A Justice Department probe into a controversial corner of the crypto world—Tether—has been struggling to reach a conclusion. Now a new team is taking a crack at investigating whether executives behind the popular stablecoin committed a crime.

Last year, federal prosecutors in Washington warned top officials at Tether that they could be charged for allegedly deceiving banks they used to move cash, people familiar with the situation said at the time. But after months of legal wrangling, the case has been transferred within the department, according to people familiar with the matter.

US Attorney Damian Williams in Manhattan took over the inquiry in recent weeks, the people said, asking not to be named discussing the confidential case. His office, based in the Southern District of New York, has been one of the most aggressive in pursuing suspected cryptocurrency crimes and recently secured a guilty plea from a person affiliated with one of Tether’s payment processors.

The unusual decision to move an investigation after it’s reached such a late stage underscores the uncertain legal terrain in the rapidly developing realm of digital currencies, according to former federal prosecutors. The Southern District office’s experience tracking money flows in banking and crypto probes may also give it an edge in gathering evidence or establishing other sources of information, they said.

Transferring cases “doesn’t happen often and there’s going to be pretty individual, unique circumstances each time,” said Robertson Park, a partner at Davis Wright Tremaine who previously spent two decades in the Justice Department’s fraud section. But passing crypto cases to certain offices could become more common and makes sense, he said. “There’s a steep learning curve for folks who get involved in these investigations and probably a fairly limited number of people who have real experience and understanding.”

Representatives for Tether, the Justice Department and Williams’ office declined to comment. An investigation doesn’t mean that charges will necessarily result.

Banks’ Reluctance
When Bloomberg reported the existence of the criminal probe last year, Tether referred to the article as “years-old allegations.”

“Tether routinely has open dialogue with law enforcement agencies, including the US Department of Justice, as part of our commitment to cooperation, transparency and accountability,” the company said at the time. “We are proud of our role as industry leaders in promoting cooperation between industry and government authorities in the US and around the world.”

Tether is the third-biggest cryptocurrency, with a market value of about $69 billion that trails only Bitcoin and Ether, according to CoinMarketCap. The stablecoin was first issued in 2014, serving as a digital stand-in for dollars. By accepting Tether, exchanges could offer traders price stability, letting them park their balances without being exposed to Bitcoin’s gyrations. Tether’s creators have said that each token is backed by a US dollar, either in cash or other holdings, such as US Treasuries.

The Justice Department investigation initially examined those public statements before narrowing to focus on Tether’s use of banks to hold money and process customer transactions, the people said.

Tether struggled to connect to the global financial system at a time when many banks wouldn’t open accounts for virtual-currency exchanges, amid fears that doing so could run afoul of US laws against preventing the handling of funds tied to drug trafficking, cyberattacks or terrorism.

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