This rumor is the "Doomsday Judgment" of USDT, and the result of the hearing will have little impact?
USDT has contributed a lot to the popularity and development of stablecoins, but negative news continues.
On April 25, 2019, the New York State Attorney General's Office (NYAG) brought the USDT issuer Tether and its parent company iFinex Inc and Bitfinex to court. The two were accused of multiple major violations, and it was further speculated that Tether was involved in misappropriating USD 900 million in USDT reserves to help Bitfinex make up for the shortfall.
The NYAG also believes that Bitfinex and Tether are using their market positions to continue to defraud investors. If the findings of the investigation are true, Bitfinex and Tether may not only face a high fine of $42 million, but may even be sentenced to cease operations.
At 9:30 am EST on July 29th (9:30 pm Beijing time on July 29th), this year’s most high-profile judicial case in the currency circle held a hearing, and the head-to-head "Doomsday Judgment" finally came .
At 9:30 am New York time on July 29, the New York State Attorney General's Office (NYAG) and Tether, the issuer of USDT, attended the hearing. The focus of the hearing was whether Bitfinex and Tether provided services to customers in New York State.
At the end of the hearing, New York Supreme Court Judge Joel M. Cohen did not make a ruling in court, saying that more time was needed for thinking.
According to the blockchain media The Block, Joel M. Cohen has approved the extension of the case for 90 days. The NYAG could still investigate the case, and Bitfinex’s lawyers attempted to appeal the motion to dismiss, but the judge rejected it.
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Highlights of the hearing
Although this hearing did not make a final ruling on Bitfinex and Tether, the two parties still discussed whether USDT is a security and whether Bitfinex provides trading services for residents of New York State:
Bitfinex claims that because Tether is not a security or a commodity, the court does not have subject matter jurisdiction and does not comply with the U.S. state commercial law (Martin Act).Odaily Note: "Martin Act" (Martin Act), New York State's "Blue Sky Act", aims to prevent fraud and protect the interests of investors. The Martin Act has been called one of the toughest anti-fraud laws because it doesn't require prosecutors to prove that the defendant "willedly" or show the defendant's criminal "motivation" but only that they made false or misleading investment advice There is a causal relationship with the losses suffered by investors. In the United States, engaging in securities and financial activities must not only comply with the requirements formulated by the Securities and Exchange Commission, but also comply with a series of laws and regulations formulated by the governments of the other states at the same time.
In response to Bitfinex's claim that "because Tether is not a security or a commodity, the court has no subject matter jurisdiction", the NYAG stated: "Any dispute in this case has nothing to do with Bitfinex's behavior before it was prohibited from providing services to New York customers, so there is no jurisdiction Scope. The scope of the investigation into the Bitfinex case is very different from the scope of this hearing.”
Later, the NYAG tried to raise questions from the personal jurisdiction level. Tether executives lived and worked in New York and registered accounts in New York State. They established a business relationship in New York, exchanging USDT for BTC and other virtual assets.
Bitfinex and Tether once again stated that they do not provide services for New York customers. Their defense lawyers stated: "Tether's terms of service exclude US customers and make it clear that customers in New York are not welcome. No ban is perfect. But Tether does work very hard. Keep customers in New York away from Tether’s service. Last week, Tether identified a customer as a resident of New York and turned him away.”
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Review the whole process of litigation between NYAG, Bitfinex and Tether
NYAG’s complaints against Bitfinex and Tether mainly focus on three points: unauthorized misappropriation of USDT reserves, illegal opening of transactions to New York State residents, and USDT’s failure to form a 1:1 anchor relationship with the US dollar.
At 16:15 (UTC) on April 25, 2019, New York prosecutors brought Tether, Bitfinex and its parent company iFinex Inc. to court for the first time, accusing them of engaging in fraud that endangered the interests of investors, in violation of New York State’s strict Securities law, the Martin Act.
The 23-page prosecutor's charge document shows that since 2018, Bitfinex has caused a huge loss of US$850 million in the process of fund custody. After the incident, the company did not disclose it to investors, tried to conceal the loss, and reached out to Tether's reserve for cashing USDT, and secretly embezzled at least US$700 million to make up for the financial shortfall. The New York Attorney General's Office also obtained a preliminary injunction to freeze Tether's assets and requested documents from the two companies on credit lines of approximately $625 million and $900 million.
On the same day, Bitfinex issued a counterattack, insisting that "Bitfinex and Tether are both in good financial condition", and that the $850 million was not a "loss", but an "accident" when it cooperated with the third-party payment company Crypto Capital Corp. And this huge amount of crypto capital was not lost, it was just seized and secured. Bitfinex pointed out that the New York Attorney General's Office has seriously exceeded its authority and is full of malicious intent. The accusation document is full of false conclusions, and insists on fighting against the New York Attorney General's Office.
On May 21, the NYAG rejected the protests of Bitfinex and Tether, and conditionally approved the New York Attorney General's access to their business information. Harry Zhou, chief compliance officer of Koi Trading, an OTC trading platform in the United States, pointed out that based on the evidence, the NYAG has determined that Bitfinex and Tether have more than 50% possibility of engaging in "securities fraud." From a macro point of view, the U.S. federal and state regulations seem to have reached a consensus to effectively crack down on all offshore exchanges that rely on Tether at once by cracking down on Tether.
