A proposed class action lawsuit alleges cryptocurrency powerhouses Bitfinex and Tether cooperated to defraud investors by manipulating the Bitcoin market with “unprecedented effectiveness,” costing proposed class members in the neighborhood of $466 billion between January and February 2018. According to the complaint, which alleges violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), putative damages sustained by proposed class members are “likely” to exceed $1.4 trillion.
Describing the defendants’ alleged scheme as “part-fraud, part-pump-and-dump, and part-money laundering,” the 95-page complaint out of New York’s Southern District explains that Bitfinex has grown since its founding in 2012 to become one of the world’s largest cryptocurrency exchanges. Tether, the case continues, is the central authority over the “Tether” cryptocurrency, described in the complaint as a “stablecoin” in that it relies on tangible assets held in reserve to negate the inherent volatility in cryptocurrency.
The lawsuit says that although the cryptocurrency market is, by design, meant to be decentralized, Bitfinex and Tether, leaning on Tether’s claim that “the number of tokens in circulation will always equate to the dollars in its bank account,” were able to signal to investors that there existed “rapidly growing demand for cryptocurrencies” given each Tether token—known as USDT, or United States Dollar Tether—supposedly represented another U.S. dollar invested into the market. This claim was false, the lawsuit alleges, charging Tether, in contrivance to its stated mission, issued what the plaintiffs say were “extraordinary amounts of unbacked USDT” to manipulate cryptocurrency prices. According to the case, because the market believed Tether’s claim that one USDT equaled one U.S. dollar, the defendants “had the power to, and did, manipulate the market” on a scale hitherto unseen.
From 2017 through 2018, the case claims, Tether flooded the Bitfinex and other cryptocurrency exchanges with 2.8 billion USDT, which the plaintiffs stress artificially inflated cryptocurrency demand and caused prices to spike. With a feverish market rife with USDT, the suit continues, Tether effectively “created the largest bubble in human history.” What followed, according to the lawsuit, was catastrophic. From the complaint:
“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.”
The five named plaintiffs, investors in Bitcoin and a number of other cryptocurrencies, charge that Bitfinex and Tether continue to defraud the market, even in the face of state and federal investigations.
Included in the proposed class are all persons or entities that held or transacted in cryptocurrencies included but not limited to USDT, Ether, Bitcoin, and Bitcoin derivatives in the U.S. or any of its territories at any time from October 6, 2014 through the present.