CFTC Enforcement Actions Against Tether, Kraken And Bitfinex Reasserts Agency’s Broad Jurisdiction In Crypto – Finance and Banking

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The Commodity Futures Trading Commission (“CFTC”)
continues to push an aggressive enforcement regime against
participants in the steadily growing digital asset markets. In
recent weeks, the CFTC has published separate speaking order
settlements against major institutions involved in digital asset
markets, including Tether, Kraken and Bitfinex.1
Importantly, these settlements demonstrate a long term trend at the
CFTC to pursue enforcement actions in the digital asset markets
because the investigations associated with these settlements appear
to originate from prior CFTC administrations.

These settlements also bring to light the complicated web of
CFTC jurisdiction over the commodities markets. The Tether
settlement highlights the CFTC’s limited jurisdiction to pursue
fraud and manipulation in the commodities market. Importantly, the
Tether settlement also represents the first CFTC settlement
addressing a so-called stablecoin, and serves to lay down a
marker that the CFTC considers one of the major stablecoins in the
digital asset market to be a commodity under the CFTC’s
jurisdiction rather than a security regulated by the Securities and
Exchange Commission (“SEC”). On the other hand, both the
Kraken and Bitfinex settlements showcase the CFTC’s
jurisdiction to regulate fully certain retail commodity
transactions that trade on margin.  

In total, these enforcement actions resulted in penalties
amounting to approximately $43.75 million, with the Tether
settlement representing nearly all of the total amount at $41

Tether Settlement

In 2014, Tether introduced a stablecoin called the U.S. dollar
tether token (“USDt”), which is pegged to the U.S.
dollar.3 The CFTC defined a “stablecoin” as a
type of virtual currency whose value is derived from a fiat
currency.4 Although Tether offered a number of tether
tokens, the dominant offering was the USDt. In reaching its
decision in the Tether Order, the CFTC determined that stablecoins,
like those offered by Tether, fall within the definition of a
“commodity” under the CEA on the basis that courts have
ruled that digital currencies fall within the definition of a

Since 2014, Tether “represented that one USDt may always be
redeemed for one U.S. dollar.”6 Prior to November
2017, USDt could only be acquired and redeemed through Tether’s
platform. At some point in November 2017, Tether’s systems were
the target of a cyber-attack which resulted in the unauthorized
transfer of nearly 31 million units of USDt. For a period of time
following the cyber-attack, Tether ceased issuing and redeeming
USDt, and tokens could be acquired or redeemed only through
Tether’s affiliate, Bitfinex. Since November 2018, USDt could
be acquired from either Tether or Bitfinex, among a number of other
cryptocurrency exchanges.7

In the Tether Order, the CFTC alleged that since introducing the
currency in 2014, Tether made numerous public representations that
the USDt, as well as its other tether tokens, were directly linked
to fiat currency. One such assertion, in the form of a whitepaper
published on Tether’s website, stated that “[e]ach Tether
issued into circulation will be backed in a one-to-one ratio with
the equivalent amount of corresponding fiat currency held in
reserves by Hong Kong-based Tether Limited.”8
Another statement, made in the context of a newly announced banking
relationship, affirmed that the “[USDt] in the market are
fully backed by US dollars that are safely deposited in
[Tether’s] bank accounts.”9

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1. In re Tether Holdings Limited, et al., Order
Instituting Proceedings Pursuant to Sections 6(c) and (d) of the
Commodity Exchange Act, Making Findings, and Imposing Remedial
Sanctions, CFTC Docket No. 22-4 (Oct. 15, 2021) (“Tether
Order”); In re Payward Ventures, Inc. (d/b/a/
, Order Instituting Proceedings Pursuant to Sections
6(c) and (d) of the Commodity Exchange Act, Making Findings, and
Imposing Remedial Sanctions, CFTC Docket No. 21-20 (Sept. 28, 2021)
(“Kraken Order”); In re iFinex Inc., et al.,
Order Instituting Proceedings Pursuant to Sections 6(c) and (d) of
the Commodity Exchange Act, Making Findings, and Imposing Remedial
Sanctions, CFTC Docket No. 22-05 (Oct. 15, 2021) (“Bitfinex

2. In the Tether Order, Tether was issued a civil
penalty of $41 million. In the other orders, Kraken and Bitfinex
were issued a civil penalties of $1.25 million and $1.5 million,

3. The following entities are collectively referred
to herein as “Tether”: Tether Holdings Limited, Tether
Operations Limited, Tether Limited, and Tether International

4. Tether Order at 3. 

5. Tether Order at 8 (“Digital assets are
commodities. . . . The USDt token, a virtual currency stablecoin,
is a commodity and subject to the applicable provisions of the Act
and Regulations.”); see also CFTC v. McDonnell, 287
F. Supp. 3d 213, 217 (E.D.N.Y. 2018); CFTC v. My Big Coin Pay,
, 334 F. Supp. 3d 492, 495–98 (D. Mass.

6. Tether Order at 3.

7. Id. at 4.

8. Id.

9. Id. at 5.

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