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Tether Fined $41M for Lying About Reserves

376 points| virtualwhys | 4 years ago |bloomberg.com | reply

251 comments

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[+] tdeck|4 years ago|reply
I don't understand why this is something they can settle rather than something that gets them completely shut down.
[+] Kranar|4 years ago|reply
The CFTC doesn't have that authority; a company can only get shut down for a criminal offense and Tether is not accused of any crime. Only the Department of Justice can prosecute or investigate crimes, the CFTC is an independent agency and as such has no authority to do so.

All the CFTC can do is levy a fine, so both parties are fairly indifferent as to whether that money comes from a judgement or from a settlement. There could be some minor benefit of not having to admit any "wrongdoing" for press release purposes, but overall it makes no difference.

[+] paulgb|4 years ago|reply
I'm more surprised that anyone still holds Tether, unless they're stuck with it. The company has been caught in lies several times before, it's not as if a $41M fine will turn them honest.
[+] JumpCrisscross|4 years ago|reply
> why this is something they can settle rather than something that gets them completely shut down

I'm a Tether sceptic. I wouldn't want to be the regulator (note: not prosecutor, different standards) to shut it down.

There was a moment when I suspected Tether may hold U.S. dollar money market securities. That would mean a collapse could spill to our financial markets. But that doesn't seem to be the case. The only people who would get hurt in its wake seems to be those who choose to keep using Tether despite the screaming warnings.

Those same people would make you public enemy No. 1 for bringing down the house of cards. So given the problem is contained to the people who oppose its solution, there isn't a great argument for allocating regulatory resources to this over anything else.

[+] 300bps|4 years ago|reply
Or why outright lying that every Tether was backed by a U.S. dollar is termed “misleading”.

It’s incredible - they had 4x as much Tether as dollars backing it and lied about audits taking place that never happened.

[+] BitwiseFool|4 years ago|reply
I'm not saying they shouldn't be shut down, but I genuinely wonder how that process would work. People don't have an account with Tether itself, so how would they be able to compel people to "return?" the Tethers and get their cash back?
[+] silexia|4 years ago|reply
I agree completely, the founders should be criminally prosecuted and the fines should be multiple times all time profits from the illicit activity.
[+] AlexanderTheGr8|4 years ago|reply
Tether is not a US-based company. So does US have the authority to shut them down?
[+] _3u10|4 years ago|reply
The SEC is in the business of protecting investors not destroying peoples savings over a few inaccuracies.

Why would misleading statements ever result in a shutdown of a company instead of a fine?

[+] gws|4 years ago|reply
Don’t really get you guys saying Tether should be shut down… the big banks get routinely fined with much bigger fines for much bigger crimes, are we gonna shut them all down then? At least Tether did not steal from nor defraud anyone. Just as a random example: https://www.justice.gov/opa/pr/jpmorgan-chase-co-agrees-pay-...
[+] ceejayoz|4 years ago|reply
Tether did defraud people. They lied on their website, claiming a) audits (which they never completed a single one of) and b) 1:1 backing of each Tether with a dollar in the bank (which they didn't have).
[+] tootie|4 years ago|reply
I think the difference is this is Tether's entire reason for existence. It's equivalent to Bernie Madoff.
[+] Marciplan|4 years ago|reply
Why aren’t you against both big banks and Tether doing it?
[+] gws|4 years ago|reply
Will reply here rather than in all the sub-threads: I’m not saying lying is good, I’m pointing my finger at the paradox that on one side everybody is scandalized that Tether is not shut down, on the other everybody is happy to keep their money with big institutions that are proven to be even worse.
[+] xtracto|4 years ago|reply
Right, in my view HSBC laundering scandal was 100 times worse and they are still operating all over the world.
[+] iammisc|4 years ago|reply
Tether defrauded almost 380 million dollars worth of peoples assets by claiming the rockets it issued could be redeemed for dollars.

And most of the banks should have been shut long ago.

[+] matheusmoreira|4 years ago|reply
Yeah. The truth is the entire banking system is running the exact same scam ad Tether. The only difference is the governments think banks are too important to allow the consequences of their actions to catch up with them. So whenever there's a bank run and there's no money in the bank, the government bails them out.

They should just bail Tether out too.

[+] system2|4 years ago|reply
I am blown away. 61.5 million dollars for $68,536,825,819 (68 billion dollars.) Maybe not the same in 2017 but damn, how does this even work without anyone panicking?
[+] loeg|4 years ago|reply
It was something like ~400 million tether at the time, not 68 billion. The recent run-up post-dates the period of this malfeasance (and is probably also fraudulent in some way).
[+] inopinatus|4 years ago|reply
It doesn’t, but that’s bubbles for you.
[+] matheusmoreira|4 years ago|reply
Banks do the same thing. How do banks work without anybody panicking? Liquidity injections. The government will literally print money and give it to banks so they can fulfill withdrawals during bank runs. If the governments didn't bail them out, they'd be insolvent.

