
U.S. Regulators to Subpoena Crypto Exchange Bitfinex, Tether - chollida1
https://www.bloomberg.com/news/articles/2018-01-30/crypto-exchange-bitfinex-tether-said-to-get-subpoenaed-by-cftc
======
fpgaminer
So, how does this work legally? Bitfinex isn't a U.S. based company and
doesn't work with U.S. citizens. The article says where it's based is unknown.
Does the CFTC have the authority to subpoena them? Is it because they're
claiming Tether is USD pegged, so they gain authority because of their use of
the dollar?

Honestly just a curious question. (I'm not looking for snarky answers to the
effect of "world police".)

~~~
jonknee
They claim to have the USD in a bank somewhere which means the US can come
after them. This is why Wells Fargo dumped them (which is saying something!).

~~~
koheripbal
No. A foreign bank can hold USD without any US oversight.

~~~
JumpCrisscross
> _A foreign bank can hold USD without any US oversight_

If they hold it as hard cash, practically, sure. If they want to be allowed to
send or receive wires and generally not get sanctioned by the United States,
no. The U.S. Treasury claims international jurisdiction over U.S. dollars [1].

[1] [https://cblr.columbia.edu/the-u-s-jurisdiction-over-
transfer...](https://cblr.columbia.edu/the-u-s-jurisdiction-over-transfers-of-
u-s-dollars-between-foreigners-and-over-ownership-of-u-s-dollar-accounts-in-
foreign-bans/)

~~~
bobjordan
Definitely have suprising powers. I once sent a wire payment in USD from my
Hong Kong company’s HSBC business bank account directly to my China company’s
bank inside China, where my bank in China would convert it to renminbi. I was
shocked to find out the bank wire was somehow held up in NYC! Blew my mind.
Nothing to do with the USA in this transaction, except the USD. The reason the
wire was held up? I had wrote the word “Grenade” in the notes field of the
bank wire. The payment was a materials deposit for an action camera mount
product we make at my factory called “Grenade Grip”. I regularly write the
product name in the notes field for my accountants. Mistake.

~~~
tripzilch
... because actual illegal arms dealers _would_ write "Grenade" in the notes
field of a bank wire? :)

~~~
0wing
some contractor sold some an artificial intelligence predictive crime product
to catch baddies somewhere in that pipeline

------
Animats
The SEC took much stronger action with AriseBank.[1] Emergency asset freeze.
Receiver appointed. ICO shut down. _The SEC alleges AriseBank "falsely stated
that it purchased [a Federal Deposit Insurance Corporation]-insured bank which
enabled it to offer customers FDIC-insured accounts."_

Clearly, the SEC has had it with people running these huge scams.

[1] [https://www.sec.gov/news/press-
release/2018-8](https://www.sec.gov/news/press-release/2018-8)

~~~
PeterisP
AriseBank wasn't only acted on by SEC.

For example, "Texas Banking Commissioner Charles Cooper finalized a cease-and-
desist order on Friday that said the company, which is registered to a Texas
address, is not authorized to engage in the business of banking in the state.
The order also noted that Texas law prevents use of the word “bank” in a way
that implies to the public that the person is engaged in the business of
banking in this state."

That was on Friday ... and, in an astonishing display of ignorance and
arrogance, they published an open letter stating that they refuse to comply.
As the department said, they have had a bunch of cases where people have used
the term “bank” in a name, but they had never ever seen a firm refuse to back
down. So they sent in the sherifs to ensure that they actually do cease and
desist.

~~~
Animats
They went completely over the top as a phony bank. Their web site is down, but
archived by the Internet Archive.[1] They claimed to be a VISA card issuer.
They claimed to own a FDIC-insured bank. They claimed to have ATMs. Plus they
had a make-money-fast scheme where their "AIs" would invest for you.

The only real question is "why aren't they in jail yet?"

