The New York State Office of the Attorney General (OAG) announced an agreement with iFinex, Tether, and their related entities that will require them to cease any further trading activity with New Yorkers, as well as force the companies to pay $18.5 million in penalties, in addition to requiring a number of steps to increase transparency.
Those steps include submitting regular reports to the OAG to ensure compliance with the trading prohibition, as well as mandated reporting on core business functions. Specifically, both Bitfinex and Tether will need to report, on a quarterly basis, that they are properly segregating corporate and client accounts, including segregation of government-issued and virtual currency trading accounts by company executives, as well as submit to mandatory reporting regarding transfers of assets between and among Bitfinex and Tether entities.
Additionally, Tether must offer public disclosures, by category, of the assets backing tethers, including disclosure of any loans or receivables to or from affiliated entities. The companies will also provide greater transparency and mandatory reporting regarding the use of non-bank “payment processors” or other entities used to transmit client funds.
Stablecoins are virtual currencies that are always supposed to have the same real-dollar value. In the case of Tether, the company represented that each of its stablecoins were backed one-to-one by US dollars in reserve. However, an investigation by the OAG found that iFinex — the operator of Bitfinex — and Tether made false statements about the backing of the “tether” stablecoin, and about the movement of hundreds of millions of dollars between the two companies to cover up the truth about massive losses by Bitfinex.
“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” said Attorney General Letitia James in a statement. “Tether’s claims that its virtual currency was fully backed by US 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.”