hate for crypto.
For example, his claim that it's 100% a scam whilst this fact isn't established.
Or calling any trade in crypto "shady". This one shows his true colors. A huge amount of people just deposit dollars on a KYC exchange, then buy and sell whatever crypto they fancy.
None of this is shady. It's fully legal, taxes are paid, it's like stocks. Yet according to him, any trade in crypto is shady.
Or, the claim that the 800 billion market cap of Bitcoin is solely based on Tether. That's an absurd statement.
As said, maximalists can be extreme, but so can anti-maximalists. He deeply hates any and all crypto, has zero nuance, and is not open to any type of discussion.
The guy hates crypto. A normal person would declare that and move on. He makes it his life work to hate crypto. He's consumed by it. That's anti-crypto maximalism.
A source to distrust as much as a pro maximimalist. Both have agendas set in stone, are not open to reason and nuance.
> None of this is shady. It's fully legal, taxes are paid, it's like stocks. Yet according to him, any trade in crypto is shady.
True, there has been a lot of activity that was no worse than gambling. Let's tally up everything that's come out of the space, good and bad, and ask where it comes out on net. Somewhere in region of "a giant casino with a mad electricity bill on an island with no cops, teeming with scumbags who busy themselves with fleecing the innocent suckers in there desparate to come away with one of the lambos on stage". Yes, you pay tax on your winnings when you get back to the mainland.
> Or, the claim that the 800 billion market cap of Bitcoin is solely based on Tether. That's an absurd statement.
"800 billion market cap of Bitcoin" is already an absurd statement.
Again, a huge part of crypto is perfectly legitimate, just retail buying/selling crypto via KYC exchanges. It's not lawless, just a free market of assets.
Which any individual can use or ignore as they see fit. You can use an investment strategy (buy and hold), trading/speculation strategy (minority of day traders) or indeed go the gambling route: super high risk bets using leverage.
Calling this entire spectrum consisting of hundreds of millions of users "gambling" is simplistic, binary thinking. Most crypto holders have less than 10K USD worth of holdings and rarely trade on it.
"800 billion market cap of Bitcoin" is already an absurd statement."
How so? Because you think it's worth less, or perhaps zero? If you're so super confident about that, short it. You'll get filthy rich whilst proving you're right.
But you won't short it, because you have no idea.
Wish we could have a 100% XMR world without even a single dollar in sight. Won't happen until the end of the petrodollar which won't happen until the end of the US military.
But why are you conflating USD with crypto anyway? USD is a currency that is actually used for purchasing goods and services. Crypto isn't used for anything except speculation. If capital gains is the goal, then yes, the USD won't be of much value to you as it's not particularly volatile.
> Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything
Bigger scam than Tether. Has been running for almost a century now.
> Crypto isn't used for anything except speculation.
Looks like Amazon's going to accept cryptocurrency as payment:
https://www.businessinsider.com/amazon-cryptocurrency-seeks-...
Hopefully we'll be able to put this "cryptocurrency is just speculation" argument to rest soon.
Another truth is governments force their citizens to use their own currencies. They require citizens to pay taxes in those currencies. They probably even require stores to accept those currencies.
Yes. Speculation and their ~~criminal conspirators~~ exchanges.
> Another truth is governments force their citizens to use their own currencies.
Absolutely. Not a single person in this thread has argued otherwise. What's your point? How does that somehow make something else more stable? If the government is the big bad wolf, what's stopping it from using that same force to blow USDT's house down? What army and treasury is going to rescue USDT when it crashes? (And it will crash, eventually, just like every other market in history has, whether its due to Tether's negligence or external pressures)
Not that different from traditional banks and other elements of the financial sector.
> What's your point?
My point is there is no fundamental difference between cryptocurrencies and legal tender.
> What army and treasury is going to rescue USDT when it crashes?
When the traditional finance people screw up, the US government bails them out with taxpayer money. It should totally do the same for Tether.
[1] https://gizmodo.com/amazon-to-accept-bitcoin-by-end-of-2021-...