[1]
[https://web.archive.org/web/20180110101846/https://www.arise...](https://web.archive.org/web/20180110101846/https://www.arisebank.com/)

~~~
charlesdm
Easy: they're probably not based in the US

~~~
Animats
On business law, the US works well with Taiwan and Hong Kong. Mainland China
is harder. But with China cracking down on Bitcoin, fleeing to the mainland
would be risky.

------
drcode
Summary for newbs:

Bitfinex is a crypto exchange kinda based in Hong Kong and kind of based in
Taiwan (this seems to change depending on convenience.) Taiwan recently
started becoming more rigorous about monitoring international USD wires, and
lots of Bitfinex users had their money stranded in Taiwan. Bitfinex stopped
supporting US customers because of these difficulties (AFAIK most customers
did eventually get their money out though)

Tether is a company/product that is a cryptocurrency that (aspirationally) has
a value of exactly 1 USD. The Tether company and Bitfinex are (supposedly) two
unrelated companies that nevertheless have mostly the same people employed as
principals. Because crypto daytraders need easy ways to quickly pull their
money in/out of crypto exposure, the Tether currency has been a massive hit as
a way to convert into pseudo-dollars. Because of this, people have bought
billions of these "tethers" from the company, but no one has a good handle on
where these billions of dollars are safeguarded, if at all.

~~~
ebbv
You're skipping a key bit here; billions of Tethers magically appeared on the
market in the last month and were used to buy BTC in suspiciously regular
fashion, in 100 million USDT amounts, and with no clear evidence that it was
actually purchased by anyone using real USD.

~~~
js2
Here’s what I don’t understand. You can exchange bitcoins for fiat currency.
But afaik you can’t exchange USDT for fiat. So why is anyone willing to take
the risk of holding on to USDT? Why are any exchanges even willing to touch
it?

~~~
ceejayoz
It lets the exchanges avoid dealing with USD, which they believe (IMO wrongly,
but hey) exempts them from know-your-customer laws. A lot of Coinbase's
customer service issues stem from KYC laws and the verification it requires.

Some of them are being very squirrely with their users, telling you your "USD"
balance which is _actually_ USDT.

Some may believe it's a fraud, but be happy to benefit from the apparent boost
it's giving cryptocurrency values and think they're safe enough if it
collapses.

~~~
gruez
>they believe (IMO wrongly, but hey) exempts them from know-your-customer
laws.

but you need to be verified on bitfinex to withdraw both tether and (real)
USD.

~~~
FireBeyond
KYC comes into effect on account opening, not withdrawal.

------
gressquel
Its shocking how they have been allowed to continue printing "fake money" for
so long. There were rumours going around long before christmas.

Its about time this 'scam' was exposed.

~~~
stusmall
I'm not very familiar with this world, but that seems fast. I always assumed
the world of financial crime enforcement moved like molasses. When I started
hearing those rumors I just assumed it'd be months after the crash before the
feds showed up. Maybe I'm just cynical.

But I 100% agree, its about time.

~~~
TeMPOraL
My impression from watching financial crimes play out in the news is this:
there's a long, slow period of investigations, interviews, etc. and then
suddenly people get dragged out in the middle of the night in handcuffs.

------
KasianFranks
This is good news for quality cryptocurrency organizations. Bitfinex has
problems, so does Tether and it's good to see bad actors in the crypto world
getting weeded out, called out and put down.

~~~
ceejayoz
C'mon, say the "This is good for Bitcoin!" thing.

~~~
brokensegue
which is odd because I thought the libertarian dystopia that bitcoin is
pushing us towards abhors this kind of regulatory interference

~~~
jerkstate
those libertarians have been expecting this and have traded their tether-
pumped btc for gold, land, etc.

it's the late to the game profit seekers who have bought in over the past few
months who will get killed by this. even if the tether founders have made off
with whatever cash deposits they had and there's nothing in the vault,
cryptocurrencies will still have value and will rise again.

------
mancerayder
What bothers me more than anything in this isn't the existence of Tether and
the suspicious behavior of Tether/Bitfinex players...

