Tether Settles with the CFTC, Bitfinex Settles with the CFTC…again

It was announced today that Tether had settled with the CFTC for $41 million and Bitfinex had again settled with the CFTC for $1.5 million.

The Bitfinex settlement (archive) (my copy) is largely focused on the same thing that made them settle in 2016, namely offering illegal derivates to US persons. However, there was some more information that further suggests that Bitfinex is a bad actor.

First, it appears that Bitfinex told their employees to ensure that they did not include US persons on the worksheet they were using to track verification requests.

Second, it appears that Bitfinex was actively encouraging their customers to use VPNs and furthermore, made sure that their customers knew that if they did that it would be unlikely they would have to go through KYC procedures.

Both of these suggest that Bitfinex had no intention of complying with the original 2016 order, and I am skeptical they will comply with this one.

The Tether settlement (archive) (my copy) has some perhaps more interesting revelations.

First and perhaps most apparently it appears that Tether was unbacked for significantly longer than previously known. It appears that it was an aberration rather than the norm that Tether had the assets they claimed between 2016 and 2018. A significant portion of the other information surrounding their backing is information we had already learned from the NYAG settlement.

It also appears that Tether had dozens of financial arrangements in which they never signed a contract in order to hold their reserves.

We have confirmation that Tether was relying on Crypto Capital Corp to hold their reserves (something I had previously speculated about). It is helpful to know that I was right and Tether was misrepresenting it when they claimed reserves were only held at BMO and Noble.

We also were previously led to believe that Tether did not begin purchasing things like commercial paper until much later, but it seems they actually started that much earlier than previously disclosed. It also reveals the rather interesting fact that they would give out Tether in anticipating of being owed funds, or in anticipation of receiving funds.

It appears that at several points Tether itself was not aware what they had in reserves. They were relying very much on a manual system without much oversight. This likely contributes to the fact that the Tether transparency page has been wrong for years and continues to be wrong to this day.

There is other interesting material, but much of it is things we already knew from the NYAG settlement. Some of these include the conflicted loan agreement, their manipulation of attestations, and general bad behavior. All together it seems we now have even more reason to believe that Tether is a bad actor.

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