[2] https://www.barrons.com/articles/bitcoin-goes-mainstream-as-...
[3] https://www.cnbc.com/2021/07/07/visa-says-crypto-linked-card...
That's what gives the rewards program credibility. Real currency still changes hands in the background, but the customer only spends 'points'. Currencies, although unbacked by gold, are still credible because they are legal tender and widely accepted in ways that rewards points are not.
Amazon and other private businesses can refuse to accept BTC whenever they want. Earlier this year, Tesla 'accepted BTC for payments', and then changed their mind a month later.
Some countries have accepted BTC as legal tender. It's only a matter of time really.
Why?
Considering the shaky fundamentals, I'd rather not trust greedy strangers to stop burning the world down trying to get rich quick.
I've helped friends move in exchange for beer and pizza but nobody would call that a transaction "backed by the US Economy".
This is how a fiat currency is supposed to work. Earn it, then buy some gold, silver, real estate, crypto, or whatever. And inflation is not necessary a bad thing.
The value if USD, no. It doesn't depend on US military strength. The US government and banks inflate it as much as they want.
It's not even zerohedge: It's copied from bombthrower.com
[1] https://cryptocriticscorner.com/
[2] https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
What tether is doing is reframing what 1:1 collateralization means. Typically when we think of a fully collateralized stablecoin, we think a 1:1 mapping of dollars to synthetics. Tether is backed by ‘dollars or other dollar equivalent assets’.
Whether ‘other dollar equivalent assets’ will actually add up to dollars in the event of a crash is an exercise for the reader.
As for these current charges, they definitely did not have the dollars they said they did once upon a time. They definitely have a ton of money now but whether that’s the right ton of money in the event the market moves a lot is anyone’s guess.
For now, the seemingly unstoppable rampage that is tether continues on…
Edit: just to be clear I don’t hold tether and don’t make use of the currency personally but I understand why others do.
Which is, to be clear, fraudulent. Their website long claimed that for every 1 USDT, that they held $1 in USD. This claim fell apart years ago, as did their claim to regular audits (they still never completed one).
It may indeed be that they are collateralized now, but they got there via fraud.
They claim to be collateralized with commercial paper which, without further information, is worthless. They could print a billion Tethers, sell them to a buddy for an IOU, and be "collateralized" by that definition.
Or in simpler terms, Tether is a crypto money market fund, combining the convenience of money market funds with the transparency of a Ponzi scheme. If you read even the little transparency they do provide very carefully, it doesn't exclude the possibility that they're lying through their teeth about their backing: the commercial paper is described as being valued at face value, which, combined with the extreme reluctance to even hint out which industry the commercial paper is in, is not reassuring at all.
> A hallmark of Tether is that its creators have said each token is backed by one U.S. dollar, either through actual money or holdings that include commercial paper, corporate bonds and precious metals. That has triggered concerns that if lots of traders sold stable coins all at once, there could be a run on assets backstopping the tokens. Fitch Ratings has warned that such a scenario could destabilize short-term credit markets.
Even if Tether is 100% backed and not fraudulent at all, a bank-run scenario could result in Tether needing to sell off billions of dollars of its assets very quickly.
What happens if there is a precipitous sale of the assets that currently back the Tether token? Would there be ripple effects across the rest of the economy if additional volatility creeps into the commercial paper market as a result?
Regardless as to the actual risk, concern over this specific scenario is animating much of the regulatory interest into stablecoins. One would expect restrictions to be imposed on what types of assets may be used to back stablecoins, and for explicit reporting requirements to be imposed as well.
If Tether is thusly backed, it's a non-interest bearing money market fund. We saw how those break down in the last crisis. In reality, Tether would just halt redemptions. (Unlike a money market fund, there is nothing holding them to convertibility.)
Doesn’t mean Tether will have a ripple effect but you’re ignoring leverage.
Market cap here is more meaningless than usual as we don't care about Tether's liabilities but its assets. (Given their history, there is no reason to assume one strictly relates to the other.)