It's that Bittrex and others are attempting to become mainstream and they've
accepted these USDT since forever, and they continue to accept them well after
the suspicions were public.

This is a black stain on the exchanges. It also personally makes me cynical of
the entire space. I moved my mainstream coins off of Bittrex and back into
GDAX where it seems safer.

<rant warning> Why can't profitable exchanges like Bittrex and Kraken self-
regulate?? Over and over again the invisible hand of the market is proved to
be eclipsed by the visible hammer of the regulator (which can't come soon
enough, by the way). </rant>

~~~
zik
Don't ever keep coins on an exchange. Use a hardware wallet. If you don't have
them in your possession they're not really your coins and you can get "Goxed"
\- ie. the world's largest exchange at the time, Mt Gox, disappeared with most
of the user funds.

~~~
mancerayder
Yes, all reasonable paranoia. However I do trust Coinbase/GDAX as far as BTC,
ETH LTC are concerned.

It's a pain to store a few K USD worth of altcoins in my hw wallet (which I'm
not even sure supports most of them). What if I'm at work and an event happens
that makes me want to sell? The wallet requires an app to be installed.

If there's a hint of an issue with Bittrex, I'll trade to ETH and move them to
GDAX.

Am I being a fool here?

~~~
scott_karana
You are being a fool. Exchanges have been known to close, be seized, and be
stolen from, without warning.

Cryptocurrency frees you from needing to trust central banks/exchanges... so
_why continue to trust them?_ Especially un(der)regulated ones?!

At best, store only the smallest amount you're willing to lose, so you retain
some liquidity for sudden trades...

------
onewhonknocks
They updated the article several hours later with:

'The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to
virtual-currency venue Bitfinex and Tether, a company that issues a widely
traded coin and claims it’s pegged to the dollar, according to a person
familiar with the matter, who asked not to be identified discussing private
information.'

~~~
g09980
This should be much more visible. The market is panic selling on effectively
old news.

~~~
onewhonknocks
Agreed. Thank you for saying so. edit: is there a way to bold text in an HN
comment?

~~~
tinus_hn
Thankfully, no there isn’t.

~~~
AlexCoventry
𝗡𝗼𝘁 𝘂𝘀𝗶𝗻𝗴 𝗺𝗮𝗿𝗸𝘂𝗽𝘀, 𝗮𝗻𝘆𝘄𝗮𝘆...

------
HockeyPlayer
How trustworthy is Kraken?

Tether looks like a good short since if it is a fraud it will go way down and
if it isn't a fraud it will stay right where it is.

I'm in the US and would like to short Tether. But I want to get paid if I'm
right.

~~~
GenericsMotors
> How trustworthy is Kraken?

They spoof their order books and use wash trading bots...so draw your own
conclusions :)

Eg:

[https://www.youtube.com/watch?v=wz-
ziPfP00M](https://www.youtube.com/watch?v=wz-ziPfP00M)

~~~
gruez
...on USDT. how are they even benefiting from this?

~~~
GenericsMotors
To keep the price pegged at around 1USD

------
machinecontrol
If this is a grand jury subpoena, things could get ugly fast in the crypto
space. Despite all talk of decentralization, the major exchanges pose a
systemic risk.

~~~
SirensOfTitan
How is this related? USDT is effectively a centralized currency. Bitfinex has
always been shady. Are you saying that exchanges that accept USDT will get hit
hard by this?

~~~
machinecontrol
If USDT goes to zero, every exchange that trades it becomes immediately
insolvent.

~~~
dragonwriter
> If USDT goes to zero, every exchange that trades it becomes immediately
> insolvent.

Nope. They'd only be insolvent if they had a legal binding commitment to
redeem USDT 1:1 in dollars, and only if they didn't have sufficient other USD
reserves to do so.

