Plaintiffs have filed a class action lawsuit seeking damages worth more than $1.4 trillion USD against the backers of tether (USDT) and multiple affiliates of the stablecoin project.
Launched by five cryptocurrency traders and “all others similar situated,” the suit alleges that Bitfinex, Tether, and others used USDT issuances to “artificially [inflate] demand for cryptocurrencies,” causing “prices to spike” and later crash in the 2017-2018 cryptoeconomy market cycle.
Filed on October 6th in the U.S. District Court for the Southern District of New York, the class action marks only the latest legal hurdle faced by iFinex Inc., the operators of Bitfinex and Tether. iFinex has been mired in a separate high-profile lawsuit with the New York Attorney General’s office since the spring, with the NYAG alleging that $850 million in lost Bitfinex funds were partially and inappropriately covered using Tether’s cash reserves.
The new class action is more grandiose in scope, as the plaintiffs’ attorneys — Vel Freedman and Kyle Roche, the lawyers who recently bested Bitcoin SV proponent Craig Wright in federal court — argue that the defendants committed bank fraud, money laundering, and more in fostering an unprecedented market bubble:
“As the cryptocurrency market reached a fever pitch, Tether’s mass issuance of USDT created the largest bubble in human history. When it burst, over $450 billion of value disappeared in less than a month. The fallout continues to affect the cryptocurrency market, including by causing prices to be lower than they would have been but for the manipulation.”
It’s because of that massive proposed scope that the plaintiffs are seeking major damages. And while it’s too early for exact damages to be specified in the case, Freedman and Roche suggested it could be many hundreds of billions of dollars.
“[The defendant’s] liability to the putative class likely surpasses $1.4 trillion U.S. dollars,” the plaintiffs’ lawyers said.
Bitfinex Preempted Filing: “Meritless and Mercenary Lawsuit”
Bitfinex caught wind of an impending action against them, as a post published on the exchange’s announcements page on October 5th noted the company was specifically anticipating an “opportunistic lawsuit” based on market manipulation claims:
“Bitfinex is aware of an unpublished and non-peer reviewed paper falsely positing that Tether issuances are responsible for manipulating the cryptocurrency market. Bitfinex vigorously disputes the findings and conclusions claimed by that source, which rely on flawed assumptions, incomplete and cherry-picked data, and faulty methodology.”
In beating the latest action’s filing by one day, Bitfinex wasted no time in contesting the legal salvo they correctly anticipated was coming.
“In advance of any filing, we want to make clear our position that any claims based on these insinuations are meritless, reckless and a shameless attempt at a money grab,” the exchange added.
So Bitfinex was able to get out in front of the suit PR-wise, though it remains to be seen how the class action will fare in court.
Not an Open and Shut Case?
Bitfinex and Tether are as controversial as any entities in the cryptoeconomy, but facts are still facts. Cases against them will need to be well structured and underpinned by accurate data, though this latest class action appears to fall short of those standards per Larry Cermak, Director of Research at The Block.
“[The suit] uses a lot of outdated or just wrong information and doesn’t back up a lot of the claims,” Cermak said on Monday.
That being said, if it's not outright dismissed, Bitfinex/Tether might have to answer discovery. Then it could start getting interesting
— Larry Cermak (@lawmaster) October 7, 2019
So iFinex and its affiliates might have their work cut out for them if their attorneys can successfully pick through the class action’s shortcomings. Yet if the case does end up reaching the discovery stage, things could get more complicated for the defendants. Only time will tell for now.