If Tether has its $60bn in short-dated Treasuries, great, no problem. If they have $5bn in receivables financing to a homebuilder, fast liquidation could very well crater that market. While that happens, other holders could be forced to sell, thereby transmitting risk from crypto to the mainline.
This happened when several money market funds "broke the buck" in '08, and led to a flurry of reforms that effectively banned maturity transformation in fund products. (Less jargon: you can't promise fixed-price redemption if you're buying securities.)
Can anyone explain this because I'm not familiar with the legal framework here - they paid to settle with NYAG? So you pay and then having potentially broken a law isn't a problem anymore? How does this work?
It is exceedingly rare for financial executives to go to jail for crimes committed by a corporation.
But of course there is then a second-order effect. If you are defending yourself against the regulators, right or wrong it is assumed the case is very strong, by all parties.
Ultimately it’s an agency problem too: regulators want (are incentivised to maintain) “clean” markets, not to send people to jail. In the short term, if their civil fine achieves it, their job is done and there is no need to drag themselves through the courts.
To them its worse to be responsible for reducing competition, which is a fascinating prisoner’s dilemma.
FWIW I do wish we'd see more prosecutions of the big cases like the financial crash or the many instances of criminal fraud in the crypto space. Like Madoff you need to catch some big fish to remind everyone that your threats are not entirely empty.
- Criminal: go straight to jail
- Civil Fines: pay money
- Civil Injunctions: never work in finance again
In the United States there are several entities charged with enforcing financial regulations. You can roughly divide them up by jurisdiction:
- Federal agencies: Securities and Enforcement Commission (SEC) which can only enforce civil penalties, Department of Justice (DOJ) which can send you to jail, and other three-letter agencies.
- States and local governments: New York Attorney General, Manhattan District Attorney, etc.
- Self-Regulatory Agencies: New York Stock Exchange, Chicago Board Options Exchange, etc. can investigate on their own.
If this sounds complicated, well, it is! A company under investigation has to consider the ramifications that resolving one investigation will have on others.
Traditionally, companies settled with NYAG and the SEC on civil grounds without admitting or denying liability. This is because admitting fault will almost certainly screw up your defense against the federal criminal investigation, which is what you're really afraid of anyway. (Not to mention hundreds of private lawsuits that will be filed if you assume fault).
New York Attorney General's office can pursue criminal charges as well but the penalties aren't as feared as federal criminal charges. Defendants assume correctly that if they're going to be convicted in state courts, they're going to be convicted in federal cases as well. So there's not much incentive to resolve a state criminal case when federal prosecutors are circling the water.
From the NYAG's perspective, they know that any criminal charges they bring will be second fiddle to the federal criminal charges. It could make more sense to 'strike the first blood' and get a financial settlement from a company before the federal hammer falls.
And from the company's perspective, settling early with the AG might be a way to show the federal prosecutors that it is capable of reforming its ways. Federal criminal charges will kill a company. If federal prosecutors can be convinced that the company is capable of being reformed, they might agree to a Non-Prosecution Agreement (or Deferred Prosecution Agreement) which says, company admits X, Y, Z, and will pay $$$, and will agree to outside monitoring to make sure it doesn't break laws again, in exchange for not being charged with a crime. It's kinda like a plea agreement except the company isn't formally convicted.
Executives and individuals responsible for the wrongdoing often get thrown to the wolves. I wouldn't want to be Tether execs right now.
The result is a Nash equilibrium where companies, in a world where prosecutors had infinite time and resources, could be convicted of criminal acts, instead make a deal with prosecutors- whose investigations cost companies money to support and whose work is often public which can damage reputation. The size of the deal and other aspects of behavior/policy change will all be negotiated.
A company can never "admit wrongdoing" as doing so would have so many downsteam impacts as to make it impossible to stay in business. For instance, a company that "admitted wrongdoing" would be in violation of any terms of financing and of many employment contracts.
There is corruption everywhere, of course. The sort of transaction you talk about is common but also inefficient. Many jurisdiction governments just take direct equity stakes in successful or well positioned "commercial" endeavors, often after they become successful, in addition to collecting supra-level "taxes" of various kinds.