~~~
ThrustVectoring
The exchanges get sued by the Tether bagholders, and everyone else gets
spooked and attempts to exit. So not insolvent, but no active business
activities and a bunch of lawsuits incoming, and might as well be insolvent.

~~~
dragonwriter
> The exchanges get sued by the Tether bagholders

On what basis? Other than ones that commingle USD and USDT and/or are
organizationally associated with Tether (which, I think, is mostly Bitfinex
and Bitfinex), I'm not seeing where there is much basis for holding the
exchange liable for the collapse in value of a traded asset.

~~~
ThrustVectoring
Fraud, for accepting "USD" deposits and hiding the fact that they silently
convert your balance to USDT.

And they don't have to _win_ the lawsuit, they just need to not get it
dismissed outright and scare others into leaving the exchange.

~~~
dragonwriter
> Fraud, for accepting "USD" deposits and hiding the fact that they silently
> convert your balance to USDT.

Other than Bitfinex (with he comingling issue mentioned upthread), I
understood the main use case for USDT on exchanges is to avoid even touching
USD transactions in either direction; for exchanges doing this, they wouldn't
be at risk here.

> And they don't have to win the lawsuit, they just need to not get it
> dismissed outright

Right, but I'm not seeing where you get a colorable cause of action that
avoids that for a typical USDT-supporting exchange from a USDT value collapse.

------
hinkley
I am not proud of the degree of schadenfreude I am experiencing right now. I’m
actually craving popcorn.

Is anyone at all surprised that they got subpoenaed?

~~~
GenericsMotors
> Is anyone at all surprised that they got subpoenaed?

Not very surprised, no. It was just a matter of time until it became public:

[https://pbs.twimg.com/media/DRGSIPEW4AEi_Du.jpg](https://pbs.twimg.com/media/DRGSIPEW4AEi_Du.jpg)

------
JumpCrisscross
Cryptocurrencies are in an interesting middle ground, from a regulator’s
political perspective. They’re complicated and stand to harm mostly those who
inflicted it on themselves. For an ambitious regulator looking forward to an
administration’s nominating committee, Senate confirmation hearing or even
campaign trail, that makes it unattractive relative to _e.g._ insider-trading
hedge fund managers or Medicare fraudsters. (To the contrast, we’re
approaching the critical scam mass in Asia.)

~~~
treve
Ponzi schemes also only harm those who inflict it on themselves.

~~~
JumpCrisscross
> _Ponzi schemes also only harm those who inflict it on themselves_

Ponzi schemers lie to their investors. (Madoff purported to run a reputable
shop.) It’s harder to argue, to the broader public, that someone buying Tether
with Bitcoin could reasonably think they made a legitimate investment.

~~~
jonknee
A lot of exchanges don't give you the choice and just give you Tether when you
sell Bitcoin. What are the odds that a lot of people don't know the difference
between USDT and USD?

~~~
mancerayder
When I first started some time last year, I wasn't sure what "USDT" was but I
didn't care terribly because a) it's easier to calculate things mentally
versus the BTC worth of a coin which looks like .000003456 which is a
nightmare to picture; b) I trusted the exchange.

So yeah, I'd absolutely smack the exchanges for passively perpetuating a fraud
which has been talked about for months now.

------
zaroth
Read as far as “Tether has yet to verify 2.3 Billion in reserves” and started
laughing so hard I have tears running down my face right now.

Good god how could you even write that and not immediately understand the
whole thing is a shitshow scam run by a bunch of clowns?

Someone fancies themselves an offshoot of the US treasury and is taking their
new printing presses for a spin.

Hell if I had my own little US mint I’d be running it 24/7 too!

------
ceejayoz
Via Reddit: "Looks like they are gonna get a free audit!"

------
AlexCoventry
Anyone got a copy of the actual subpoena?

I don't understand why journalists don't provide a link to such public
supporting source documents.

~~~
pkilgore
It's not uncommon for investigative subpoenas to be under seal. But to be fair
I have no idea how these particular agencies operate.

------
bhouston
How long until USDT is delisted from most other exchanges? I wonder which is
the larger risk, USDT coming unpegged, or just straight out being delisted
from nearly all exchanges?

