In a court transcript from a May 16, 2019, hearing between the New York Attorney General’s (NYAG) office and Tether, the sister company of Bitfinex, Tether has admitted that some of its reserves were also invested in bitcoin and other digital assets, reports The Block on May 21, 2019.
The Showdown
Per the report, the court battle between Tether and New York Attorney General’s office is seriously brewing.
The controversy revolves around the now open secret that Tether’s USDT tokens are not only backed by cash and cash equivalents, but also by bitcoin (BTC).
The Judge also said:
“And so if Tether is backed by bitcoin, how is that consistent? If some of your assets are in a volatile currency that Tether is supposed to somehow modulate, that seems like it’s playing into what they are saying.”
On the other hand, David Miller, Bitfinex’s lawyer, said the amount of BTC which Tether’s reserve is held is a “small amount.”
As reported by BTCManager earlier in May 2019, court filings revealed that fiat and other liquid funds back only 74 percent of USDT. In essence, it wouldn’t be entirely wrong to say that the remaining 26 percent has been pumped into more “volatile” cryptoassets.
More Drama Unfolds
The news is coming shortly after NYAG’s accusation on April 25, 2019, that Bitfinex and its stablecoin, Tether (USDT), had mismanaged $850 million of clients’ and corporate funds in a bid to cover their business losses.
While responding at the time, Bitfinex confidently stated that the New York Attorney General’s court filings were written in bad faith and are riddled with false assertions. Moreover, the $850 million which is said to be lost, was seized by Crypto Capital, a payment processor firm.
It can be said that the attention of the crypto community and the law has had a close eye on Tether since Bitfinex quietly made changes to the comments on its homepage that Tether is fully backed by “traditional currency.”
On February 25, 2019, the cryptocurrency company changed people’s perception about Tether’s 1:1 backing to fiat held in reserve, to the notion that Tether is backed by “traditional currency and cash equivalents” and “other assets and receivables from loans made by Tether to third parties.”
The changes regarding its reserve were referenced by Miller who said his client had already notified the market that Tether is not only backed by cash or cash equivalents but other investments
The lawyer added that the Attorney General’s Office is acting beyond its legal powers in trying to exert regulatory authority.
In a bid to restore the $850 million funds that are currently inaccessible, Bitfinex claimed on May 13, 2019, that it was able to raise $1 billion in a private sale for utility token UNUS SED LEO, a cryptocurrency that is rumored to contend with the likes of Binance Coin (BNB).
On May 21, 2019, Bitfinex & Ethfinex announced the launched of an Initial Exchange Offering (IEO) platform, Tokinex that can be used for discovering and participating in curated token sales.
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