Tether Executives Face Criminal Probe From U.S. DoJ

Timothy Craig

Jul. 26, 2021

The DoJ investigation is focusing on conduct that occurred during the early years of the company.

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Shutterstock cover by STEVLTH

Key Takeaways

The U.S. Department of Justice has opened a criminal probe against Tether Limited.
The investigation is focusing on bank fraud that was allegedly committed during the company's early years of operation.
Tether settled with the New York Attorney General earlier this year over the alleged issuing of stablecoins without proper backing.

The world’s largest stablecoin provider, Tether, is facing a criminal probe from the U.S. Department of Justice following allegations that the company committed bank fraud.

Tether Investigated for Bank Fraud

Executives at Tether Limited are facing an investigation into bank fraud from the U.S. Justice Department, Bloomberg reported Monday morning.

Federal prosecutors allege that Tether concealed the nature of its activities with banks, hiding the fact that transactions were linked to cryptocurrencies. The conduct, which occurred during the company’s early days, was disclosed by three anonymous sources familiar with the matter.

As news of the investigation broke, critics of the most widely-used stablecoin took to Twitter, citing previous audio recordings as evidence of the company misleading banks.

Tether definitely misled banks. Here’s the recordings that prove it: https://t.co/FHN8c8CLfQ (thanks @Bitfinexed) https://t.co/5rNAi9xTHQ

— bft.wtf on bluesky (@BennettTomlin) July 26, 2021

In the recordings, Tether and Bitfinex executive Phil Potter seemingly admits to waging a frivolous lawsuit against Wells Fargo with the objective of keeping transactions with the bank open.

In response to the current investigation, Tether stated that it “has an open dialogue with law enforcement agencies, including the DoJ, as part of our commitment to cooperation and transparency.”

The announcement of a criminal probe from the DoJ is not the first controversy to hit the company this year. In February, Tether and its parent company Bitfinex settled with the New York Attorney General, agreeing to an $18.5 million penalty for falsely claiming that its stablecoins were fully backed by U.S. dollars. Although Tether agreed to the penalty, the company asserted it was not admitting to any wrongdoing.

Following on in May, Tether published a report containing a full breakdown of its reserves in response to fears that a large number of its stablecoins were unbacked. The report disclosed that 75% of its reserves were backed by cash or cash equivalents such as commercial paper, fiduciary deposits, and bonds.

As Tether continues to attract negative attention, the regulatory focus on stablecoins is intensifying. In a recent meeting with several heads of U.S. financial institutions, Treasury Secretary Janet Yellen urged regulators to “act quickly” regarding stablecoin regulation.

With Tether’s position as the current stablecoin market leader, any decisive action against the company is likely to affect the wider crypto market. In June, Tether reached a $62 billion market capitalization, with average daily trading volume regularly exceeding $50 billion.

Tether has since responded to the issue, stating that Bloomberg was merely republishing past accusations citing unnamed sources in order to generate clicks. Tether’s full response can be found on their website.

Disclaimer: At the time of writing this feature, the author owned BTC and ETH.

Disclaimer