~~~
demosthenes111
Delisting is probably the best case scenario imo. If the dung hits the fan
with Tether while many exchanges are based on it, it could be a very bad thing
for the entire cryptocurrency market. I could definitely see that scenario
causing a massive "bank run" where many people try to pull their money out at
the same time and several major exchanges go insolvent, resulting in mtgox
style loss of confidence in cryptocurrency in general.

Delisting would hopefully signal that "we know there's sketchy stuff happening
there, so we are working around it and finding solutions." And it would
insulate the exhanges from huge price swings on every USDT/* trading pair.

~~~
mancerayder
As per my other comment above, I find it infuriating that they didn't delist
Tether months ago. The printing of Tether, so to speak, is absolutely a
spiraling problem. There is a qualitative easing inflationary quality to the
entire crypto marketplace so long as it is allowed. It's a huge disappointment
that that thing wasn't yanked late 2017 from all half-respectable exchanges.

------
atarian
What is the point of Tether? Is it for dodging taxes?

~~~
sna1l
In Europe, trading like-kind assets isn't a taxable event, so a lot of people
take gains and move them into USDT.

edit: At least that's what I remember seeing last, laws may have changed.

~~~
jonknee
"Like-kind" is quite a stretch when considering something pegged to USD.

------
dingo_bat
The more I read about USDT, more it looks like money laundering. These guys
take your USD and issue you equivalent tokens you can trade with. As long as a
lot of people don't try to encash their tokens everything will be fine.

Also note that if holding USD is the only problem this is supposed to solve,
why not just hold USD? Except if you want to bypass your local laws. I buy
USDT in country A. Trade BTC for it, then sell BTC for USD in another exchange
in country B. This is the only utility and this itself seems illegal.

~~~
jnbiche
> These guys take your USD and issue you equivalent tokens you can trade with.

Nope. That's how it was until about a year ago, when all their banking
accounts were closed (probably due to the issue you describe).

For the past year, they just randomly printed millions of "US-Backed" tokens,
and people trade them as if they were actually backed by dollars, even though
they are not the result (since a year ago) of any USD deposits, and even
though you can exchange them for actual USD. It's bizarre.

~~~
jnbiche
> and even though you can exchange them for actual USD.

That was a typo, I should have written, "and even though you _can 't_ exchange
them for actual USD."

------
oculusthrift
might hurt in the short run but the sooner these scams are gotten rid of, the
better in the long run for crypto to develop

------
sxates
I'm not saying that there's nothing worth investigating in the Crypto space,
but I wish the SEC spent half the time it spends chasing down shady ICOs
looking into fraud at Goldman Sachs and other Wall St. banks. You know, the
institutions that whose scale dwarfs crypto and actually has enormous economic
repercussions?

~~~
jhwang5
They do go after Wall St. banks - what makes you think SEC doesn't?

~~~
sxates
Just looking at the last 6 months of press releases, I can't find a big bank
anywhere.

[https://www.sec.gov/news/pressreleases](https://www.sec.gov/news/pressreleases)

Then there was that time back in 2008 when all these banks crashed our economy
and a single guy was prosecuted and went to jail. 1 guy.

But in the last month I can remember at least 3 press releases from the SEC
about crypto concerns and investigations.

~~~
dkasper
Banks likely comply with regulations 99.9% of the time (doesn't mean the
regulations work well enough though). They have teams of lawyers and have
worked with the SEC for years.

Contrast that with crypto where fraud is commonplace, and people constantly
flaunt regulations, claim they aren't securities or banks so regulations don't
apply, etc. Crypto is a new ballgame and the SEC is trying to figure out how
to regulate it appropriately so of course there's a lot of activity there.

------
ffffffffff_
A points and a question:

Point: USDT is used as a holding point for people wanting to stay in crypto
but not be subject to price movement of other coins. This could be used to not
trigger a taxable event (even though recently, crypto to crypto transactions
were deemed taxable by the IRS). When buying crypto in general, it's much
easier/faster to start a transfer from another crypto as opposed to having to
move fiat into the "cryptoverse".

