Bitfinex and Tether, already embroiled in a case with the New York Attorney General, were hit by a class-action lawsuit this morning. The suit was filed by Roche Freedman LLP, a law firm that successfully won a case against supposed Bitcoin creator Craig Wright recently.
Their current lawsuit alleges that Bitfinex and Tether concocted a scheme that was “part-fraud, part-pump-and-dump, and part-money laundering” to “defraud investors, manipulate markets and conceal illicit proceeds.”
It makes two main assertions. The first one is that Tether’s claims of backing each USDT, its stablecoin, with a U.S. dollar is a lie. The second assertion is that Tether has repeatedly manipulated cryptocurrency markets, most notably in 2017 and 2018, to inflate Bitcoin’s price to create the “largest bubble in human history.” To that end, the suit estimates that the liability of defendants in this case could be more than $1.4 trillion.
There are five plaintiffs in the case. They are David Leibowitz (chief information officer at Lebo Capital Management who invested in hedge fund Pantera’s Bitcoin fund), Jason Leibowitz, (vice president of blockchain strategy and innovation at Credit Suisse), Benjamin Leibowitz, Aaron Leibowitz, and Pinchas Goldshtein.
The lawsuit cites research and news articles in support of its claim that Tether and Bitfinex bought Bitcoin when prices dropped to keep them artificially high. It further claims that Tether sends all new USDT to Poloniex and Bittrex, two U.S. – based exchanges. “Since Tether controls USDT issuance, Bitfinex and Tether can set strategic price floors for bitcoin,” the suit states.
This is not the first time that Tether has been accused of fueling Bitcoin’s price increase. The CFTC fined Bitfinex $75,000 in 2016 for allowing illegal exchange of coins and operating as a futures commission merchant without proper licenses. Research in recent years has been split about whether the stablecoin, which is generally used by traders as an entryway into the cryptocurrency ecosystem, is used to pump prices. Rumors about Tether’s fiat dollar have also swirled for years but they are yet to be conclusively proven.
Fueled by a media maelstrom about its skyrocketing price, Bitcoin touched a high of $20,000, representing an increase of 1,000 percent in less than a year, in December 2017. That increase had a domino effect on prices for other coins, propelling valuations of cryptocurrency markets to above $800 billion. However, it crashed to a low of $3,500 last December. As of this writing, it is changing hands at $8202 per pop. The total valuation of cryptocurrency markets is $220.8 billion.
The entire complaint is shown below