Untethered! Oops, Tether Did It Again!

tether hook

Tether has stunned the crypto community by coming clean to the court that USDT is only around 74 percent tethered to the U.S. dollar. In arguments made to the Supreme Court of the State of New York, Tether and Bitfinex counsel argued they had no obligation to disclose of the transfer of funds from Tether to Bitfinex that occurred earlier this month.

While you’re here, check out Crypto Kev taking on Craig Wright

Tether Seeks To Restrict NYAG Injunction

Lawyers representing the troubled companies sought to restrict the reach of the injunction sought by the New York Attorney General’s office. Having failed to furnish the NYAG with documents the office had requested, Tether’s defense was simple:

“… the discovery that they’re seeking here has no nexus to the preliminary injunction, which was based on an allegedly conflicted transaction and the nondisclosure of it.”   

David Miller, Morgan, Lewis & Bockius on behalf of iFinex, Inc., the two corporate Bitfinex identities, and the four Tether companies.

The company’s lawyers informed the court that the iFinex subsidiaries:

“…did invest in instruments beyond cash and cash equivalents, including bitcoin, they bought bitcoin.”

The admission raised the eyebrows of the judge who asked:

“Tether sounded to me like sort of the calm in the storm of cryptocurrency trading. 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’re (NYAG) saying.”

The injunction was filed in relation to the nondisclosure of the transaction between Tether and Bitfinex when the latter was having problems accessing its cash. The defendants’ lawyers argued the NYAG was attempting to broaden the scope of the (already unjust) injunction.

The NYAG also sought to prevent Bitfinex and Tether executives from cashing out of their holdings. To them, that would be outside the normal course of business, which they are entitled to continue undertaking (outside of New York).

Lawyers for the state wanted to restrict such withdrawals because, as they put it:

“What we were concerned about in that instance was we understand that the executives of the company get irregular lump-sum payments from these unsegregated accounts at non-periodic – put it that way, times…”

No Separate Account For Dollar-Backed Tethers

The court heard that neither company has separate accounts where dollars that supposedly back USDT, which the NYAG refers to as ‘little’ Tether, are kept.

As their legal team told the judge:

“… Tether maintains funds that it obviously has received from customers, funds that it earns on its investments… they’re not in separate accounts and since money is fungible…”

Bitfinex lawyers sought to reject the NYAG’s attempt to limit employee salaries to non-reserve funds. As to whether there was an account of reserve fiat that the company held to back USDT, Mr Miller for the defendants told the judge: “I don’t think so, Your Honor.”

The alarming ease with which Bitfinex replenished its lost $850 million with a $1 billion token raise for LEO speaks to the disdain the company has for its users and much as it does to the foolhardiness of LEO investors.

Today’s stunning concessions suggest what the crypto community already suspects: there is more to the iFinex clan than meets the eye.

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