That's not what's happening here, referring to Tish James' work against Tether as NY AG. My personal view, having both engaged with her office asking for help on one project and responding to queries from her office on another (neither related to crypto)- she's probably the best case/ideal state attorney general. Her heart and motivations are in the right place- working for the public interest- she's very politically savvy, and she's a very good chess player.
She has some resources- probably has 1000 lawyers working for her, which in law firm terms would be huge. But these are public servants with public servant salaries and budgets without much room for all of the support team and expertise infrastructure that back law firms themselves. The number of matters they are dealing with is probably in the 5-6 figures- dozens to hundreds per lawyer- and the breadth of expertise required spans the entirely of the legal system. Housing, education, finance, commerce, local to global- you name it.
In every case they have to understand the leverage they have, and use it carefully and deftly. This is what was done with tether. A relatively small settlement, but arrived at relatively quickly- has sent an extremely powerful signal. It is like striking a very precise blow with an extremely sharp axe, carving off a key part of the defensive bark on what was likely a wholly corrupt- but until then impenetrable- tree.
Watch as over time more of the bark falls, more documents leak, more complaints arise.
Define criminal enterprises? Because smoking can be considered one of them (it's harmful, addictive and heavily taxed). Only recently western governments started to crack on smoking (probably because they foot the bill for healthcare now?) but booze and tobacco where the way to tax people before.
Government doesn't have to prove that the corporation acted with criminal intent - that's impossible since corporations don't have minds.
To hold a corporation criminally liable, government must prove that an employee/agent of the company violated the law while acting within the scope of the employment.
So, if you can prove that a Tether executive committed bank fraud, it's rather trivial to hold Tether the corporation responsible as well.
The difficulty is proving that the individual acted with criminal intent. This is indeed a laborious, expensive process that involves trawling through millions of documents and IM messages. The targets of the investigation will often be able to afford the best defense lawyers. Which is why government will often settle a case rather than take it to trial.
If anything that sounds like making it a requirement to admit wrongdoing should be step 1.
https://en.wikipedia.org/wiki/Wildcat_banking
US banking regulation is nearly weak enough to permit this for regular banking, but not quite. However, US banking regulation is weak enough to permit it as long as you call it "cryptocurrency" instead of "private currency".
> "Commissioner Alpheus Felch recalled that one bank's "cash reserves" consisted of boxes of nails and glass topped with silver coins."
Pithy! A box that's heavy, makes good clinking noises when you shake it, and has only the tiniest bit of money in it. And so apropos for Tether. I wonder if we'll get some similarly pithy remarks about the modern wildcat banks.
Gold & Silver Reserve CEO Douglas Jackson was sentenced to 300 hours of community service, a $200 fine, and three years of supervision, including six months of electronically monitored home detention.
https://en.wikipedia.org/wiki/E-gold#Resolution
It's Wikipedia, so it may not have been updated with all the relevant info.
- Are you hodling a good amount of BTC/ETH/BAT tokens but you would like to get some liquidity, perhaps for a large purchase? Put your crypto as collateralized loan on MakerDAO, get DAI with very low interest and spend that: bonus point, if the crypto you were holding loses value and your loan gets liquidated, you get a tax write-off.
- Do you live in some third-world country with poor countries and strong capital controls (e.g, Argentina)? It is a lot easier to buy crypto-pegged to the USD and EUR than it is to buy actual dollars and euros.
How does tether make money (aside from potential fraud)? Is there a transaction fee that supports the people and cost of running tether (the company)?
(all according to them, but completely unaudited)
Seems like it could be a decent business if it was legit.
[1] https://www.treasurydirect.gov/govt/reports/pd/mspd/2021/opd...
If we're playing that game I'd do the same but invest in tax-free municipal bonds and the like which can currently earn 3-5%. That would earn you $1.86 billion on the low end. Keep staff & expenses low, pay everyone insane salaries (eg 5m per year is less than 100m given their staffing levels), and coast until acquisition. Everyone gets rich now and again later when you sell.
