Tether in hot soup again, faces second class-action lawsuit this year

The stablecoin universe is so far dominated by two main tokens, Tether and USD Coin. Tether is already more than 60 percent of the total stablecoins currently issued, worth about $100 billion. [Image: Shutterstock]

Stablecoin issuer Tether has yet again found itself locked in a legal tangle with accusations of falsely representing its stablecoin backing.

Another class-action lawsuit had earlier this year alleged immoral, unethical, oppressive and unscrupulous company practices, reported Decrypt, a news outlet reporting on cryptocurrency.

Tether has, for long, claimed that it has, at all times, been backed by a 1:1 dollar reserve, which means that for every 1 USDT, the company necessarily needs to have $1 in their reserve.

The company has claimed the same on their website as well, stating that it is “100 percent backed by reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables”.

The latest complaint, filed by Mathew Anderson and Shawn Dolika in the South New York district court, accused the firm of maintaining less than 4 percent in cash reserves. The plaintiffs also alleged that the company’s public account disclosures were vague, ambiguous, and that it had not undergone any professional audit, despite its promise to bring forth transparency to consumers.

The consequential breach of contract on behalf of the stablecoin entity qualified the members for “compensatory and consequential damages”. This comes days after the shadow government of military-ruled Myanmar mandated USDT as the official currency for domestic purposes, with the intention of easing and speeding up trade, services and payments.

Checkered Legal History

While the firm promptly responded to the lawsuit, terming it “nonsense” and “copycat” with the purported intention behind it being to churn out massive payouts on meritless claims. Furthermore, they called the suit an attempt for a “shameless money grab, for which this lawsuit is a textbook example, will never be dignified by way of paying one Satoshi in a settlement”.

Notably, one Satoshi amounts to the smallest unit of bitcoin or 0.00000001 BTC. The firm also stated that it will “aggressively litigate and dispense with the action in due course, and then pursue their remedies against the filing parties”.

In February, New York Attorney General Letitia James had fined Tether $18.5 million after investigations revealed that its claims of holding adequate dollar reserves to back the USDT tokens in circulations were false and untrue.

In October, independent US derivatives regulator Commodity Futures Trading Commission (CFTC) fined Tether $41 million on grounds that it only held sufficient fiat reserves in its accounts to back the USDT in circulation only for a quarter of a 26-month period during 2016-18.

In line with Tether’s effort to become more transparent, it had released an assurance report prepared by auditor Moore Cayman, which mentioned that 50 percent of Tether’s reserves are in commercial paper and certificate of deposits, with only 10 percent maintained as cash and bank deposits.