Question: Why does it matter if Tether is backed at 1:1 ratio with USD? I
understand that the people behind Tether have explicity said that each USDT is
backed by $1 USD. Why are the legal implications of non-backed USDT different
than other cryptocurrencies whose values are based on the market? Is it
simiply because Tether has claimed USDT is backed?

~~~
Nursie
1\. If there are no USD backing, why would its value stick to $1?

2\. Correct, the claims are a problem. They claim backing and audits and these
may constitute fraud

3\. If they just print them out of nowhere they are basically printing
hundreds of millions of dollars for themselves. If they aren't backed, do you
think they could hold value in these circumstances?

4\. These magic unbacked tokens are probably a large part of BTC price rises
in recent months, and look like extra demand in the marketplace, massively
distorting the BTC and altcoin markets.

------
paulie_a
I am just going to grab some popcorn and watch the slow moving train wreck
that is tether.

------
wu-ikkyu
>Tether has yet to verify that it holds $2.3 billion in reserve

This will be interesting to see. I wonder how long until we'll know.

I saw an interesting data analysis here on HN a while back showing a
correlation, and hypothesizing a causation between the rise of Tether and the
price of BTC.

~~~
bpicolo
There is a 0% chance they have 2.3 billion USD on hand

------
serg_chernata
This is 2 months old.

------
sitepodmatt
About time.

------
snissn
Actually, this is good for tether

------
aviv
There you go. The raids are coming. Called it long ago and downvoted to
oblivion here.

~~~
dang
This comment breaks the guidelines by being unsubstantive and by going on
about downvotes. Please don't post like this.

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

------
JustAnotherPat
it's based in Hong Kong. Hope they don't comply.

------
darawk
So, to those who are skeptical of Tether...you know that you can convert
Tether 1:1 for USD by depositing it at Bitfinex, right? They'll then wire you
that USD to any Taiwanese bank account[1] (the only banks that haven't frozen
their wires). AFAIK, there are no reports from Taiwanese account holders of
trouble with these wires.

[1] - [https://www.bitfinex.com/posts/203](https://www.bitfinex.com/posts/203)

~~~
thinkmoore
Who is "you"? From the terms of service:

"Absent a reasonable legal justification not to redeem Tether Tokens, and
provided that you are a fully verified customer of Tether, your Tether Tokens
are freely redeemable... Furthermore, residents of certain U.S. states are not
permitted to be customers of Tether; are not permitted to cause Tethers to be
issued or redeemed; and, are not permitted to hold Tether Tokens. Beginning on
January 1, 2018, Tether Tokens will no longer be issued to U.S. Persons."

So if you hold Tether Tokens but are not a "customer", you have no claim to be
paid. I suppose Tether customers (whoever they may be) might be willing to pay
you dollars for your coins, but there's no reason for them to give you 1:1,
for sure.

~~~
darawk
You is anyone. You can go open an account right now and do it.

~~~
PeterisP
Not if you're an "U.S. Person".

~~~
darawk
Yes, but that's irrelevant. The fact that some groups of people can arbitrage
the price of tether against USD means they ought to be equivalent.

~~~
jey
This is only true if there really is a USD for every USDT out there in the
market. If it turns out to be a fake, the whole thing comes crashing down and
becomes unpegged as soon as growth stops, i.e. as soon as we run out of
"greater fools" to keep supplying sufficient inflow of USD for everyone that's
trying to cash out.

------
eudoxus
They just updated the article that the subpoena was actually sent on December
6th. So this is already technically old news. Just more FUD being thrown
around by news outlets that should know better.

~~~
dragonwriter
“Old news” is news that merely reiterate facts that were already widely known.

News that makes new revelations that were not generally known about events in
even the _distant_ past is still new news, and last December isn't the distant
past, anyway.

