Some of Tether’s interactions with banks came to public light after Wells Fargo & Co. in 2017 blocked wire transfers that had been sought by Tether through Taiwanese banks. Tether sued Wells Fargo, saying the San Francisco-based bank knew or should have known that the transactions were being used to obtain US dollars so clients could purchase digital tokens. The company soon dropped the case. Wells Fargo said at the time that it had no duty to complete the wire transfers arranged through other banks. It’s unclear whether the Justice Department investigation involves those transactions.
In Washington, prosecutors examined whether Tether officials had opened any bank accounts under false pretenses, such as by obscuring that the cash was connected to crypto. The government was considering a so-called right-to-control theory, accusing executives of fraud if they made misrepresentations. Such a case, however, would face potential legal uncertainties, the people said.
Right To Control
For one, while accepting cash tied to crypto might pose a risk to a bank, there’s no accusation Tether inflicted any losses on a bank, the people said. The right-to-control theory itself is under review, with the US Supreme Court preparing to hear arguments in a case stemming from the conviction of a New York developer.
Posing another hurdle, the crypto landscape has evolved during the investigation as some banks started helping clients buy or bet on digital currencies. If a case were brought against Tether officials, jurors could potentially hear from witnesses that the relationships at the heart of the prosecution would be allowed today, they said.
Last year, prosecutors sent letters to some Tether officials alerting them that they’re targets of the investigation. The notices signaled that a decision on whether to bring a case could be made soon. Tether’s lawyers pushed back with direct appeals to Justice Department brass, the people said. More recently, they’ve sought a formal declination, assuring executives that charges are off the table, the people said.
Then the U.S. attorney’s office in Manhattan took over.
Resolving Probes
Some of its prosecutors are familiar with Tether’s business, after investigating Crypto Capital, a payment-processing firm that Tether used once it lost the bulk of its banking relationships.
Prosecutors began filing charges in 2019 against a few people who worked with Crypto Capital, including Reginald Fowler, a former co-owner of the Minnesota Vikings football team. Authorities said Fowler opened up several accounts at US banks by falsely claiming they were for real estate investment transactions when the true purpose was to handle cryptocurrency transactions. He pleaded guilty in April to five charges including bank fraud, wire fraud and operating an unlicensed money transmitting business. He faces life in prison when sentenced next year.
The parent company of Bitfinex—a crypto exchange run by some of Tether’s executives—enlisted the help of courts as it sought to recoup hundreds of millions of dollars from Crypto Capital. In one court filing, Giancarlo Devasini, the finance chief at both Bitfinex and Tether, said customers transferred more than $1.5 billion to bank accounts held or controlled by Crypto Capital from early 2017 until late 2018. He also said Crypto Capital had accounts with several banks including Citigroup Inc., Bank of America Corp., HSBC Holdings Plc and Wells Fargo.
Meanwhile, Tether has resolved government accusations that it overstated its holdings.
From June to September 2017, Tether never had more than $61.5 million in funds while about 442 million coins were in circulation, the Commodity Futures Trading Commission said last year. A separate investigation by New York Attorney General Letitia James found that Tether and Bitfinex hid losses and lied in statements.
Tether and Bitfinex resolved the probes, agreeing to a total of $61 million in financial penalties without admitting or denying wrongdoing.
This article was provided by Bloomberg News.