[HN Gopher] Tether is under undisclosed SEC investigation, FOIA ...
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Tether is under undisclosed SEC investigation, FOIA blocked
Author : bhouston
Score : 118 points
Date : 2021-09-24 13:26 UTC (9 hours ago)
(HTM) web link (twitter.com)
(TXT) w3m dump (twitter.com)
| bhouston wrote:
| Another article on the topic:
| https://www.coindesk.com/policy/2021/09/24/sec-hints-at-teth...
| tomhunters wrote:
| This has been quite the issue for a long time, and I can't think
| why the authorities are delaying their actions against Tether.
| lamontcg wrote:
| Regulators don't take actions that risk popping entire markets
| and creating many billions of dollars of losses on the balance
| sheets of publicly traded companies like TSLA.
|
| Madoff's Ponzi was pretty obviously a Ponzi and was reported
| for years as a Ponzi to the SEC and nothing happened until it
| was finally popped by the market retreating in 2008 and
| redemptions causing the Ponzi to go completely cash insolvent.
|
| Tether/crypto is going to pop when it pops, and regulators will
| then step in aggressively afterwards.
| ryanlol wrote:
| Is this not a super standard FOIA response?
| ceejayoz wrote:
| Only if there's an active law enforcement investigation the
| FOIA request touches.
| dragonwriter wrote:
| > Only if there's an active law enforcement investigation the
| FOIA request touches.
|
| Right, but that doesn't mean that the named entity is either
| the target or even a subject of the investigation. Because
| the FOIA request is for all documents relating to the entity,
| if there is even one document related to any investigation of
| anything that mentions the named entity in any capacity, it
| is going to be withheld for that reason.
| ryanlol wrote:
| I don't think that your comment acknowledges the reality that
| FOIA responses are decided by RNG unless you sue.
| ajkdhcb2 wrote:
| Yes. The tweet crops out a following paragraph that says it
| should not be taken as evidence that an investigation is
| underway. So this is fake news.
|
| You can see the full letter here:
| https://twitter.com/CryptoWhale/status/1429819156052983816
| bhouston wrote:
| Others are now reporting this such as coin desk:
| https://www.coindesk.com/policy/2021/09/24/sec-hints-at-
| teth...
| ajkdhcb2 wrote:
| The same form of letter was sent a month ago, so that just
| reflects badly on them
| ceejayoz wrote:
| "We can't give you these records because it'd interfere with
| law enforcement activities, which may not exist" seems like
| it'd be a pretty big loophole in FOIA if you could use it
| that way.
| kube-system wrote:
| That's not what it's saying. They didn't say law
| enforcement activities didn't exist, they said a violation
| of the law may not exist.
|
| In the case of literally any law enforcement activity,
| information is collected before law enforcement can come to
| any conclusion whether or not a law was broken.
| ceejayoz wrote:
| > they said a violation of the law may not exist
|
| The claim made is "under undisclosed SEC investigation",
| not "has already been convicted".
|
| A FOIA response of this nature indicates there's some
| level of investigation occurring, or they couldn't use
| that reason and would have to find another reason to deny
| it.
| ajkdhcb2 wrote:
| >A FOIA response of this nature indicates there's some
| level of investigation occurring
|
| How is that possible when it says "the Commission does
| not disclose the existence or non-existence of an
| investigation"?
| ceejayoz wrote:
| If there were no investigation, they couldn't legally use
| that FOIA rejection reason. They'd have to give a
| different reason.
| [deleted]
| ajkdhcb2 wrote:
| "the Commission does not disclose the existence or non-
| existence of an investigation" seems to make it clear
| that law enforcement activities may not exist either. In
| order to comply with that, they would not be able to
| answer something like 'we do not have any records because
| there is no investigation', so you necessarily get a
| vague letter like this that seems like it may be
| suggesting there is an investigation.
| ryanlol wrote:
| This is exactly how FOIA works, it's rare that you get a
| real response without appealing at least one of these
| denials. Very often they will not comply unless you file a
| lawsuit to show that you're serious.
| gruez wrote:
| "tether is a fraud/ponzi" claims aside, does SEC even have
| jurisdiction here? The SEC isn't out to protect all investors,
| only to protect them from _securities_ fraud. I 'm skeptical
| whether a stablecoin could even count as a security. From
| bloomberg:
|
| >The rule in the U.S. is that an "investment contract," meaning
| "the investment of money in a common enterprise with a reasonable
| expectation of profits to be derived from the efforts of others,"
| is a security
|
| https://www.bloomberg.com/opinion/articles/2021-09-08/lendin...
|
| Under that definition, are stablecoins even securities? You buy
| it at $1 and the best you can hope for it is that the value
| remains at $1. There's no expectation of profits.
| silverlake wrote:
| Tether is similar to a money market fund and could be regulated
| as such.
| josefx wrote:
| Your link only says that a "investment contract" is a security,
| not that all securities are "investment contracts".
| gruez wrote:
| >not that all securities are "investment contracts".
|
| If you search around people do seem to think that "investment
| contracts" are "security" (eg.
| https://www.investopedia.com/terms/h/howey-test.asp) although
| I can't find someone saying "investment contracts iff
| security". If that's not the case, can you list what else
| counts as securities, and why do you think stablecoins meets
| those definitions?
