Court won’t dismiss crypto traders’ $3B Tether market manipulation case
A New York court is yet to fully dismiss claims of market manipulation, conspiracy, and fraud against Tether and Bitfinex, according to recently released documents.
The class-action lawsuit, brought by a group of five crypto investors in October 2019, alleges that Bitfinex, Tether, parent company iFinex, and a slew of associated execs intentionally inflated crypto prices during market downturns.
It’s claimed they did this by issuing $3 billion of unbacked Tether (USDT). Insiders allegedly used that USDT to buy other cryptocurrencies on the open market — artificially pumping their prices.
The plaintiffs’ original complaint asserts these actions may have caused crypto’s overall market cap to soar to $795 billion in 2017. They say it also cost market participants more than $1 trillion.
The court did dismiss RICO charges against the defendants. However, it found the plaintiffs adequately alleged monopolization, market manipulation, common law fraud, and violation of the Commodities Exchange Act.
Tether and Bitfinex have put forward a number of counterarguments to the original allegations.
Among them are claims that the crypto traders cannot prove financial damage. The companies said accusations about the USDT tokens being unbacked are just speculation.
Tether and Bitfinex’s lawyers also argued the plaintiffs failed to provide enough evidence to make market manipulation claims stick.
However, the court didn’t agree. Speaking specifically about the market manipulation allegations it said:
“The Amended Complaint provides sufficient details about Defendants’ purportedly manipulative trading, including charts, graphs, and specific examples illustrating how and when Defendants allegedly utilized unbacked USDT to inflate cryptocommodity prices.”
“While Plaintiffs did not include every purportedly manipulative transfer in the Amended Complaint, their allegations easily satisfy the ‘relaxed’ Rule 9(b) pleading standard for price manipulation claims,” (our emphasis).
Bitfinex and Tether originally filed to have the class action dismissed earlier this month.
Tether telling market it was fully backed ‘was a lie’
The question of whether Tethers are always backed one-to-one has long been a thorn in the maverick stablecoin’s side.
In February, Tether and Bitfinex were forced to cough up $18.5 million after New York attorney-general Letitia James alleged Tether had “recklessly and unlawfully covered up massive financial losses” in a bid to keep confidence in Tether’s purported backing.
As reported by the Financial Times, James said of the case: “Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie.”
“These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”
Read more: [Tether minted most USDT to just 2 firms — Alameda and Cumberland]
As for the most recent allegations, Tether, Bitfinex, and all of their co-defendants have their work cut out to prevent what could possibly be another extremely damaging legal loss.
They are required by the court to file their responses to these amended claims by October 28.
Follow us on Twitter for more informed crypto news.