New York Court Issues Order Requiring Tether to Furnish Documents Proving the Backing of USDT

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"Tether, which is owned by the same company as crypto exchange Bitfinex, has been ordered to release “general ledgers, balance sheets, income statements, cash-flow statements, and profit and loss statements” in addition to information about the timing of the trades. The order also requires Tether to share details about the accounts it holds at crypto exchanges Bitfinex, Poloniex and Bittrex" [Wang, Z. Judge Orders Tether to Produce Records Showing Backing of USDT. (Accessed September 21, 2022)].

Specifically, the order states:

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 (id., Ex. 1 at 5). Plaintiffs plainly explain why they need this information: to assess the backing of USDT with US dollars, and to allow a forensic accountant to assess the USDT reserve [...] The documents sought in the transactions RFPs appear to go to one of Plaintiffs' core allegations: that the B/T Defendants engaged in cyptocommodities transactions using unbacked USDT, and that those transactions 'were strategically timed to inflate the market'.

[Failla, K. In re Tether and Bitfinex Crypto Asset Litigation, No. 19 Civ. 9236 (S.D.N.Y.). (Accessed September 21, 2022)]

"The order was published on Tuesday as a part of a case that started back in 2019 — the initial complaint by a group of investors against iFinex, Tether and Bitfinex's parent company, alleged that the firm manipulated the crypto market by issuing unbacked Tether with an intention to inflate the price of cryptocurrencies like Bitcoin (BTC) "[Attlee, D. New York judge orders Tether to document USDT backing. (Accessed September 21, 2022)].

The issue of 'backing' is nothing new to Tether:

Previously, in September 2021, Judge Polk Failla dismissed the Plaintiffs’ claims against iFinex under the Racketeer Influenced and Corrupt Organizations Act and allegations related to racketeering or using the proceeds of racketeering for investments. In February 2021, in another case settled with the Office of the New York Attorney General, iFinex agreed to pay $18.5 million for damages to New York and submit to periodic reporting of their reserves in addition to stopping service to customers in the state. The settlement came after a 22-month inquiry into whether the company had been trying to cover up its losses — touted to be worth $850 million — by misrepresenting the degree to which its USDT reserves were backed by fiat collateral"

[Attlee, supra].

Also "[c]oncurrently, there is also a lawsuit before the New York Supreme Court to have the New York Attorney General release documents it gathered in its investigation into Tether’s reserves. CoinDesk is a party to this case" [Reynolds, S. Stablecoin Issuer Tether Ordered to Produce Documents Showing Backing of USDT. (Accessed September 21, 2022)].

It is worthy to remind the reader that on August 19, 2022, Tether released its first asset attestation prepared by BDO Italia. The Tether attestation showed that, [...] "by June 30, 2022, they were in possession of Tether, being $66.409 million US dollars, with $66.218 million US dollars in liabilities, Tether emphasized that its assets are greater than its liabilities" [Weasels, F. Tether commercial paper holdings are down 58%. (Accessed September 21, 2022); see, also Nagoda, K. Tether Keeping Promise - BDO Italia Attestation Shows 58% Drop in Commercial Paper Exposure and More. (Accessed September 21, 2022)].

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