Don’t get Excited about Court’s Show Cause Order in Bitfinex-Tether Case
According to the latest revelations, as of April 30, the USDT stablecoin is only about 74 percent backed by fiat equivalent, stated issuer’s general counsel.
On Tuesday, Tether’s general counsel Stuart Hoegner wrote in an affidavit that the company behind USDT holds about $2.1 billion in cash and short-term securities. Hoegner is also the general counsel to the crypto exchange Bitfinex which shares the owners and executives with Tether.
Under the subheading “Tether Holders Are Not At Risk,” it has been confirmed that the stablecoin is no longer 100 percent backed by cash or liquid assets.
“As of the date [April 30] I am signing this affidavit, Tether has cash and cash equivalents (short term securities) on hand totaling approximately $2.1 billion, representing approximately 74 percent of the current outstanding tethers.”
Meanwhile, there are about 2.8 billion USDT tokens issued by Tether.
Tether is 74% backed.
Fed is 1% backed.
JP Morgan is -20% (un)backed.
— Max Keiser, tweet poet. (@maxkeiser) April 30, 2019
Zoe Phillips of law firm Morgan Lewis who is also representing Tether wrote in a memorandum of law that Tether does not need to hold $1 for every USDT issued.
“The Attorney General appears to believe that Tether must hold $1 in cash fiat currency for every dollar of tether. These allegations are wrong on multiple levels,” she wrote.
6) Here's where the real fight starts: Bitfinex/Tether wants to claim that Tether does not need to hold $1 for every dollar of #Tether. This is a bad legal strategy. But we all know there are going to be thousands of documents where #Bitfinex/#tether claimed just that.
— David Silver (SILVER MILLER) (@dcsilver) April 30, 2019
The two companies have been in the middle of the allegations made by the New York Attorney General on April 26th claiming Bitfinex borrowed over $600 million from Tether after losing about $850 million to a currency converter.
Hoegner in response has filed an affidavit in support of Order to Show Cause to vacate or modify or stay the ex parte order of NYAG filed last week, that would compel Tether and Bitfinex to produce certain documents by May 3rd.
Later on Tuesday, New York Supreme Court Justice Cohen ordered the NYAG’s office to present to the court why the initial ex parte order of the attorney general should not be canceled or modified to allow the employees of Tether and Bitfinex to access the line of credit offered by Tether to Bitfinex. The NYAG is required to submit a response with reasoning by May 6, that is next week.
However, Jake Chervinsky, a securities litigation lawyer at Kobre and Kim who shares his insight into the legal aspects of cryptocurrencies on Twitter says, this show cause order is required by the law and is nothing to be excited about.