New York judge Katherine Polk has ordered stablecoin issuer Tether to produce financial documents proving USDT‘s dollar backing as part of a lawsuit alleging the company manipulated cryptocurrency markets.
Tether is now required to provide the court with “general ledgers, balance sheets, income statements, cash-flow statements, and profit and loss statements,” among other documents. The order also demands that Tether disclose information about its accounts at cryptocurrency exchanges Bitfinex, Bittrex, and Poloniex.
With a current circulating supply of nearly $68 billion, USDT is the most prominent stablecoin by market capitalization and the third largest cryptocurrency after Bitcoin and Ethereum. Tether has continued to claim that every token is backed 1:1 with US dollars since allegations first arose in 2018.
Allegations Of “Unlawful and Deceptive” Practices
The request for documents stems from a current lawsuit that Tether is facing. The case was filed in 2021 when a group of investors sued Tether and Bitfinex’s parent company, iFinex, alleging that the company attempted to artificially boost the price of Bitcoin by securing large quantities of the cryptocurrency with unbacked USDT tokens.
This followed a 2018 report by the University of Texas at Austin where researchers indicated that one individual on the Bitfinex exchange used Tether tokens to “purchase Bitcoin when prices are falling,” causing the price of Bitcoin to rebound.
The plaintiffs, Matthew Anderson and Shawn Dolika dispute the claim that Tether’s stablecoin is backed by dollar reserves at a 1:1 ratio. The plaintiffs allege that Tether lied about the USDT backing and that the stablecoin was used to buy Bitcoin, pumping up the crypto market and eventually causing it to crash.
According to the plaintiffs, Tether caused over $1 trillion in damages to the cryptocurrency market.
This claim has already been officially challenged twice this year, with the plaintiffs citing the firm’s lengthy legal history, citing that in 2021, Bitfinex paid $18.5 million for an alleged loss of $850 million of amalgamated client and corporate funds.
Tether Argues Against Order
The stablecoin issuer objected to the order, attempting to block the order, with Tether attorneys calling the ruling “unduly burdensome,” but the judge presiding over the case disagreed. Judge Polk further explained why the information was required, stating, “The documents sought in the transactions RFPs appear to go to one of the Plaintiffs’ core allegations: that the … Defendants engaged in crypto commodities transactions using unbacked USDT, and that those transactions “were strategically timed to inflate the market.”
Tether contends that revealing the composition of its reserves could be detrimental to its business.
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