That's what is so ridiculous about Tether... they have plenty of ways to go legit if they wanted to do so. Heck even if they were only spending half of every $ they took in to actually back the Tethers (and pocketed the other half) they could have invested in the US Stock market over the past four years to make up the difference, then presented public financials this year proving they have enough currency, bonds, stocks, and paper to fully back every Tether. They'd have pulled the same trick lots of big time crooks did and gone fully legit. The fact that they aren't doing that indicates they're either really stupid, really greedy, or both.
In reality, there was never $60B+ of interest from the market, but once they invented it via printing unbacked tethers, they could grab real USD from people FOMO'ing in and then park that cash somewhere offshore where it can't be touched when the whole thing melts down.
Occam's razor states that they don't have the money given that they'd have zero issues if they actually had $60B+ in deposits.
Note that the lawsuit has nothing to do with Tether backing (despite the majority of HN comments as of this writing). As I've said elsewhere: In order to believe that Tether lacks backing, you have to believe that AG Leticia James got the data from the NYAG subpoenas, and then ignored the fact that Tether has insufficient backing. Not likely.
Yes? Those are my tax dollars at work. There are better places to prosecute. Let the Feds do the international heavy lifting such a prosecution will require.
So you believe Leticia James has documentation saying that USDT is not backed 1:1 with any dollar-based securities, and didn't even say so? And let investors continue to be defrauded, and she'll let the Fed AGs to get the credit?
That sounds laughable to me, but ok.
She is the Attorney General of New York. Tether is banned from New York. No need to launch a criminal probe against an overseas firm led by overseas founders harming out-of-state residents.
> let the Fed AGs to get the credit
This isn't a case with obvious political upside. Tether getting blown out will cost millions of Americans on both sides of the aisle. There isn't a sympathetic party being harmed who will be grateful for enforcement. (To say nothing of the money printer cryptos have been for traditional finance.)
There is definite need to launch a criminal probe against an overseas firm that defrauded NY state residents, which she did not do.
That's not your or my decision to make. It's the prosecutor's.
And on this one, I'm with her. Everyone "defrauded" by Tether is and was a willing participant. The wound has been cauterized by banning Tether from New York. Damages can settle themselves through the courts using the injured parties' own resources. (Not taking into account that many of the presumed "injured" would object to that designation in the first place.)
Would an exchange not be incentivised to manage the cash themselves and significantly reduce risk for their customers and business? It seems like huge risk for what looks like a minor convenience.
Also, very good video on the history and current state of tether:
Basically the shady exchanges are insolvent and they stop cashing out real money, so peoples' only chance to cash out is to buy crypto and transfer it out, driving up crypto pricing on the insolvent exchanges, that greedy people try to arbitrage.
its not irrational, it is just pure fraud.
What you are describing is just people moving money to an exchange and buying with leverage, not fraud. Price moves up when large buyers step in with FOMO.
It makes sense when you consider that the population holding cryptocurrencies generally considers the USD worthless (you see that in some of the other posts here). USD are not an option. If Tether goes under, the next most stable reserve currency of the crypto economy is Bitcoin, so money flies out of Tether and into Bitcoin, pumping the price up.
[1] https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
Why anyone holding usdc would exchange one for a usdt at par is a question I don’t have an answer to, but it’s happening en masse.
One possible explanation is that you have more pairs available for other cryptos with USDT than with USDC on some exchanges
If Tether has no actual cash in its kitty and its price on open exchanges plummets to zero, how exactly are "people" going to redeem it for USD? Tether is entirely unregulated, there's no FDIC insurance or equivalent backing it.
I do agree that crypto has been through some issues in the past and has recovered, and I'm sure in the long run it will recover from a Tether collapse as well. In the short term the market will take a significant hit, and many of the exchanges that deal heavily in USDT could collapse because of a lack of liquidity.
EDIT: DAI is backed by USDC not USDT, terribly typo :( https://share.streamlit.io/tadzz/maker_dai_collateralization...
I guess an important distinction is DAI is not 100% backed by USDC, but it is backed >50% as of this time: https://share.streamlit.io/tadzz/maker_dai_collateralization...
