DOJ investigating cryptocurrency Tether for bank fraud: Report

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The Justice Department is investigating possible bank fraud by executives of Tether Ltd. stemming from actions during the early days of its stablecoin cryptocurrency, according to Bloomberg News.

The probe has implications for the cryptomarket. Tether’s stablecoin is the third largest digital asset by market cap, at $62.3 billion, according to CoinGecko, and traders often use it instead of dollars or other fiat money to buy bitcoin and other cryptocurrencies. Tether gives users a way to move funds between exchanges quickly and offers some level of protection from other cryptocurrencies’ price volatility.

The DOJ’s investigation is focused on activity from Tether’s early days, probing whether the company misled banks by hiding the fact that transactions were linked to cryptocurrency, Bloomberg reported Monday, citing three people with direct knowledge of the matter who asked not to be named because the probe is confidential. Federal prosecutors have sent letters in recent months to individuals alerting them that they are targets of the investigation and that a decision on the probe could be made soon, according to the news agency.

The Justice Department declined a CNBC request for comment.

Tether dismissed the report in an emailed statement, saying it’s “business as usual” at the company and that it’s determined “to remain leaders in the community.”

It also said: “Tether routinely has open dialogue with law enforcement agencies, including the U.S. Department of Justice, as part of our commitment to cooperation, transparency, and accountability. We are proud of our role as industry leaders in promoting cooperation between industry and government authorities in the U.S. and around the world. We remain committed to our customers and the industry-leading technology and transparency that has led to our growth.”

Depending on the outcome of the investigation, it could lead to stricter oversight of stablecoins by regulators and more transparency in how digital assets are backed, transacted, and traded, according to Jesse Proudman, co-founder of crypto robo-advisor Makara Digital.

Tether was created in 2014 in response to one of the biggest challenges for crypto start-ups at the time: bank de-risking. Most businesses handling cryptocurrencies had difficulty obtaining bank relationships because the highly regulated financial institutions feared doing business with companies that could potentially be tied to illicit activities.

Tether has long been controversial, largely because of concerns it doesn’t always have enough reserves to justify its peg to the U.S. dollar.

Stablecoins, digital currencies designed to be more stable than cryptocurrencies because the peg their market value to an outside asset like the U.S. dollar, are in the regulatory hot seat as they grow in popularity. Last week, Treasury Secretary Janet Yellen and the President’s Working Group on Financial Markets discussed stablecoins’ potential role in the financial system.

In February, Tether also agreed to pay an $18.5 million fine to end a New York probe over allegations that the company moved hundreds of millions of dollars to cover up $850 million in losses.

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DOJ investigating cryptocurrency Tether for bank fraud: Report

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Kane Dane