On October 6, 2019, a group of five individuals filed a collective lawsuit against Tether stablecoin and Bitfinex, the cryptocurrency exchange acting as the issuer of the coin. Both defendants are owned by iFinex Inc. A number of smaller firms are also mentioned in the lawsuit: BFXNA Inc., BFXWW Inc., DigFinex Inc., and Crypto Capital Corp.
The defendant is accused of market manipulations, fraud against customers, violation of antitrust regulations and other legal acts. The lawsuit was filed in the United States District Court for the Southern District of New York, with the total damages estimated at a whopping $1.4 trillion.
It’s worth noting that the instigators of the lawsuit were not Bitfinex clients. Their interests will be defended in court by litigators Kyle Roche and Vel Freedman, notorious for winning in a case against Craig Wright, who was suspected to be one of the creators of Bitcoin.
The lawsuit is based on the assumption that the founders of Tether and Bitfinex used trading robots for mass orders of Bitcoin for Tether. Meanwhile, clients at the company were assured that the cryptocurrency was backed by real dollars, which was not the case, according to the plaintiffs.
The issuer automatically matched the exchange rate of Tether with the dollar exchange rate, so the mass emission of these coins (which weren’t backed by anything) led to the manipulative growth of Bitcoin instead of an inflation effect.
When the currency increased in price, it was sold for real US dollars, which went through a series of banking transactions, thus securing the value of Tether and boosting the company’s revenue. Issues with operations using fiat money on Bitfinex led to the discovery of their entire operating model.
The lawsuit consists of 250 points, including 7 accusations. The founders of Bitfinex will be forced to prove their innocence in court.
Stablecoins are cryptocurrencies that are backed by physical money or products. According to public opinion, stablecoins are less dependent on market fluctuations than regular cryptocurrencies, making them a more conservative financial instrument.
Tether was released by an eponymous company in 2015. The coin was backed by the US Dollar. As of this writing, the total circulating supply is 4.2 billion USDT, the market capitalization is $4.1 billion, and daily trading volumes are above $24 billion. Bitfinex was founded in 2012. It is currently one of the leading cryptocurrency exchanges in the world.
Due to the seriousness of the allegations, this lawsuit will likely be the end of Bitfinex and Tether. Even if the company manages to prove its innocence across several points, the reputational damage will be enormous.
A lawsuit of this magnitude can also affect the attitude of crypto investors towards stablecoins, leading to a corresponding decline in their popularity. This high-profile case will likely inspire discussions of numerous new laws to regulate the digital currency market and tighten government control.