They should just do the same for Tether.

[+] danuker|4 years ago|reply
> there was never more than $61.5 million backing Tether, even as more 442 million coins were circulating at one point.

Ah, pulling the classic "fractional reserve" I see.

[+] mensetmanusman|4 years ago|reply
They will have to spin up 41,000,000 more Tethers to pay for this!
[+] dylan604|4 years ago|reply
But when they submit the payment, they print out the hashes for the coins in 6pt font double spaced in a script style font.
[+] satellites|4 years ago|reply
But crypto coins are so much more trustworthy and secure than traditional financial institutions... /s
[+] robcohen|4 years ago|reply
I’m pretty sure no one thinks digital IOUs are worth more than the word that’s behind them.

It’s not reasonable to conflate decentralized cryptocurrency with digital coupon IOUs.

[+] thaumasiotes|4 years ago|reply
Problem: Tether has less money than they're supposed to have in order to back their obligations.

Solution: take some of their money away.

[+] kangnkodos|4 years ago|reply
What is the average daily net inflow of US dollars into Tether? How many days of net inflow is $41M?
[+] FireBeyond|4 years ago|reply
At times they've claimed that it is in the billion dollar a week range.

But their cash backings say that that was most likely always bullshit, even as they move to "other instruments" (cough Chinese junk paper cough).

[+] bagels|4 years ago|reply
Is it possible to short tether effectively to profit when the whole scam collapses?
[+] vkou|4 years ago|reply
Sure, if you'd like to collect your winnings in bottle caps and IOUs.

And if the exchange you are shorting it on doesn't wipe your position out through a margin call, in one of those strange moments where due to a mysterious glitch, tether breaks the USD peg for a few seconds.

If you're looking for easier money, I'd recommend card-counting at a speak-easy ran by the mob, before I'd recommend getting into this business.

[+] buhrmi|4 years ago|reply
Probably paid in USDT.
[+] sneak|4 years ago|reply
They don't need to; they can print USDT, swap it for Ether, and take Ether to any normal, above-board exchange and get Real Dollars.
[+] roywiggins|4 years ago|reply
Don't think the USG accepts USDT as legal tender...
[+] missedthecue|4 years ago|reply
Hear that? That's the sound of 41 million new tether coins entering the market
[+] SilasX|4 years ago|reply
lol yeah: "So can we pay the fine in--" "No."

(Reminds me of Zimbabwe having to come up with money to pay Switzerland for printing their hyperinflating currency.)

[+] adflux|4 years ago|reply
Perfect haha. Tether has figured out how to print money and nobody seems to care.
[+] pkulak|4 years ago|reply
Jokes aside, Tether can't both determine how many coins are in the market and the price of those coins.
[+] iammisc|4 years ago|reply
The executives should be in jail if they knew of the fraud and did nothing. Why are they getting off on a fine?
[+] nickff|4 years ago|reply
The CFTC claims to be helping end-customers by doing this kind of thing, but it is really taking money that could have been distributed off the table. Fining (and perhaps requiring the dismissal of) Tether's corporate officers would likely instill more discipline, but fining the company just hurts the customer.
[+] klyrs|4 years ago|reply
No. This teaches scammers and customers alike that this is a risky business. Fining the corporate officers is almost certainly off the table, because Tether appears to be some form of limited liability corporation (but I don't know anything about the law in HK). Play stupid games, win stupid prizes. I'd hope the founders end up in jail for what appears to be blatant fraud... but chances are, they'll just move on to the next thing after Tether crumples.
[+] tdeck|4 years ago|reply
It would be better to confiscate Tether's entire reserve, force them to allow tether holders to cash out (for fractional amounts), and punish the execs directly.
[+] FireBeyond|4 years ago|reply
> perhaps requiring the dismissal of) Tether's corporate officers

That's okay, they'll just go to work for Bitfinex. Remember when the two claimed they were independent? And then Bitfinex loaned Tether $800M, and we'll call the two people who signed the loan contract for Bitfinex "Corporate Officer A" and "Corporate Officer B". Meanwhile, on the other side of the contract, we'll call the people who signed on behalf of Tether uhh... "Corporate Officer A" and "Corporate Officer B".

Or they'll go work for Deltec. Whose Deputy CEO will give interviews saying that "they can see the flow of all the Tether, because we are in the system and can see every transaction". Another legit, arms-length financial relationship, evidently...