A class action lawsuit alleges that stablecoin issuer Tether fraudulently inflated cryptocurrency markets by issuing unbacked dollar-denominated tokens, causing “the largest bubble in human history.”

Tether is the issuer of the tether stablecoin, which until recently billed itself as being backed “one-to-one” by dollars in an offshore bank account. But earlier this year, Tether admitted in response to an investigation by the New York Attorney General’s office that tethers were “74 percent backed.”

Filed with the New York Southern District Court on Monday, today’s lawsuit alleges that Tether worked in coordination with its sister company Bitfinex to artificially create “as much as half the growth in the cryptocurrency market,” citing a study published in 2018 by the University of Texas.

“This action concerns a sophisticated scheme that co-opted a disruptive innovation—cryptocurrency—and used it to defraud investors, manipulate markets, and conceal illicit proceeds,” the lawsuit begins. “Part-fraud, part-pump-and-dump, and part-money laundering, the scheme was primarily accomplished through two enterprises—Bitfinex and Tether—that commingled their corporate identities and customer funds while concealing their extensive cooperation in a way that enabled them to manipulate the cryptocurrency market with unprecedented effectiveness.”

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The lawsuit was filed by Roche Freedman LLP, on behalf of several investors who believe themselves to have been “defrauded” by Tether and Bitfinex’s alleged actions. 

Tether anticipated the lawsuit Saturday, describing it as “meritless” in a press release sent to Decrypt. The company vowed to litigate the case aggressively, dismissing the plaintiff’s counsel as “mercenary lawyers” and the University of Texas study as “cherry-picked” and “unpublished.” 

Tethers account for an enormous portion of the cryptocurrency market, according to CoinMarketCap, and “prints” of the cryptocurrency are thought to correspond with an increase in market prices. This may well be benign: tethers are vital for overseas investors unable to access the dollar, so it makes sense they buy up large portions of them. 

But revelations that 26 percent of tethers were, in Tether’s parlance, backed merely by “receivables” and “cash equivalents” from creditors—led some to the conclusion that, as today’s lawsuit alleges, “Bitfinex and Tether issued billions of unbacked USDT to manipulate the price of bitcoin and other cryptocurrencies.”

Remarkably, the lawsuit takes into consideration Tether and Bitfinex’s own preemptive rebuttal, describing it as an indication that the companies are “fully aware of the incredible harm they’ve inflicted on the cryptocurrency market.”

The lawsuit also takes aim at Tether’s continual printing of tether since the investigation, which it describes as a “brash display of lawlessness.” 

This is a developing story.