The calm decorum of consolidating class action lawsuits (via Pixabay).

Tether, Bitfinex face fourth market manipulation suit

Another lawsuit accusing stablecoin issuer Tether and cryptocurrency exchange Bitfinex of causing the losses of the crypto winter is about to join the three consolidated class actions

Three class action lawsuits accusing stablecoin issuer Tether and cryptocurrency exchange Bitfinex of bitcoin market manipulation have been consolidated and a fourth will likely be added this week. 

The first of the lawsuits against iFinex, which owns the two companies, was filed by in the federal court for the Southern District of New York on Oct. 6. That case, David Leibowitz, et. al., v. iFinex Inc., et. al., seeks $1.4 trillion in damages over alleged market manipulations that led to the crypto winter of 2018. 

Are tether tokens really backed by dollars? (via Shutterstock)
Are tether tokens really backed by dollars? (via Shutterstock)

The next two cases—Eric Young et. al. v. iFinex Inc., and Bryan Faubus v. iFinex Inc.‚—were ordered consolidated on Jan. 16 by Judge Katherine Failla. Attorneys in the fourth case, Ebanks v. iFinex Inc., requested to be added to the case the next day. 

In a statement, Tether said it did not oppose the consolidation of what it called “frivolous claims.”

Tether added the neither it nor Bitfinex have ever “used Tether tokens or issuances to manipulate the cryptocurrency market or token pricing.”

The stablecoin issuer framed its stance as fighting on behalf of the broader cryptocurrency community. “Tether will continue to defend the digital token ecosystem and the many contributions of the cryptocurrency community,” it said. 

The company said it would fight the suits vigorously, promising not to pay to settle the cases. 

The study behind the suit

All of the cases are based on research by University of Texas at Austin professor John Griffin and Ohio State University instructor Amin Shams. Their June 13, 2018 paper, “Is Bitcoin Really Un-Tethered?” argued that Tether and Bitfinex frequently manipulate the bitcoin market.

In that study Griffin and Shams made two claims. The first is that Tether’s USDT stablecoins were minted and used to buy bitcoins “following market downturns and result in sizable increases in Bitcoin prices.” 

The second was that Tether’s claim that all USDT were backed one-to-one by dollars is not true. New York Attorney General Letitia James is suing the companies for fraud and state securities laws violation for not disclosing that Tether was briefly only 74% backed by dollars following a loan to Bitfinex after it lost $850 million to an alleged con man.

When the Leibowitz case was filed, iFinex called Griffin and Shams’ study “bogus.”

On Jan. 17, Tether said Griffin and Shams’ “research deploys preselected data to retrofit a desired narrative and demonstrates a patent misunderstanding of the cryptocurrency market and the demand that drives purchases of Tether.”

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.