Despite reports of recent Justice Department interest and a track record of legal troubles, the world's largest stablecoin disputes a report suggesting the likelihood of a US inquiry. Tether – the world's largest stablecoin — officials are under increasing pressure from US federal authorities in a case involving suspected bank fraud, according to explosive overnight reports.
According to the report, prosecutors are investigating Tether for perhaps concealing the fact that certain transactions from several years ago were crypto-related. Bloomberg identified three sources, all of whom requested anonymity, who claimed to have direct knowledge of the situation.
Tether quickly responded to the piece in a blog post, alleging that Bloomberg was "repackaging outdated accusations as 'news,'" pointing out that the media outlet's sources had chosen to stay anonymous, and implying that the report was part of a "continuous campaign to discredit Tether."
However, the Justice Department's interest appears to be current, as the letters announcing the probe were only mailed out recently, according to sources. Although the Justice Department has yet to make a formal decision on whether or not to file charges, the notices suggest that it is possible.
For the past few years, the stablecoin has been mired in legal issues. In February, Tether and its sibling exchange Bitfinex paid $18.5 million to the New York State Attorney General to settle an investigation. The 22-month probe looked at whether Bitfinex tried to hide a US$850 million fund loss. Bitfinex admitted no wrongdoing as part of the settlement, but promised to produce quarterly updates on its reserves for the next two years, the first of which was released in May.
Stablecoins are digital currencies that are linked to a traditional asset to reduce volatility. Tether had long claimed that it was backed mostly by the US dollar, but its first public report revealed that cash accounted for only a small portion of the currency's holdings, with unsecured loans accounting for the rest.
The fresh charges come as the Securities and Exchange Commission Chair Gary Gensler and Treasury Secretary Janet Yellen have both publicly called for more regulation of the stablecoin business in the United States. Last week, Gensler stated that cryptocurrencies whose prices are based on traditional assets — such as stablecoins — may be subject to the same securities regulations as the underlying assets.
Yellen had only indicated a few days before that authorities needed to "act rapidly to ensure there is a proper US regulatory framework in place" for stablecoins. Yellen was concerned about stablecoins' "possible hazards to end-users, the financial system, and national security," according to her.
Tether is an important part of the cryptocurrency ecosystem, and because of its stability, it is frequently used to exchange for Bitcoin. Any action that has an impact on one coin frequently has an impact on the other.
Bitcoin had had a rollercoaster 24 hours as of press time, soaring more than 15% to temporarily break the US$40,000 barrier for the first time since mid-June before trimming those gains.
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