The Most Popular Stablecoin Tether Under Investigation by the U.S. Department of Justice

The U.S. Department of Justice has announced the initiation of an investigation against the executives of the cryptocurrency tether (USDT) on suspicion of committing bank fraud. If the suspicions prove to be true, the criminal case could have wide-ranging implications for the crypto industry.

The Department of Justice’s investigation is focused on events that occurred many years ago, when tether was still being developed. Federal prosecutors are particularly concerned about whether tether concealed from banks that transactions were related to cryptocurrencies.

Recently, the Department sent letters to individuals, informing them that they are targets of the investigation. These notifications specifically indicate that a decision may soon be made regarding whether to initiate proceedings or not.

If the investigation results in criminal charges, it could set a precedent in the U.S. approach to cryptocurrencies. Tether, as the most popular stablecoin has a significant impact on the market. Currently, approximately 62 billion USDT are in circulation, which underpins more than half of all bitcoin trading.

– Tether routinely engages in open dialogue with law enforcement agencies, including the Department, as part of our commitment to cooperation and transparency – the company stated in a press release.

The announcement of the investigation comes amid heightened regulatory scrutiny of stablecoins. The U.S. Department of the Treasury and the Federal Reserve believe that USDT could be responsible for transactions related to money laundering. They are also concerned that tether could potentially threaten financial stability.

Because tether, and other stablecoins, are backed by fiat currency, usually the dollar, whether real money or shares, there is concern that many traders selling their stablecoins could suddenly trigger an increase in demand for collateral assets. According to Fitch Ratings, this could destabilize short-term credit markets.

Although last week U.S. Treasury Secretary Janet Yellen stated that tether should be quickly regulated, other regulators have already penalized the company. Earlier this year, Bitfinex and several tether affiliates agreed to pay $18.5 million to settle claims from New York Attorney General Letitia James. According to the allegations, the companies concealed losses and lied about how each USDT was backed by one dollar.

Since the companies did not have access to banking in 2017, it would have been impossible to hold reserves. Although the companies paid the fine, they settled without admitting or denying the allegations.