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Tether faces renewed allegations of crypto price manipulation, BitMEX is convicted of anti-money laundering (AML) failures, and India’s largest crypto exchange is hacked by North Korea.
A group of investors who lost money during the 2017 crypto bull run have filed an amended lawsuit alleging that Tether inflated and crashed the markets using unbacked stablecoins.
More than five years after filing their original complaint, investors from New York and Florida are once again seeking to hold Tether liable for market manipulation between 2017 and 2019.
The group’s latest lawsuit contains only three causes of action, reduced from eight in the original lawsuit and 12 in a subsequent amended lawsuit.
With the latest iteration of the complaint now filed in New York, the plaintiffs are demanding a jury trial for all three of their claims.
The first claim alleges market manipulation under the Commodity Exchange Act, and the second and third allege monopoly practices under the Sherman Antitrust Act.
As in previous versions of the lawsuit, the plaintiffs allege that Tether conspired with its sister company Bitfinex, a crypto exchange, to fraudulently inflate the markets by billions of dollars.
During the class period, Tether represented that each of its USDT tokens was backed one-for-one by US dollar bank deposits at all times.
Tether further represented that holders of USDT could exchange their stablecoins for dollars at any time.
However, the plaintiffs present evidence that neither of these claims were true, and that Tether frequently held fewer US dollars in its bank accounts than there were USDT in circulation.
“In reality, Tether often issued USDT with no US dollars backing — in exchange for an IOU from Bitfinex,” the complaint notes.
“Because the same principals controlled Bitfinex and Tether, Tether could simply transfer newly issued USDT into an account on Bitfinex without receiving US dollars in exchange, as would have been required for any other customer.”
The lawsuit also includes information from an anonymous trader and former Bitfinex customer, who claims to have received unbacked USDT during the class period.
In one communication that appears in the lawsuit, Giancarlo Devasini, CFO of both Tether and Bitfinex, asks the anonymous trader to “please push the [Bitcoin] price above 10k again.”
The anonymous trader replies: “Sure no problem, just issue me some [USDT].”
Bitfinex’s missing millions
A prominent theme that runs throughout the 118-page lawsuit is the lack of financial recordkeeping at both Tether and Bitfinex.
According to the lawsuit, Bitfinex cannot produce any records showing that it had sufficient funds to pay for the USDT it received during the class period.
In 2017, Bitfinex claims to have generated $333m in total revenue for the year. However, Bitfinex also supplied Tether with $382m of IOUs for USDT received between April and September 2017.
“The only historical record of Bitfinex’s finances for most of the class period appears to have been a paper notebook maintained by Devasini, which he discarded shortly after the litigation was filed,” the lawsuit notes.
Tether described the lawsuit as “wholly without merit” and built around “false and misleading allegations”.
BitMEX pleads guilty to criminal charges in the US
BitMEX, a global crypto exchange incorporated in the Seychelles, has pleaded guilty to “wilful” violations of US AML laws.
From 2014 to 2020, BitMEX served thousands of investors in the US without “any meaningful AML program”.
Prosecutors note that BitMEX knew it was required to implement an AML programme with know your customer (KYC) controls, but chose to “flaunt” these requirements and allow customers to sign up using only an email address.
“As a result, BitMEX opened itself up as a vehicle for large-scale money laundering and sanctions evasion schemes, posing a serious threat to the integrity of the financial system,” said US attorney Damian Williams.
“Today’s guilty plea indicates again the need for cryptocurrency companies to comply with US law if they take advantage of the US market.”
The conviction brings an end to more than four years of litigation with US prosecutors, who indicted the company and its co-founders — Arthur Hayes, Ben Delo and Samuel Reed — in 2020.
Between 2021 and 2022, Hayes, Delo and Reed each pleaded guilty to Bank Secrecy Act (BSA) violations as individual defendants. All were sentenced to a fine and a period of either probation or home detention.
India’s largest crypto exchange hit by North Korean hackers
WazirX, India’s largest crypto exchange, has paused all withdrawals following a $235m hack that is suspected to be the work of North Korean state actors.
On Thursday (July 18), WazirX confirmed that one of its multi-signature wallets had experienced a “security breach”, leading to a clear-out of more than 200 varieties of crypto-asset.
Elliptic, a blockchain analytics firm, said the attacker has already used multiple decentralised finance (DeFi) platforms to convert the stolen tokens into Ethereum.
This is described as an “expected initial step" of a typical laundering process, as covered in Elliptic’s previous work on cross-chain crypto crime.
The firm is now tracking the attacker and will notify its clients should any of its own systems interact with the attacker’s wallet address.
According to Elliptic’s research, in 2023, North Korea’s Lazarus Group laundered more than $900m of illicit crypto using cross-chain methods.
