Bitfinex, Tether, and their related entities today released a statement rejecting what they call “blatantly false allegations” made in an amended consolidated class action lawsuit filed in the Southern District of New York (SDNY) on January 8, 2020.
Created in 2014, Tether launched as a digital token linked 1:1 with the US dollar (USD₮). The class action suit alleges that since October 1, 2014, the “defendants, through their unique control and access to printing USD₮, manipulated prices of Bitcoin by issuing USD₮ unbacked by a 1:1 US dollar reserve and using the newly created USD₮ to purchase Bitcoin through US-based cryptocurrency exchanges Bittrex and Poloniex.
“Defendants’ unbacked printing of USD₮ artificially inflated the price of Bitcoin, which enabled Defendants to extract supra-competitive profits from Bitcoin traders. Specifically, Plaintiffs’ analysis demonstrated that Bitcoin returns generally declined just before the USD₮ issuance dates and improved afterwards. Moreover, Defendants’ inside information about USD₮ issuances enabled Defendants to sell Bitcoin once Bitcoin prices were artificially inflated, thus permitting Defendants to replenish Tether Defendants’ US dollar reserves,” the suit claims.
The suit further alleges that, “by manipulating the price of Bitcoin, Defendants necessarily manipulated the market for derivatives linked to Bitcoin, including Bitcoin futures traded on the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (Cboe). Bitcoin futures provide a wide variety of market participants the ability to gain exposure to Bitcoin and hedge Bitcoin price exposure.”
That complaint notes that during the Class Period, USD₮ remained the world’s most used stablecoin, with the overwhelming majority of Bitcoin trading volume involved USD₮. More than nine billion Tether is believed to be in circulation today.
In the statement released today, Stuart Hoegner, general counsel for Bitfinex, says: “Even after taking three full months to amend their complaint, the plaintiffs’ allegations remain untethered to either the facts or the law. They conflate perceived correlation with causation in an effort to prop up theories that are untrue and unsupportable.”
According to the defendants, the plaintiffs’ accusations started with an academic paper whose authors, they say, “were forced to walk back their central claims”. “After their first argument fell apart, plaintiffs have dreamed up an unproven conspiracy theory involving three large cryptocurrency exchanges and a secret scheme to manipulate the cryptocurrency market,” the statement says. “The only consistency in their arguments is the complete lack of evidence. Plaintiffs cherry pick pieces of information and string them together to weave an elaborate story unsupported by truth or proof.”
“While suggesting the sheer size of the demand for Tether coupled with changes in the market clearly led to only one conclusion – market manipulation – plaintiffs disregarded the actual workings and financial backing of Tether, the operations of Bitfinex, general principles of supply and demand, and publicly available research that confirms there was no manipulation,” adds Hoegner in the statement. “If you see a group of people opening umbrellas, that doesn’t mean that they caused it to rain.”
“Tether is proud to play a critical role in the digital token ecosystem. This meritless lawsuit is an insult to the ingenuity of Tether’s customers, as well as the success and innovation of the industry and all who play a role in it. Bitfinex and Tether will vigorously defend themselves, their customers, their stakeholders, and the crypto community against these unfounded allegations and continue to counter fiction with facts,” says Hoegner.