On October, 15, 2021, the CFTC ordered Tether to pay a $41 million monetary penalty and issued a cease and desist in connection with Tether’s misleading claims that it was fully backed by U.S. dollars. The CFTC also ordered Bitfitnex to pay a $1.5 million monetary penalty for illegal transactions that took place on its platform, and for violating a prior CFTC order. In addition to the monetary penalty, the order prohibits Bitfinex from further violations and requires the company to implement and maintain additional systems reasonably designed to prevent further unlawful commodity transactions.
The CFTC’s order found that since its creation in 2014, Tether represented that the tether token was a stablecoin, with its value pegged to fiat currency and backed one hundred percent by corresponding fiat assets, including U.S. dollars. However, for the majority of the time between at least June 1, 2016 and February 25, 2019, Tether’s reserves were not fully-backed. Additionally, Tether failed to disclose that its reserves included unsecured receivables and non-fiat assets and the company also falsely claimed to undergo routine, professional audits that did not take place.
The CFTC’s order found that from at least March 1, 2016 through at least December 31, 2018, Bitfinex offered, entered into, executed, and confirmed the execution of illegal, off-exchange financed retail commodity transactions with ineligible U.S. contract participants. The order also found that Bitfinex operated as an FCM without registering with the CFTC. Additionally, Bitfinex force-liquidated certain customer positions and acted as the counterparty to certain of those transactions in violation of a 2016 cease and desist order.
The CFTC’s press release concerning the orders can be found here: https://www.cftc.gov/PressRoom/PressReleases/8450-21?utm_source=govdelivery.
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Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking. This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.