Stablecoin issuer Tether has received a court order to produce financial documents proving its USDT backing. New York Northern District Court Judge Katherine Polk Failla issued the order for Tether on Tuesday at the request of plaintiffs to prove its reservations. Tether’s latest order comes as part of a trial filed in 2019 by a group of traders against iFinex, the parent company of Tether and Bitifinex exchange.
The case involves a 2018 research report from the University of Texas. Experts have discovered that Tether’s sister company, Bitfinex, bought Bitcoin with unbacked USDT to intentionally pump the price of BTC. And this resulted in the crash of over $1 trillion in the market.
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After 22 long months of investigation, the lawsuit ended in a settlement of 18.5 million dollars. The New York Attorney General (NYAG) stopped investigating Bitifinex and Tether in February 2021 as the companies agreed to cut their services to New Yorkers.
Additionally, the attorney general found that iFinex mixed company and user funds to thwart the $850 million in losses it faced. due to a lawsuit against his partner Crypto Capital Corp payment channel.
Naturally, this indicates that Tether’s USDT was not backed by 100% reserves for a space-time around November 2018, NYAG said. While the company claimed that its stablecoin, USDT, is still backed 1:1 with the US dollar. Therefore, Tether is likely to release a quarterly report of its supporting assets as part of the settlement.
Tether intends to keep the details of its reserves secret
Although Tether attached documents on its website revealing its reserve, the report does not give a detailed picture of its supporting assets.
This is why the judge has now ordered the defendant company to disclose information from its “ledgers, balance sheets, income statements, cash flow statements and profit and loss statements (…) with respect to the support of the USDT (RFP Financial Records [requests for proposal]) and crypto-commodity transactions (trading tenders).
The court order also requires the company to provide details of its accounts on Poloniex, Bitifinex and Bittrex.
Lawyers representing Tether have attempted to overturn the judge’s order, calling it “unduly burdensome.” Furthermore, they claimed that revealing the composition of its reserves would be detrimental to its business.
Accused added during the court decision;
The plaintiffs offer no justification for such extraordinary demands, simply stating that they must assess whether the trades were strategically planned to inflate the market.
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But Failla noted that the documents sought by plaintiffs are undeniably important in determining support for USDT in US dollars. Accordingly, the judge upheld her decision, adding:
The plaintiffs make it clear why they need this information: to assess USDT support with US dollars. (…) The documents sought in the Transaction Requests for Proposals appear to relate to one of the Plaintiffs’ key allegations: that the B/T Defendants engaged in crypto-commodity transactions using unsecured USDT.
Featured image from Pixabay and chart from TradingView.com