Tether was 100% backed by USD too, until the lawsuits.
Then it became 2,9% USD backed.
In Tether's case they are backed by almost no USD and mostly short term loans to undisclosed entities... I do not think Tether is legit, and USDC is questionable as well. Without third party auditing it's hard to trust any of this stuff.
My original response was trying to highlight how DAI is mostly made up of USDC (at this time), and USDC is a direct competitor to USDT. So in what world would it make sense for USDC to bail out USDT in the event USDT is revealed as a total fraud.
From that point of view, it's easy to imagine why a tether collapse would temporarily push crypto prices up - not down.
It's about cash "equivalent" in flow and out flow that tether/stable coins make up. Currently they're responsible for over 80% of this volume[0], which mean virtually no "real money" exists in the crypto space, it's just imaginary "totally-backed-bux" and wash trading.
Similarly, most of crypto volume is Tether, because Tether is used to arbitrage between exchanges. Tether is a way to transfer money significantly faster than the fiat banking system. Particularly for exchanges in segmented banking markets. It's much cheaper/faster to get USDT from Coinbase to ByBit than it is to send an ACH wire.
The point is that the amount of money that supposedly exists in the crypto ecosystem (which is, at best zero sum, but really negative sum in most cases) is as imaginary as tether's backing.
Your own link to one dude doesn't even make that claim
And the risk is systemic. Either you put up with it, or you get out of crypto.
> Top five accounting services firm Grant Thornton LLP issues attestations each month on the US dollar reserves that back the USDC tokens in circulation.
Attestations were never intended to be used in this way, and are, in this situation, meaningless. The only reasonable purpose for these attestations is to confuse people who mistakenly conflate them with audits.
The fact that USDC is resorting to this behaviour rather than performing audits is not meaningless, however: it's a substantial red flag.
An attestation is an assurance that published valuations add up correctly. It provides no verification of the veracity of those valuations. Attestations are intended to be used as a follow-up to an actual audit, not as a replacement for one.
> One of the things to keep in mind to differentiate each of these services is that audits are performed to discover data, risks, or compliance issues that may not have been known before the audit took place, and attestation is to evaluate and review how true the data or information is when compared to a stated purpose, internal control or system.
https://www.ispartnersllc.com/blog/defining-attestation-assu...
The company sure can be shut down and blacklisted globally, as well as the current executives.
It looks like a shift to USDC is happening, why is that not stopped? It looks like a tether fork with different board, but backing etc look all the same.
I don't think these people live in Italy, more like Hong Kong or countries where extradition to US is difficult.
I want to say this, because a lot of people think that people suspicious of Tether hate bitcoin, quite the contrary, if one values Bitcoin, then one should be very skeptical of everything around Tether and Bitfinex, for Bitcoin's sake.
If tether has backing, you only lose the tether premium. Otherwise you lose all your tethers, but hopefully you make it back on the rest of your crypto shorts.
Disclosure: I know nothing about crypto. I've maybe transacted $300 of it, maximum, in my lifetime. But Tether was obviously shady from the start. The insane social-media pushes, the "thought guards" who would scour crypto hashtags to spam whitepapers at Tether detractors, it all seemed way too sensational from the start.
As a side-note, I really do feel bad for the people who have poured their lives into becoming full-time cryptocurrency advocates when Bitcoin took off. I've always thought the technology had potential, it's obviously not a one-size-fits-all solution. It's basically binary search with a sex factor, which makes it all the more fascinating to watch it take off with wild, unfounded speculation pouring in from the finance sector.
Any opinions on this?
For one BTC is just bigger with more people widely invested in it, and more name recognition. That's going to constrain government action from interest groups and the public perception of overreach. If Biden announced tomorrow that he was going to "shut down Bitcoin", a lot of conservatives, and even moderates, would have a knee jerk opposing reaction. If he said he was going to "shut down Ethereum", most people would be like "what the hell is Ethereum?"
