CFTC fines Tether and Bitfinex $42.5 million over USDT backing

The Commodity Futures Trading Commission (CFTC) simultaneously filed and settled charges against Tether and Bitfinex today, ordering the sister companies to pay fines totaling $42.5 million.

The CFTC's announcement said Tether made "untrue or misleading statements and omission of material fact" related to its stablecoin, USDT. Tether falsely claimed that USDT was fully backed by U.S. dollars, according to the CFTC. The order requires the firm to pay a penalty of $41 million.

Meanwhile, the CFTC charged parent firm iFinex for misdeeds related to its crypto exchange, Bitfinex. The order finds Bitfinex engaged in "illegal, off-exchange retail commodity transactions" and additionally operated as a futures commission merchant (FCM) without registering with the regulator. Consequently, Bitfinex will pay a $1.5 million fine and be required to implement and maintain "additional systems reasonably designed to prevent unlawful retail commodity transactions."

Stuart Hoegner, Bitfinex's general counsel, said both inquiries relate to actions that occurred at a "markedly different time in our ecosystem."

In regards to the Tether order, Hoegner said the stablecoin issuer has always maintained adequate reserves and has never failed to satisfy a redemption request. The order takes issue with disclosures that were made more than two years ago, and Hoegner pointed out that the CFTC recognized the issues were fully resolved when the firm's terms of service were updated in February 2019.

"As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times," he said in a statement to The Block.

The Bitfinex order relates to the implementation of the exhange's ban of U.S. customers, and Hoegner pointed out that the order contains to mention of violations passed December 2018. 

Commissioner Dawn Stump published a statement in support of the CFTC's actions, but cited concern over the precedent some of the applications could set for future enforcement actions against digital asset firms. Additionally, she wondered if this action could confuse investors on the CFTC's mandate.

"While the definition of a 'commodity' is relied upon in applying the anti-fraud provisions in CEA Section 6(c), 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 reference to the Bitfinex settlement, Stump pointed the public to her statement on the CFTC's recent enforcement against Kraken. In that statement, Stump called for more clarity on the legal requirements that necessitate registering as an FCM and how the commission plans to apply them.