Today the Commodity Futures Trading Commission (CFTC) said it reached a settlement with stablecoin operator Tether and associated iFinex that operates the Bitfinex cryptocurrency exchange. Tether received a $41 million penalty for untrue or misleading statements about the reserves that back the stablecoin. And Bitfinex was ordered to pay a $1.5 million fine for other infractions.
“This case highlights the expectation of honesty and transparency in the rapidly growing and developing digital assets marketplace,” said Acting Chairman Rostin Behnam.
At issue were statements by Tether that its stablecoin reserves were backed by the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. According to the CFTC, during a 26-month sample time period from 2016 through 2018, that statement was only valid for 27.6% of the days.
“Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves,” said the CFTC. And it co-mingled its funds with Bitfinex customer funds. When Tether planned for an accounting firm to perform a review of Tether reserves, Bitfinex transferred over $382 million into the account in advance. It’s widely known that when Bitfinex suffered a liquidity crisis, Tether transferred some of its reserves to the crypto exchange to make up for the deficit.
Commissioner concerns
In August, Commissioner Dawn Stump published a paper in which she clarified that the CFTC’s role is to regulate derivatives, including registration, daily oversight, and regulatory principles. However, it only has narrow enforcement authority, not the right to regulate when it comes to commodities.
Today Stump agreed with the settlement findings but is concerned that consumers might draw a false sense of security. It’s the first time that the CFTC has taken action classifying a stablecoin as a commodity.
“We should seek to ensure the public understands that we do not regulate stablecoins and we do not have daily insight into the businesses of those who issue such,” she said.
“But in pursuing and settling this matter, do we provide users of stablecoins with a false sense of comfort that we are overseeing those who issue and sell these coins such that they are protected from wrongdoing?”
In February, Tether and Bitfinex settled a case with the New York Attorney General. And last week, Bloomberg published a feature about Tether’s reserves and activities. The author described Tether as “a company that seemed to be practically quilted out of red flags”.