On July 8, the Office of the Attorney General of New York submitted a report describing that Bitfinex and Tether were suspected of issuing illegal trading securities in New York State. They continued to operate some businesses in New York until January 2019, and were unregistered securities operators. These documents was presented to the NYAG as evidence that it has the authority to investigate these companies.
The New York Attorney General’s Office has given Bitfinex, Tether and their affiliates to file a response to the latest motion by July 22, with a hearing scheduled for July 29.
On July 23, Bitfinex and Tether submitted new legal documents in response to NYAG’s earlier allegations that “Bitfinex and Tether have been providing services to customers in the New York area.” Bitfinex and Tether claimed that NYAG accused them of serving New York residents in 2018. The service argument is misleading,
A new filing by Bitfinex and Tether general counsel Stuart Hoegner claims that a previous filing by the New York Attorney General’s office alleging that Empire State residents have been using the companies’ platforms for much longer than previously stated, “contains Numerous inaccurate and misleading assertions."
According to Hoegner, some of the documents provided by the NYAG appear to outline that Bitfinex and Tether enable New York residents to trade on Bitfinex by doing business with foreign entities that do not have a physical presence in New York, while other documents describe Bitfinex’s Clients based in New York are effectively "Foreign ECPs (Eligible Contract Participants)." Hoegner cites, for example, former Fortress partner Mike Novogratz's Galaxy Digital, which has an office in New York City.
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The hearing will have minimal impact on USDT
According to the current voice in the market, the impact of the NYAG hearing on Tether and USDT seems to be minimal.
First let's look at the current market share and market cap of Tether and USDT.
According to the "DeFi Industry Research Report for the First Half of 2019" released by DAppTotal, as of June 30, 2019, the total circulation of the stable currency market was 4.57 billion US dollars, of which USDT was 3.68 billion US dollars, accounting for 80.6% of the market share Among them, USDT issued based on the OMNI network accounted for 71.8%, USDT based on the ERC20 Ethereum network accounted for 27.1%, and USDT based on the TRC20 TRON network accounted for 1%.
Since April this year, the issuance and frequency of USDT on the Ethereum network have increased sharply. Judging from the daily transaction volume of stablecoins on the chain, the single-day transaction volume on June 30 was 859 million US dollars, which means that the overall circulation of stablecoins will change hands every 5 or 6 days.
In addition, according to TrustnodesTether, the market value of USDT broke through $4 billion, reaching the highest level since its launch in 2015. In just a few weeks, the U.S. dollar-pegged stablecoin has soared from $2.8 billion on May 16 to $4 billion. The main reason is likely to be the recent large-scale issuance of Ethereum-based ERC-20 tokens.
At present, the USDT circulation market value is about 4 billion U.S. dollars, and the daily turnover has reached an astonishing 11 billion U.S. dollars. The current total market value of the entire encrypted asset is 310 billion U.S. dollars, and the daily turnover is maintained at around 28 billion U.S. dollars. The proportions are 1.3% and 40% respectively.
We can see that since Tether’s accident in April this year, USDT has been showing a state of additional issuance, and its market share and market value have also been rising. It can be seen that in the short term, the impact of Bitfinex’s “misappropriation” of Tether’s reserves on Tether can be almost ignored Excluding.
In addition, we also collected third-party views on the USDT hearing:
A netizen named "Pepe" on Weibo said: "It seems that this is not the first time I have experienced the 'clearing of hearings' in the currency circle. The hearing is where everyone sits together and expresses the ideas and testimonies of all parties. As for the result of the final trial, it may not be decided on the same day, just wait, you don’t know when the result will come to the meeting about supervision, so be careful, don’t give it a “harvest” because of ambiguous news .”
"Yanyu", a blockchain self-media block nugget, believes: "Although theoretically speaking, the market for USDT stablecoins is mainly in Asia, and the usage by Americans is negligible, and the influence of the hearing should be minimal. But the current The digital currency market is immature, and it will affect the whole body, especially the news of the US regulation will always be the focus of the market, so its influence is difficult to estimate.”
"I remember that on October 15 last year, USDT was exploited by market makers due to rumors of a crash, which led to sharp changes in the short-term market. At that time, mainstream currencies collectively rose, and Bitcoin's amplitude reached 20%. Snapped up Bitcoin and other mainstream currencies. The result is obvious. The banker successfully took advantage of the USDT trust crisis to sell the mainstream currency in his hand at a high price, then received USDT back at a low price, and then sold it to retail investors. Explosive, grabbing huge profits."
According to the analysis of the blockchain self-media "Grandpa Bi", "the accepting court will make a judgment as soon as possible on the same day. According to New York State law, once Tether and Bitfinex lose the lawsuit, they will have to pay fines and close their business in New York, and win the lawsuit." It will not be subject to a direct ruling. The point is that it only shuts down the business in New York. Neither Tether nor Bitfinex are registered in New York. In other words, Tether can no longer provide USDT exchange services to New York (most US residents). No."
References:
References:"Both sides are prepared: the whole story of the confrontation between Bitfinex, Tether and NYAG"
