The DOJ is Building a Fraud Investigation into Tether

While it isn’t the flashiest cryptocurrency available, Tether (USDT) has always been one of the most controversial. The currency has become the most popular stablecoin in the market, rising to prominence in a period where stablecoins have become more than critical to traders and crypto enthusiasts as a whole.

The DOJ is Building a Fraud Investigation into Tether

However, this growth in prominence has also drawn significant eyeballs to Tether and its operating structure. The investigations have been happening for a while now, but things appear to be coming full circle.

Questions About USDT Backing

This last week, Bloomberg reported that the United States Department of Justice (DOJ) has opened a formal investigation into executives at Tether Limited - the company behind the USDT stablecoin. The investigation is looking into whether the executives committed bank fraud - a crime with some significant implications, both for USDT and the crypto space as a whole.

It’s no secret that USDT is important to the crypto market. The asset is used for trading crypto and hedge bets. However, the Justice Department is investigating conduct that occurred years back, when the asset was still in its earlier stages. According to several people with links to the matter, authorities are specifically examining whether Tether Limited concealed some of its crypto-related transactions from banks.

A Long History of Investigations

Federal prosecutors have been looking into Tether Limited since about 2018. Recently, they sent letters to several key individuals, confirming that they will be persons of interest in the investigation. The notices also pointed out that the Justice Department will decide on whether to bring a case soon.

If criminal charges do eventually get levied, the development will mark perhaps the most significant legal occurrence in the crypto space. USDT is the most popular stablecoin by far, and its importance to traders can’t possibly be overstated.

This isn’t Tether’s first brush with the authorities. In 2018, the Office of the New York Attorney General (ONYAG) launched an inquiry into whether Tether Limited and its sister exchange, Bitfinex, had committed fraud. Tether was alleged to have covered up the loss of almost $1 billion in customer funds.

The case was eventually settled, with the ONYAG stating that Tether had used various banks to operate. But, several of these banks - including Wells Fargo - had suspended the company for unspecified reasons. The two companies, which are owned by the same organization - Ifinex - were required to cease operating in New York. They also agreed to submit to quarterly disclosure obligations.

The two companies were also reportedly investigated for pumping Bitcoin’s price. That case didn’t yield much fruit, but it goes to show that Tether wasn’t exactly acting in pure faith.

Attacks on All Fronts for Tether

Tether is not just facing inquiries from the authorities - its top rival has also thrown the gauntlet.

In July, Jim Cramer, the host of CNBC’s Mad Money, questioned the company’s lack of transparency and asked why the company hadn’t shown the commercial paper backing USDT tokens. Tether had released a reserve breakdown in May but didn’t mention any review conducted on its behalf.

As the reserve breakdown showed, ¾ of USDT reserves were held in cash, cash equivalents, commercial paper, and short-term deposits. With the company yet to show what covers these commercial papers, Cramer sounded suspicious:

“I am concerned about Tether, and I’m not gonna stop sounding the alarm until I know what Tether has. They’ve got about $60 billion in commercial paper. Tether, open up the kimono, what commercial paper do you own?” he said.

Sensing danger, Circle - the company behind the USDC stablecoin and one of Tether’s biggest rivals - has shown transparency. The company, which is looking to go public soon, published an audit note for its token reserves.

While Circle didn’t mention Tether, it was pretty clear that the company was doing so to push Tether to come out. Eventually, Paolo Ardoino, Tether’s Chief Technology Officer (CTO), confirmed that an audit will happen in months.

Speaking on CNBC, Ardoino and company general counsel Stuart Hoegner confirmed that the company is working towards a full-scale audit, which will provide details on its asset reserves and answer everyone’s burning questions.

Hoegner added that the firm is hoping to be the first crypto company to offer an audit. He pointed out that the audit will come in a matter of months - not years. Hoegner also claimed that USDT is backed one-to-one with reserves - however, not all those reserves are in dollars. Whatever information people seek, Tether’s bosses believe that the audit will answer.

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