New York’s Tether-Bitfinex Settlement Mandated Reserve Disclosures

The New York attorney general announced on February 23, 2021 that Bitfinex, Tether and related entities had agreed to pay an $18.5 million penalty, discontinue trading activity with New York persons and entities, and submit to two years of reporting on reserves and business operations.

The settlement was effective February 18, five days before its public announcement. It resolved an investigation under New York’s Martin Act and Executive Law § 63(12) without a trial or adjudication. Bitfinex and Tether neither admitted nor denied the Office of the Attorney General’s findings.

The agreement mattered beyond the penalty. USDT was widely used as a dollar-linked instrument across cryptocurrency exchanges, and questions about the composition and availability of its backing had implications for trading liquidity and confidence in stablecoin settlement. Tether said on February 23 that USDT’s market capitalization exceeded $34 billion. That was an issuer-supplied event-day figure, not an independently reconstructed supply or reserve measurement.

What New York found

The attorney general’s office found that Tether’s representations about one-to-one dollar backing did not accurately describe its financial arrangements during parts of 2017 and 2018. According to the executed agreement, approximately 442 million tethers were circulating by September 15, 2017, while about $61 million was held in a Tether-controlled Bank of Montreal account and approximately $382 million was recorded as a receivable from Bitfinex.

The agreement also detailed Bitfinex’s dependence on Crypto Capital, a third-party payment processor. The attorney general found that Bitfinex lost access to approximately $850 million and experienced critical liquidity problems. It further found that at least $625 million had been transferred from Tether to Bitfinex without contemporaneous disclosure to the market. A line of credit allowing Bitfinex to draw as much as $900 million from Tether’s reserves was later formalized in March 2019.

Those were the regulator’s findings, not judicial findings entered after trial. The settlement expressly recorded Bitfinex and Tether’s non-admission and non-denial. In their February 23 statement, the companies characterized the dispute as one about public disclosures surrounding a loan, said the loan had been repaid in full with interest, and denied that it impaired Tether’s ability to process redemptions.

Reporting became the central remedy

The settlement required the $18.5 million penalty to be paid within 30 business days of February 18. More consequential for continuing oversight, Bitfinex and Tether had to provide reports within 90 days and quarterly thereafter for two years.

Those submissions were to include documents substantiating Tether’s reserve accounts, verification that client, reserve and operational accounts were appropriately segregated, and information about transfers between Bitfinex and Tether. The companies also had to report on their controls for excluding New York customers and identify non-bank payment processors they used.

Tether separately agreed to publish, at least quarterly for two years, the categories and percentages of assets backing USDT. The disclosures had to distinguish categories such as cash, loans and securities and identify loans or receivables involving affiliated entities. The requirement did not amount to a completed audit, prescribe a single accounting framework or independently prove the value and liquidity of every reserve asset.

Why New York had jurisdiction

The settlement followed a July 9, 2020 appellate decision permitting the attorney general’s investigation to proceed. New York’s Appellate Division held that the Martin Act’s definition of a commodity was broad enough to encompass tether and found a sufficient connection between the companies’ conduct and New York for the investigative proceeding.

The February 23 resolution therefore established two institutional precedents visible on the event date: offshore cryptocurrency businesses could remain subject to New York enforcement when their activities reached the state, and a stablecoin issuer could be compelled to disclose reserve composition and related-party exposures as part of a regulatory settlement.

What remained unresolved was equally important. The agreement did not deliver an independent audit, adjudicate the findings at trial or establish how markets would evaluate the forthcoming disclosures. It replaced an investigation with enforceable reporting obligations and a geographic trading restriction, leaving the quality of subsequent reserve evidence to be tested after February 23, 2021.