The New York Attorney General's Office has issued a statement banning the use of the Tether (USDT) stablecoin in its territory, and accusing the company responsible for issuing the currency of hiding vital information about Tether's true reserves.
Just weeks after the CEO of Deltec Bank, the bank that holds the reserves of Tether (USDT), stated that the physical dollars in reserve exceed the circulation of the stablecoin In the markets, the New York Attorney's Office issued a lawsuit against Tether Limited, the company responsible for issuing the stablecoin.
The New York District Attorney's Office accuses Tether Limited, for hiding vital information about the company's financial movements, hiding multimillion-dollar losses and distorting the real balances of Tether's physical reserves in banks. As indicated in the statement by the New York regulator, it is time to put an end to the illegal activities that Tether has been carrying out, so its circulation and negotiation in New York is prohibited and the company must submit frequent mandatory reports on its balances. In addition, Tether Limited is obliged to report on the real and current state of its reserves, with absolute transparency, and pay a fine of 18,5 million dollars to the regulator, for the violations committed.
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$850 million in losses
The statement issued by the New York Attorney's Office says Tether misled customers and the market by “overstating reserves” and concealing nearly $850 million in losses worldwide.
The Office of the Prosecutor, headed by the Attorney General of New York Letitia james, has been investigating Tether for more than 2 years, which has been shrouded in mystery and doubts about the true existence of physical reserves that really support the amount of tethers that currently exist in circulation; an amount that amounts, at the time of this edition, to more than 34.760 billion USDT, equivalent to the same amount in US dollars.
Tether (USDT), being a stable digital currency, means that its value is backed by physical assets or physical reserves of money, which guarantee its price at all times; in this case, Tether claims to be backed by dollar reserves, which guarantee its parity or 1:1 relationship with the US dollar. However, despite Tether being the most traded and used stablecoin in the world, the veracity of its physical reserves is something that has not been proven until now, since the many audits that have been attempted to verify that said reserves really exist have yielded countless inconsistencies, lawsuits and even the public resignation of many of its auditors, who have also presented unfavorable reports indicating that it is impossible to determine the veracity of the accounts, and even that the operating volumes are enormously inflated to triple the market capitalization of the currency.
As can be seen, Tether's situation is quite controversial, so the regulator set out to continue its investigations and efforts to put an end to the fraudulent practices of Tether Limited and protect investors and users.
Tether's physical reserves are a lie
The New York Attorney General's Office ruled that the company must comply with a series of requirements to increase its transparency, such as undergoing periodic and mandatory audits and immediately presenting its real balance sheets. All this considering that “Tether’s claims that its virtual currency was fully backed by US dollars at all times were a lie”, says the regulator.
On the other hand, the New York Attorney General pointed out that an investigation carried out by the Office of the Attorney General (OAG) found that Tether Limited made false statements about the backing of its stablecoin, and about the movement of hundreds of millions of dollars between a tangle of companies that wanted to hide the trail and cover up the truth about Tether's massive losses. Therefore, the company Tether Limited is now obliged to cease any type of commercial and financial activity with New York citizens. In addition, as already mentioned, Tether must also pay 18,5 million dollars in fines, and comply with the requirements demanded to increase the transparency of its operations.
A stable currency, without stability
The Office of the Attorney General (OAG) revealed that for many years, Tether did not have access to banks anywhere in the world, and so for a long time did not hold physical reserves to back its value. To refute this, in 2017 the company revealed a self-proclaimed “verification” of its cash reserves, proving that they did exist. However, the OAG discovered that these reserves had been deposited into Tether’s account the same morning it submitted the verification, and the next day they were moved to the accounts of other companies, leaving Tether’s accounts empty and the stablecoin without real backing.
Later in 2019, Stuart Hoegner, Tether's attorney, testified under oath before the New York Supreme Court that the currency only had 74% physical reserves at the time.
Tether, being a digital currency backed by a company, is subject to enforcement by regulators, as has just happened with Ripple Labs and BitMEX. The ban on the stablecoin in New York may just be the beginning of a series of regulations and bans that are coming for this crypto asset, and that may lead to its value collapsing in the future.
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