On Tuesday, iFinex, the parent company of cryptocurrency exchange Bitfinex and issuer , settled a two-year-old investigation brought by the New York State Attorney General.
While the company is publicly celebrating that its stablecoin and exchange can move past this episode, legal experts say iFinex could remain under scrutiny from other state attorneys general and the Department of Justice.
We're ending @bitfinex and @Tether_to's virtual currency trading in New York after the companies covered up about $850 million in losses around the globe and deceived the market by overstating reserves.
Those trading virtual currencies in New York cannot avoid our laws, period.
— NY AG James (@NewYorkStateAG) February 23, 2021
New York’s case against iFinex dates back to April 2019 after the attorney general alleged Bitfinex illegally used an $850 million loan from Tether to patch over missing funds. In the process, Tether reduced the dollars it held in reserve. Importantly, the firm at the time had claimed its Tether stablecoin—designed to hold its value—was backed 1:1 by the US dollar, though it now says its reserves include other assets.
As part of yesterday’s settlement, Tether and Bitfinex must cease doing business with New York citizens and companies and submit quarterly reports documenting their reserves. It will also pay $18.5 million, without admitting wrongdoing.
So, done and dusted, right? At least, that’s how some of the more vocal cryptocurrency proponents saw it.
But New York isn’t the only government with the power to investigate Tether and Bitfinex.
Marc Boiron, who recently joined crypto lending platform dYdX as general counsel, admitted that he didn’t have strong views on state prosecutors’ future plans. But he said future investigations remain a possibility.
“My expectation...would be that every other state attorney general would wait to see how Tether handles the requirements imposed in the settlements, especially with respect to disclosures around reserves,” he told Decrypt. “If they are not satisfied with those disclosures, then I could certainly see them taking action.”
According to attorney and Chicago-Kent College of Law professor Olta Andoni, even though the monetary penalty is fairly small, there’s a lot Tether must disclose. “If you read this settlement closely, I don’t know how I can describe this as a victory for them,” she told Decrypt.
“I think what's going to happen is that definitely NYAG is going to supervise this very, very closely because they still have the right and if you read the settlement you see that they have a long list of items that Tether has to abide and comply with,” she said. “Anytime, they're not going to be compliant, they can definitely have another action.”
She noted, too, that the US Department of Justice, which opened an investigation into Tether in 2018, could also step in to inquire about money laundering claims, given that Tether is exchanged for outside the US and subsequently moved back to US exchanges.
The Office of the New York Attorney General declined to comment on whether it has shared information about the investigation with the DoJ.
Even if the DoJ doesn’t get involved, other states still could.
Boiron identified the two most-populous states in the US, California and Texas, as the most likely to pursue cases against Tether, regardless of how well-behaved the firm is with regard to disclosures.
There’s a big caveat, however. Texas has “put out guidance that implies that Tether is not required to be licensed to engage in its activity.” As for California, he said, the Golden State has “not been particularly aggressive in enforcement against crypto companies relative to states like New York and Texas.”
Either way, this experience has battle-tested Tether’s legal defense. When asked whether the company was aware of any ongoing investigations against it and how it cooperated with any investigations, Tether General Counsel Stuart Hoegner told Decrypt, "We have a positive and co-operative relationship with all of the government agencies with whom we work, and we will continue to do so."
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