In a case which could have significant repercussions for the wider crypto industry, U.S. Judge Katherine Polk Failla has ordered Tether (USDT) to produce accounting documentation to prove the stablecoin is backed by U.S. dollars.
The order, which was signed by Judge Failla on Tuesday, comes in the ongoing $1.4 trillion class action suit against the stablecoin issuer.
The ruling will come as a significant blow to Tether’s legal representatives, Debevoise and Plimpton, who had argued that the Plaintiff’s Requests for Production (RFP) of documents were “patently over broad.”
The United States District Court for the Southern District of New York disagreed with that argument. The court now requires Tether to produce, “general ledgers, balance sheets, income statements, cash-flow statements, and profit and loss statements.”
A murky case
The class action suit against Tether has been running since Nov. 2019, but has kicked up a gear with a recent flurry of motions for both the plaintiffs and its defendants, Bitfinex/Tether.
In one motion earlier this month, Tether’s legal team argued that one of the legal teams representing the plaintiffs (Roche Freedman) be removed from the case following allegations of impropriety. Whether that particular motion is successful, the plaintiff’s case shall continue regardless.
The crux of the $1.4 trillion suit is focused on the minting of USDT and what exogenous assets, if any, back that minting process. While users might expect that each USDT is backed by a U.S. dollar or equivalent asset, that is not necessarily the case.
The class action suit alleges that Tether, from at least 2017 onwards, engaged in the fraudulent process of minting unbacked Tether. The case further alleges that Tether used these empty, unbacked tokens, to buy Bitcoin and raise the price in what amounted to a massive pump and dump scheme.
Now some light could finally be brought into the case following Judge Failla’s ruling on the plaintiff’s Requests for Production (RFP) of key documents.
On Tuesday, Judge Failla ruled that: “the Court finds that Plaintiffs’ financial records RFPs are not overly broad, particularly given that Defendants have had opportunities to make sample productions of the financial records RFPs, but have failed to do so despite Plaintiffs’ agreement to such proposal.”
“Plaintiffs plainly explain why they need this information: to assess the backing of USDT with U.S. dollars, and to allow a forensic accountant to assess the USDT reserve,” added the judge.
Popcorn on standby
The ruling from Judge Failla could shed light on one of the industry’s most hotly contested issues.
The lack of transparency that surrounds Bitfinex, Tether, and USDT minting has been a bone of contention within the sector for years. The single-issue Twitter account Bitfinexed has 86,000 followers and has been dedicated to the matter since 2017.
Tether has also provided the fuel on which crypto forever skeptics such as Amy Castor and David Gerard have for years sustained themselves upon.
Now the time for speculation could be nearing its end, and the time of truth at hand. With $68 billion Tether on the market, any negative revelation could produce an earthquake level event within the cryptocurrency sector.
For those who enjoy watching disaster movies, now may be a good time to butter the popcorn. Just in case.
Following publication Tether/Bitfinex reached out to Be[In]Crypto to alert us of their statement in relation to this recent court order. We include their response here.
“The order that was issued yesterday in the case captioned In Re Tether and Bitfinex Crypto Asset Litigation, is a routine discovery order and does not in any way substantiate plaintiffs’ meritless claims,” said Tether. “We had already agreed to produce documents sufficient to establish the reserves backing USDT, and this dispute merely concerned the scope of documents to be produced. As always, we look forward to dispensing with plaintiffs’ baseless lawsuit in due course.”
BeInCrypto has reached out to company or individual involved in the story to get an official statement about the recent developments, but it has yet to hear back.