Bitfinex and Tether Limited Sued for Allegedly Printing $2.8 Billion of ‘Fake’ Tether (USDT) and Causing the Crypto Market Bubble of 2017-2018

October 8, 2019 / by Zachary Mashiach

A class-action lawsuit has been initiated against Bitfinex, the largest USD to crypto exchange in the world, and Tether Limited, the operators of the most popular stablecoin with a circulation in excess of $4 billion, in the United States District Court of the Southern District of New York. The class-action lawsuit is on behalf of all people who held cryptocurrencies after Oct. 6, 2014, and the Plaintiffs expect damages to surpass $1.4 trillion. 

Notably, Bitfinex and Tether Limited were already under investigation by the New York Attorney General’s Office, the Commodity Futures Trading Commission (CFTC), and the Department of Justice (DOJ) before this class action lawsuit was initiated. This new lawsuit actually sheds a significant amount of light on the purported illegal activities for which the government is investigating Bitfinex and Tether Limited.

To make a long story short, the Plaintiffs show evidence that Bitfinex and Tether Limited conspired to print $2.8 billion of ‘fake’ Tether (USDT) — Tether (USDT) with no backing — in order to induce the late 2017 cryptocurrency rally when Bitcoin (BTC) hit $20,000. Therefore, the plaintiffs say that the massive losses since the crypto bubble burst in late 2017 to early 2018 are the responsibility of Bitfinex and Tether Limited. 

It is a shocking revelation that the biggest crypto rally in history may be due to the fraudulent actions of a centralized entity, so it is certainly worth looking into the details.

It all starts with the promise that each Tether (USDT) is backed by an actual dollar in the bank. This promise was stated on the Tether Limited website all the way until March 2019 when the New York Attorney General’s Office lawsuit started. At that point, the promise changed and stated that each Tether (USDT) was backed by cash in a bank and other undisclosed assets.

The class-action lawsuit alleges that this promise is not true, and a significant amount of Tether (USDT) is backed by nothing. Evidence for this shows up in bank activity for Tether Limited and Bitfinex. When they lost their bank accounts with Wells Fargo, before they got an account with Noble Bank in Puerto Rico five months later, they issued $390 million of Tether (USDT). This does not add up since Tether Limited had no way to receive deposits during that time. 

Also, right before Tether Limited issued a report proving the amount of cash in circulation, 500 million Tether (USDT) were conveniently burned. 

The most well-known piece of evidence, since it is at the center of the New York Attorney General’s lawsuit, is that $625 million of cash was taken out of Tether Limited’s reserves and replaced with a Bitfinex IOU. That switch followed the government raid on Crypto Capital where hundreds of millions of dollars owned by Bitfinex were seized in connection with money laundering.

There are several other examples of shady Tether (USDT) issuance and redemption in the 95-page class-action lawsuit.

Bringing things full circle, the unbacked Tether (USDT) was used to buy  Bitcoin (BTC), pushing up the entire crypto market. Apparently, 48.8% of Bitcoin’s price rise occurred within the two-hour periods following 91 Tether (USDT) issuances. 

There is also speculation that the 2019 bull run may also be due to the same sort of market manipulation by Bitfinex and Tether Limited since Bitcoin’s (BTC) price rise to $14,000 coincided with Tether (USDT) being printed en masse, and the price rise reversed when the Tether (USDT) printing stalled. 

The Plaintiffs allege that Tether Limited and Bitfinex simply had to sell off some cryptocurrency for cash and put it in the bank occasionally to prove Tether’s (USDT) reserves, allowing this scheme to continue unabated. Tether Limited has not been accurately audited in years.

Ultimately, the Plaintiffs are suing Bitfinex and Tether Limited for market manipulation, for being a monopoly, operating without proper money transmitter licenses, racketeering, money laundering, bank fraud, and lying about Tether’s (USDT) reserves. 

Aside from the damages that are possibly in excess of $1.4 trillion, the Plaintiffs seek a permanent injunction against Bitfinex and Tether Limited so that the market manipulation does not happen again.

Now, the market must wait and see how the court responds. The possibilities range from Bitfinex being forced out of business, Tether (USDT) collapsing and/or being made illegal, or perhaps nothing at all if Bitfinex’s lawyers can win the case.

Regardless of the outcome, this case will be critically important to monitor, since any actions taken against Bitfinex and Tether Limited could have profound impacts on the entire crypto market.