Tether Executives Facing DOJ Probe Linked to Bank Fraud

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In Brief
  • The U.S. Justice Department is launching a probe into whether Tether executives committed bank fraud.

  • A potential criminal case could have broad implications for the cryptocurrency industry.

  • Tether has been facing further scrutiny from regulators after resolving earlier conflicts this year.

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The U.S. Justice Department (DOJ) is launching a probe into whether Tether (USDT) executives committed bank fraud. A potential criminal case could have broad implications for the cryptocurrency industry.

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The DOJ’s investigation is focusing on events that occurred years ago, when Tether was still developing. Federal prosecutors are particularly concerned with whether Tether concealed from banks that transactions were linked to crypto.

Recently, the DOJ sent letters to individuals, informing them they’re targets of the investigation, according to one of the people. These notices in particular indicate that a decision could soon be made whether or not to bring a case.

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Potential precedence

If the probe results in criminal charges, this could set something of a precedent in the U.S.’s approach to currencies. This is due to Tether’s influence as the most popular stablecoin. Currently, about $62 billion worth of USDT are in circulation, underpinning more than half of all Bitcoin trades.

“Tether routinely has open dialogue with law enforcement agencies, including the DOJ, as part of our commitment to cooperation and transparency,” the company said in a statement. 

Stablecoin scrutiny

The announcement on the probe comes amidst a swell of scrutiny towards stablecoins from regulators. The U.S. Treasury Department and Federal Reserve believe USDT could obscure transactions tied to money-laundering. They are also concerned that the tokens could potentially threaten financial stability. 

This is because Tether, and other stablecoins, are backed by fiat currency, usually one U.S. dollar, either through actual money or holdings. There are concerns that many traders selling their stablecoins at once could lead to a run on the collateral assets. According to Fitch Ratings, this could destabilize short-term credit markets.

Although last week U.S. Treasury Secretary Janet Yellen said Tether should be regulated quickly, other regulators have already drawn blood. Earlier this year, Bitfinex and several Tether affiliates agreed to pay $18.5 million to settle claims from New York Attorney General Letitia James. She says the firms hid losses and lied that each token was supported by one U.S. dollar. 

As the companies had no access to banking in 2017, it would have been impossible for them to have reserves. Although the firms paid the fine, they settled without admitting or denying the allegations.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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