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New York wants bank statements and more from Tether, Jamie Dimon throws crypto under the bus (again) and Kraken CEO resigns after 11 years on the job.
A federal judge in New York has ordered Tether, issuer of the world’s largest stablecoin, to produce new documents proving that it has sufficient reserves to support its past issuance of USDT.
In an order filed on Tuesday (September 20), Judge Katherine Polk Failla agreed to several requests made by the plaintiffs in a class action against Tether and Bitfinex, both of which are owned by Hong Kong-based iFinex.
The plaintiffs’ request for production (RFP) covered a number of documents and datasets that Tether had previously objected to disclosing.
These include, but are not limited to, any and all “general ledgers, balance sheets, income statements, cash-flow statements, and profit and loss statements”, and all cryptocurrency trades and transactions completed during the class period.
The judge also approved the plaintiffs’ request for Tether to produce “documents sufficient to establish USDT Reserves, including account statements of all banks or other institutions related to [Tether’s] funds or reserves”.
Tether, which despite having launched in 2014, has never undergone a full audit, responded to the order in a statement arguing that “the order that was issued yesterday is a routine discovery order and does not in any way substantiate plaintiffs’ meritless claims”.
“We had already agreed to produce documents sufficient to establish the reserves backing USDT, and this dispute merely concerned the scope of documents to be produced.”
The plaintiffs’ complaint, which was originally filed in October 2019, alleges that Tether and Bitfinex conspired in a “sophisticated scheme” to “defraud investors, manipulate markets, and conceal illicit profits”.
“At the heart of this scheme was Tether’s claim ‘that the number of [USDT] tokens in circulation will always equate to the dollars in its bank account’,” the complaint notes.
“This claim enabled Bitfinex and Tether to signal to the market that there was rapidly growing demand for cryptocurrencies because each USDT printed represented another US dollar invested into the market. This claim was a lie.”
From 2017 through to 2018, Tether printed $2.8bn USDT and used it to “flood” the Bitfinex exchange and purchase other cryptocurrencies, the complaint alleges.
“This artificially inflated demand for cryptocurrencies and caused prices to spike. As the cryptocurrency market reached a fever pitch, Tether’s mass issuance of USDT created the largest bubble in human history. When it burst, over $450bn of value disappeared in less than a month.”
In total, the plaintiffs are seeking damages of $1.4trn. This figure was arrived at from the $466bn collapse in cryptocurrency market cap from January to February 2018.
That number was then tripled in line with antitrust laws and the provisions of the Racketeer Influenced and Corrupt Organizations (RICO) Act.
Jamie Dimon throws crypto under the bus (again)
Over the years, J.P. Morgan CEO Jamie Dimon has had something of a hot-cold relationship with crypto.
In 2015, he predicted that "no government will ever support a virtual currency that goes around borders”.
Two years later, he famously called bitcoin a "fraud" and "worse than tulip bulbs”, adding that he would personally fire any J.P. Morgan employee caught trading it.
In 2021, Dimon appeared to have made his peace with bitcoin. Although bitcoin is “worthless” as an asset, he said, he is happy to monetise the provision of bitcoin-related services to clients.
“Our clients are adults,” he said. “They disagree — that’s what makes markets. So, if they want to have access to buy bitcoin, we can’t custody it but we can give them legitimate, as clean as possible, access.”
This week, however, Dimon may have offered his strongest condemnation yet of crypto-assets.
“I’m a major sceptic on crypto tokens, which you call currency, like bitcoin,” he said at a congressional hearing. “They are decentralised Ponzi schemes.”
Dimon made sure to qualify that his crypto scepticism does not extend to stablecoins, which he believes have a bright future under a clearer regulatory framework.
He also reminded his audience that J.P. Morgan is still perfecting its own stablecoin, known as JPM Coin.
Kraken CEO steps down as ill-advised tweets resurface
From crypto sceptic to true believer, this week Jesse Powell, co-founder and CEO of Kraken, announced a changing of the guard at the US’ second-largest exchange.
After serving as CEO for 11 years, Powell will now assume the position of chairman of the board of directors at Kraken.
In his place, Dave Ripley, Kraken’s six-year chief operating officer (COO), will take the role of CEO.
In its 11 years under Powell, Kraken has grown to become one of the largest crypto exchanges in the world, with more than 3,000 employees worldwide.
However, Powell has not always been the safest pair of hands at Kraken, as his critics pointed out following his resignation.
This week, a series of ill-advised tweets sent by Powell in 2019 started to circulate online again, and they may come back to haunt him, depending on how they are seen by US prosecutors.
At the time, crypto influencer Anthony Pompilano had asked his Twitter followers: “What is the worst experience you have ever had with a bank?”
Powell responded: “Paypal locked up all the money I had for six months, and I almost lost my business/apartment.
“Bank of America killed Kraken's payroll account on 30 days’ notice. Chase killed it on five days’ notice, by mail, which arrived after the account was closed. I found out when employee checks bounced.”
“And you survived,” Pompilano asked.
“I cycled through multiple rented PayPal accounts and I started spreading deposits across several banks, cash in safety deposit boxes,” said Powell.
“Probably a compliance person's worst nightmare, but I basically had to employ the arts of a money launderer to survive.”
Sparkster settles with SEC for $35m
This week also saw a major and speedy settlement reached between the US Securities and Exchange Commission (SEC) and a crypto-asset issuer.
On Monday (September 19), the SEC issued a cease and desist order against Sparkster Ltd. and its CEO, Sajjad Daya, for allegedly conducting an “unregistered securities offering” in 2018.
Through the offering, Sparkster and Daya raised about $30m from almost 4,000 investors, including investors in more than one US state, who purchased their SPRK token in a closed pre-sale.
Daya promised investors that the token would appreciate in value once released to the public, but as soon as it began trading on crypto exchanges, its value “dropped precipitously”, according to the SEC, causing harm to investors.
The SEC sued Sparkster and Daya for their failure to register the offer and sale of the tokens, as was required under the Securities Exchange Act of 1934.
In response, Sparkster and Daya agreed immediately (within one day) to pay $35m into a fund that would be distributed to investors who had lost money on the SPRK token.
As reported by VIXIO earlier this week, the SEC is also pursuing a similar claim against a crypto influencer who promoted the SPRK token.
Since SPRK is an ethereum-based token, both cases indicate that the SEC intends to regulate ethereum itself as a security.
