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Leading stablecoin issuer Tether has been hit with a class-action lawsuit alleging the company’s practices are “immoral, unethical, oppressive, and unscrupulous,” according to the complaint, which was filed in the district court of south New York.
Plaintiffs Matthew Anderson and Shawn Dolika dispute Tether’s claim that its cryptocurrency is backed by 1:1 dollar reserves. This claim has been challenged in court twice already this year, and the plaintiffs’ case references the firm’s checkered legal history.
Tether was quick to respond to the claims on Monday, writing “shameless money grabs, for which this lawsuit is a textbook example, will never be dignified by way of paying one Satoshi in a settlement.”
One Satoshi is the smallest unit account of Bitcoin and is equal to 0.00000001 Bitcoin, or $0.000477 today.
The firm said it would also “aggressively litigate and dispense” with the filing and then pursue recompense from Anderson and Dolika.
Tether’s legal woes
In February, New York Attorney General Letitia James ordered Tether and crypto exchange Bitfinex, a sister company with common shareholders and management, to cease trading in New York and pay $18.5 million, after state investigations concluded that Tether didn’t have sufficient reserves to back the number of Tether USDT tokens in circulation.
In October this year, the two companies were embroiled in more bad press when independent U.S. derivatives regulator, the Commodity Futures Trading Commission (CFTC), fined Tether $41 million. Bitfinex was fined $1.5 million.
The CFTC alleged that Tether only held sufficient fiat reserves in its accounts to back the number of Tether tokens in circulation for little more than a quarter of the time over a 26-month period between 2016 and 2018.
Four days after the CFTC fine, Alex Mashinsky, the CEO of crypto lending platform Celsius, told Financial Times that Tether occasionally issues its dollar-pegged cryptocurrency as a loan in exchange for cryptocurrencies like Bitcoin and Ethereum; this contravenes the company's own terms and the fundamental principles of stablecoins. Mashinsky elaborated that the stablecoins issued are destroyed when repaid, so as not to increase the circulating supply.
For Tether’s part, the company has tried to be more transparent this year. In August, it released an assurance report conducted by auditor Moore Cayman. The report revealed that almost half of Tether’s reserves are in the form of commercial paper and certificates of deposit. Only 10% comes from cash and bank deposits.