Stablecoin issuer Tether has recieved a court order to produce financial records that prove the backings of its USDT. The Judge at Northern District Court New York, Katherine Polk Failla, issued the order for Tether on Tuesday upon the plaintiffs’ request to prove its reserves. The latest order for Tether comes as part of a lawsuit filed in 2019 by a group of traders against iFinex, the parent company of Tether and Bitifinex exchange.
The case involves a research report of 2018 by the University of Texas. Experts found that Tether’s sister company Bitfinex purchased Bitcoin with unbacked USDTs to pump BTC price intentionally. And it resulted in the crash of over 1 trillion in the market.
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After a long 22 months of investigation, the lawsuit ended up with a settlement of $18.5 million. The New York Attorney General (NYAG) stopped investigating Bitifinex and Tether in February 2021, with companies agreeing to cut their services to New Yorkers.
Additionally, Attorney General found that iFinex mixed up the company’s and users’ funds in order to obstruct the losses of $850 million it faced due to a lawsuit against its partner payment channel Crypto Capital Corp.
Understandably, it indicates Tether’s USDT was not backed with 100% reserves for a time-space around November 2018, NYAG said. While the company claimed its stablecoin, USDT, is always backed 1:1 with the U.S. dollar. Hence, Tether is liable to publish a quarterly report of its backing assets as part of the settlement.
Tether Intends To Keep Its Reserves’ Details Secret
Though Tether attaches documents on its website revealing its reserve, the report does not provide an in-depth picture of its backing assets.
That’s why Judge now ordered the defendant company to release the information of its “general ledgers, balance sheets, income statements, cash-flow statements, and profit and loss statements (…) as they relate to the backing of USDT (financial records RFPs [requests for proposal]) and crypto commodities transactions (transactions RFPs).”
The court order also requires the firm to provide details of its accounts on Poloniex, Bitifinex, and Bittrex.
The lawyers representing Tether attempted to overturn Judge’s order, calling it “unduly burdensome.” In addition, they claimed that revealing the composition of its reserves would be detrimental to its business.
Defendants added during the court ruling;
Plaintiffs offer no justification for such extraordinary requests, merely stating that they must assess whether the transactions were strategically timed to inflate the market.
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But Failla noted that the documents the plaintiffs seek are undeniably important in determining USDT’s backing with U.S. dollars. Accordingly, the Judge affirmed her decision by adding:
Plaintiffs plainly explain why they need this information: to asses the backing of USDT with U.S. dollars. (…) The documents sought in the transactions RFPs appear to go to one of plaintiffs’ core allegations: that the B/T Defendants engaged in crypto commodities transactions using unbacked USDT.
Featured image from Pixabay and chart from TradingView.com