Two, Ethereum's smart contract system allows a lot more shenanigans. Remember, Tether runs on top of Ethereum, not Bitcoin. As does almost all of DeFi, which is starting to piss off financial regulations. Bitcoin doesn't come with all the baggage attached. 99% of it is just people transferring Bitcoin to one another. That makes its systematic risks pretty self-contained.
Before the pandemic, it went to 4k. And I forgot to do it again. I would have sold everything by now, i don't think it will hold, just like it didn't hold in the past ( pre-covid).
As for regulatory risk, I think privacy coins are the biggest target.
Comparing eth to other smart contract platforms, eth has strongest ecosystem of block chain developers, and the most mature smart contract tooling.
As for regulatory risk, it seems to me like pulling off a really attached bandaid, it will shock and hurt, but ultimately regulation allows a framework for traditional finance to bring crypto based products to its consumers without stepping into legal issues.
I am concerned that regulation around tether and stable coins could be very hurtful to anyone who is currently invested. For less risky investors, I would consider waiting until regulatory murkyness has been clarified.
But jail is a near certain outcome if they just took the money and ran off.
So they’re stuck with it. Once it implodes they’ll also face jail, but they can kick the can down the road.
But Bitcoin isn't a security. Is it illegal to manipulate it's price? Why haven't they looked at influencers pumping s*tcoins?
They have, and are. https://www.sec.gov/news/press-release/2018-268
"The Securities and Exchange Commission today announced settled charges against professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs). These are the SEC's first cases to charge touting violations involving ICOs."
As the saying goes: " The wheels of justice turn slowly, but grind exceedingly fine."
> 3. The OAG finds that the conduct set forth herein violated the Martin Act and Executive Law § 63(12).
> 4. The OAG finds the relief and agreements contained in this Settlement Agreement appropriate and in the public interest. Therefore, the OAG is willing to accept this Settlement Agreement pursuant to Executive Law § 63(15), in lieu of commencing a statutory proceeding Page 2 of 17 for violations of the Martin Act and Executive Law § 63(12), based on the conduct described below.
And all of those financial instruments are controlled by the same people that have been "cracking down on stablecoins/crypto"...
So my question is, who can we trust? we were born with banks around us so we kind of trust them, but can you imagine the level of corruption that existed when they were being created? how many financial institutions disappear with everyones money...
We are just at the early days of crypto, there is people trying to make good things and people trying to make a quick win taking advantage of the current status.
Do your own research, make your own decisions...
Yes. But importantly, it's a house of cards guaranteed by all the money and force of the government of $major_power.
> Do your own research, make your own decisions...
The vast majority of people are not capable of understanding either the economics or technology involved without investing an unreasonable amount of time. (I'm not ashamed to admit that I don't, and I certainly understand more of the tech and probably understand more of the economics than 99% of the US population...)
My gut tells me that the Tether team did break some laws when trying to find a bank to hold their hundreds of millions/billions of dollars, but I don’t think Tether is a scam, since I think they do have the cash reserves to back the stable coin.
Their problem was too much success: they literally had too much money and banks didn’t want to touch it, so Tether was forced to become “creative” because you can’t exactly store hundreds of millions of dollars under mattresses. I don’t see how Bitfinex/Tether making money hand over fist from collecting usurious trading fees will bring down crypto markets. Just because some bank executive is found guilty of breaking banking laws doesn’t mean it will have broad implications for the entire banking system.
They haven't completed an audit, have they? If someone starts an audit, they're admitting that it's necessary, and if they quit halfway with some lame excuse, how is there any chance they are legit and actually have the reserves they claim? There is just no innocent explanation I can imagine.
Back in the days banks would have meant they were in the cryptography sector or something.
Also why is this US business?
The US should be careful not to weaponize the USD, SWIFT DTCC or the correspondent banks network.
The world entrusted the US with said institutions (as well as the UN, World Bank, IMF) because the US never weaponized them, and never went after thought crimes.
The US can't stand Tether, more specifically it can't stand Crypto....so it is trying the same thing which pulled off with Microsoft in 2000 and with Standard Oil back in the days...only this time the population won't be onboard with it because there is no richer than god man in the high castle to point at .