DOJ investigates crypto firm Tether for potential bank fraud - Bloomberg

The Department of Justice (DOJ) is probing Tether Ltd for possible bank fraud by executives in the early days of its stablecoin token, Bloomberg reported on Monday, citing people familiar with the matter.

Tether token is the third-largest cryptocurrency by market cap, at $62.3 billion, and plays a crucial role in the crypto market as traders often use the digital coin money to buy bitcoin and other cryptocurrencies instead of dollars or other fiat currencies.

The stablecoin, which is linked to U.S. dollars, gives traders a way to transfer funds between exchanges quickly and offers some protection from the price volatility of other cryptocurrencies.

DOJ is investigating whether the company deceived the banks in the early days by hiding the fact that the transactions were linked to cryptocurrency, the report said, mentioning the probe is confidential.

The federal prosecutors have sent letters in recent months to the executives stating that they are the targets of the investigation and that a decision on the probe could be made soon, sources told Bloomberg. Tether was being investigated since at least 2018.

“Tether routinely has open dialogue with law enforcement agencies, including the DOJ, as part of our commitment to cooperation and transparency,” the company said in a statement to Bloomberg.

The company was founded in 2014, originally named ‘Realcoin’,  by co-founders Brock Pierce, Reeve Collins, and Craig Sellars, to address one of the biggest challenges for crypto startups at the time: bank de-risking.

Crypto startups at that time had difficulty in obtaining bank relationships as the highly regulated financial institutions feared doing business with firms that could potentially be tied to illegal activities.

Tether token has long been controversial because of concerns it does not always have sufficient reserves to justify its peg to the U.S. dollar.

Stablecoins are cryptocurrencies designed to be stable and less susceptible to volatility than other digital coins as they peg their market value to financial assets and fiat currencies regulated by central banks.

Last week, Treasury Secretary Janet Yellen and the President’s Working Group on Financial Markets discussed the potential role of stablecoins in the financial system.

Yellen told regulators that the U.S. government must establish a regulatory framework for stablecoins quickly.

Picture Credit: TYN Magazine