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Tether and Bitfinex in Lawsuit Over Market Manipulation


Stablecoin firm Tether and its affiliate exchange Bitfinex anticipate a lawsuit alleging that Tether token (USDT) is involved in market manipulation as the result of an unpublished paper.

The lawsuit claims crypto exchange Bitfinex and its sister company Tether manipulated the crypto market, harming traders and benefiting themselves.

Bitfinex and a number of affiliated entities engaged in deceptive, anti-competitive and market-manipulating practices, resulting in economic damages for the plaintiffs, according to a lawsuit filed Sunday in New York.

Notably, the plaintiffs, who seek class-action status, claim that the total damages add up to more than $1 trillion, writing:

“Calculating damages at this stage is premature, but there is little doubt that the scale of harm wrought by the Defendants is unprecedented. Their liability to the putative class likely surpasses $1.4 trillion U.S. dollars.”

The lawsuit is represented by Vel Freedman and Kyle Roche – the lawyers who recently won a federal case against Craig Wright. Bitfinex, Tether, Digfinex and current executives; former chief strategy officer Philip Potter; and payment processor Crypto Capital are named as defendants in the case. 

“The crimes committed by Tether, Bitfinex, Crypto Capital, and their executives include Bank Fraud, Money Laundering; Monetary Transactions Derived From Specified Unlawful Activities, Operating an Unlicensed Money Transmitting Business, and Wire Fraud,” the filing says.

In the complaint, the plaintiffs claim Bitfinex and Tether “shared false information about USDT being backed 1:1 by U.S. dollars,” referring to an allegation made by the New York Attorney General’s office in April. It continues to allege the USDT was used to purchase bitcoin to inflate the crypto market, spurring the 2017-2018 bull market and subsequent bust. 

Market Manipulation Claim

Bitfinex and Tether say they dispute the findings and conclusions claimed by the paper and will vigorously defend themselves against any legal action. Moreover, they are trying to rally the cryptocurrency world behind them claiming that the accusations against them are an attack on the entire digital token community. They added that: “It is irresponsible to suggest that Tether or Bitfinex enable illicit activity due to the efficiency, liquidity and wide-scale applicability of Tether’s products within the cryptocurrency ecosystem.”

In a statement, Roche said, “There was an enormous amount of work put in by the lawyers of our firm, particularly by Joseph Delich, to research the facts related to the conduct outlined in our complaint. I look forward to working with my team as the litigation plays out.”

The biggest risk that Bitfinex and Tether could face is probably action by U.S. authorities. Earlier this year, the companies were accused of a cover-up a loss of $850 million dollars of co-mingled client and corporate funds.

Tethering on A Controversial History

Meanwhile, Tether is known as a controversial topic in the crypto community, largely based on skepticism over Tether’s reserve policy. Launched in 2014, Tether is the first-ever stablecoin to be backed by the United States dollar at 1:1 ratio. For the past two years, industry critics have speculated that Tether did not have the necessary cash reserves in its bank accounts to back the amount of USDT in circulation.

As reported, Tether has had an association with Bitfinex since 2015, when the exchange integrated the crypto operation into its exchange.

Tether has frequently attempted to prove that its token is backed by the appropriate amount of dollar holding, the controversial reports against the firm have continued to appear. As such, in August 2019, research by Augmento pointed out a forward correlation between Tether sentiment, market capitalization and price, which could be manipulated or exploited to create arbitrage.

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