Tether Fraud, Antitrust Case Advances Against Issuers, Exchanges

DigFinex Inc., which oversees the “tether” cryptocurrency through a web of affiliates, lost its bid to sidestep federal antitrust litigation in Manhattan over an alleged scheme to create a crypto “bubble” using “shadow bankers,” manipulative trades, and lies about the nature of the tether “stablecoin.”

Judge Katherine Polk Failla let the lawsuit move forward Tuesday in the U.S. District Court for the Southern District of New York, where a group of crypto traders brought antitrust, fraud, and market manipulation claims against DigFinex, its top executives, its key subsidiaries, and its Panama-based bankers.

The proposed class action, filed in 2019, targets the group of DigFinex subsidiaries that administers tether itself—led by Tether Holdings Ltd.—and those that run a leading crypto exchange, Bitfinex.

The suit accuses them of “simulating” demand in the wider crypto market by issuing “unbacked” coins—while falsely describing tether as a stablecoin pegged to the U.S. dollar—and using them to buy huge quantities of other crypo assets like bitcoin through “carefully timed” trades that set a “price floor.”

The Tether and Bitfinex entities allegedly concealed that they were both controlled by DigFinex and used “shadow banking” services provided by Panama-based Crypto Capital Corp. to hide other parts of the conspiracy.


In her ruling late Tuesday, Failla advanced allegations that DigFinex “‘printed’ the crypto-equivalent of money ‘out of thin air,’ and then used that counterfeit ‘money’ to purchase cryptocommodities” in a bid to inflate “prices divorced from any legitimate market forces.”

“A rational market actor would be unlikely to make large purchases of cryptocommodities when the prices of those commodities dropped significantly,” as DigFinex allegedly did, the judge wrote.

She rejected the idea that the suit describes only intermittent acts of market rigging and the related argument that the crypto investors leading the case had to tie their individual losses to specific trades by DigFinex affiliates.

The purpose of the manipulative trades was allegedly to create the enduring impression of overwhelming demand for crypto assets, which would have affected the market even between the individual acts of manipulation, Failla found.

DigFinex is “wrong in suggesting that plaintiffs allege the market as having operated free from artificial influence during the intervening time periods,” the judge wrote. “The allegations here make out a claim for persistent manipulation rather than for episodic manipulation.”

But she dismissed the suit’s racketeering counts, which alleged a conspiracy to cover up “the unbacked nature” of tether coins “by circumventing U.S. banking regulations” so they could be used to inflate the wider crypto bubble.

The links between the alleged wrongdoing and the losses suffered by the traders are too attenuated, Failla found.

The case is In re Tether & Bitfinex Crypto Asset Litig., S.D.N.Y., No. 19-cv-9236, 9/28/21.