Tether was fined $41 million on Friday by the US Commodity Futures Trading Commission (CFTC) over not having sufficient monetary reserves, consistently enough, to say the eponymous stablecoin was fully backed by US dollars.
The CFTC said over a 26-month period across 2016 to 2018, Tether only had sufficient fiat reserves to back issued tether tokens 27.6% of the time.
"The order also finds that, instead of holding all USDT token reserves in US dollars as represented, Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves; comingled reserve funds with Bitfinex's operational and customer funds; and held reserves in non-fiat financial products," the commission said.
"The order further finds that Tether and Bitfinex's combined assets included funds held by third parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a 'liquidity crisis'."
Tether was also pinned for not having conducted a professional audit of its holding completed, and instead retained an accounting firm to review its reserves, and Bitfinex transferred $382 million over before the review occurred.
For its part, Bitfinex was hit with its own $1.5 million fine. Actions covered by the fine also included operating as a futures commission merchant without CFTC registration by allowing users to lend funds to others, as well as the company force-liquidating some customers.
"In so doing, Bitfinex violated the terms of the 2016 order, which had directed Bitfinex to cease and desist from offering, entering into, executing, or confirming the execution of illegal, off-exchange financed retail commodity transactions, and from accepting orders and receiving funds in connection with retail commodity transactions," the commission said.
The CFTC said it had worked alongside financial regulators from The Bahamas, British Virgin Islands, Canada, Panama, Portugal, and Seychelles.
In response, Tether claimed the CFTC has no issues with its current operations, and said the issues were "fully resolved" when its terms of service changed in February 2019.
"There is no finding that tether tokens were not fully backed at all times -- simply that the reserves were not all in cash and all in a bank account titled in Tether's name, at all times. As Tether represented in the order, it has always maintained adequate reserves and has never failed to satisfy a redemption request," the company said in a statement.
"This inquiry arose during a markedly different time in our ecosystem, and focused on the same types of challenges that many in our industry faced at the time. As many companies around the world do, Tether agreed to resolve this matter in order to move forward and focus on the future."
Earlier this year, the same pair were fined $18.5 million by New York for making false statements on whether tethers were fully backed.
"Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines," New York Attorney General Letitia James said.
"Tether's claims that its virtual currency was fully backed by US dollars at all times was a lie.
"These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system."
The Office of the Attorney General found that Tether had no access to banking anywhere in the world, starting no later than the middle of 2017. On two occasions when Tether proclaimed it had the funds, the Office found the money had been transferred the morning before, and in another instance, began transferring out the next day.
"As of November 2, 2018 -- one day after their latest 'verification' -- tethers were again no longer backed one-to-one by US dollars in a Tether bank account," the Office said in February. "As of today, Tether represents that over 34 billion tethers have been issued, and are outstanding and traded in the market."
The Office additionally said the pair hid $850 million in losses.