| josefx wrote:
| I am far from an expert however following
| https://www.investopedia.com/terms/s/seact1934.asp the SEC
| can over see over the counter securieties
| (https://www.investopedia.com/terms/o/otc.asp) that seems
| to cover financial contracts that derive their value from
| an underlying asset. As far as I understand Tether is
| backing its value with dollars and has already been in
| trouble over lending the money it officially used to back
| its cryptocurrency away without disclosing that to its
| users.
| gruez wrote:
| But that argument only applies if the underlying asset is
| a security, right? Is cash a security?
| abduhl wrote:
| Securities are defined under 15 USC 77b(a)(1)
|
| (1) The term "security" means any note, stock, treasury
| stock, security future, security-based swap, bond, debenture,
| evidence of indebtedness, certificate of interest or
| participation in any profit-sharing agreement, collateral-
| trust certificate, preorganization certificate or
| subscription, transferable share, investment contract,
| voting-trust certificate, certificate of deposit for a
| security, fractional undivided interest in oil, gas, or other
| mineral rights, any put, call, straddle, option, or privilege
| on any security, certificate of deposit, or group or index of
| securities (including any interest therein or based on the
| value thereof), or any put, call, straddle, option, or
| privilege entered into on a national securities exchange
| relating to foreign currency, or, in general, any interest or
| instrument commonly known as a "security", or any certificate
| of interest or participation in, temporary or interim
| certificate for, receipt for, guarantee of, or warrant or
| right to subscribe to or purchase, any of the foregoing.
| nivertech wrote:
| 1. USDT is not a DAR (Digital Asset Receipt) like other so
| called "stablecoins" (i.e. it's not backed 1:1 by physical
| USD). Instead it's a pooled investment fund claiming to keep
| NAV (Net Asset Value) around 1 USD.
|
| 2. it behaves more like an MMF (Money Market Fund)
|
| 3. market participants creating and redeeming large blocks of
| USDT are getting discount to NAV and/or exchange price.
|
| Each of the points above can be interpreted as "With the
| expectation of profit" clause in the Howey test.
|
| Additionally there are many regulations about MMFs, like
| breaking the USD peg by more than 5c, i.e. when NAV goes below
| 95c - the fund should be terminated.
| coremoff wrote:
| Gary Gensler thinks crypto is part of their remit:
|
| > The SEC has a three-part mission -- to protect investors,
| facilitate capital formation, and maintain fair, orderly, and
| efficient markets in between them. We focus on financial
| stability as well. But at our core, we're about investor
| protection.
|
| > If you want to invest in a digital, scarce, speculative store
| of value, that's fine. Good-faith actors have been speculating
| on the value of gold and silver for thousands of years.
|
| > Right now, we just don't have enough investor protection in
| crypto. Frankly, at this time, it's more like the Wild West.
|
| >This asset class is rife with fraud, scams, and abuse in
| certain applications. There's a great deal of hype and spin
| about how crypto assets work. In many cases, investors aren't
| able to get rigorous, balanced, and complete information.
|
| >If we don't address these issues, I worry a lot of people will
| be hurt.
|
| (taken from one of Matt Levine's emails talking about the SEC
| and Crypto)
| BitwiseFool wrote:
| >"does SEC even have jurisdiction here?"
|
| In a Machiavellian way, I've come to realize that the Standard
| Operating Procedure for government/bureaus is that when faced
| with ambiguity about jurisdiction it's better to ask for
| forgiveness than permission. In practical terms, who's stopping
| them?
| user-the-name wrote:
| > In practical terms, who's stopping them?
|
| Courts? Pretty basic principle of how democratic systems are
| built.
| Kranar wrote:
| Not so, at least in the U.S. and Canada. As per "Chevron
| deference" the courts are bound to defer to regulatory
| agencies over how to interpret ambiguous areas of the law:
|
| https://en.wikipedia.org/wiki/Chevron_U.S.A.,_Inc._v._Natur
| a....
| qeternity wrote:
| > when faced with ambiguity about jurisdiction it's better to
| ask for forgiveness than permission
|
| Genuinely curious what has given you that impression.
| Regulators have been insanely slow to act on crypto (and
| there's no regulatory overreach here).
|
| In general, it's a meme that regulators are slow to act and
| often without any teeth.
| mannykannot wrote:
| > Under that definition, are stablecoins even securities? You
| buy it at $1 and the best you can hope for it is that the value
| remains at $1. There's no expectation of profits.
|
| True, as far as I know, but this is not the case for Bitcoin.
| If, as has been alleged, Tether has been used to fraudulently
| manipulate Bitcoin prices, the question becomes one of whether
| Bitcoin falls under the remit of the SEC.
| trident5000 wrote:
| This rumor has been debunked. We had a glance at tether
| financials when the whole bitfinex IOU swap happened. Tether
| is backed 1:1 but they have reserves in investments, claimed
| to be mainly A2. Thats what people had a problem with.
|
| If thats a problem ok, but insurance companies invest their
| payout holdings in commercial paper as well and theres not
| much of a public outcry.
| user-the-name wrote:
| Tether _claims_ to be backed 1:1, but _claims_ to have
| reserves in investments, which are, yes, claimed to be
| mainly A2.
|
| We have zero evidence of any of these being true other than
| the word of Tether executives, who have lied about their
| backing before, as determined in court.
|
| (Also, this is only the latest claim in a series of gradual
| backtrackings on earlier, fraudulent claims about their
| reserves.)
| trident5000 wrote:
| Their financials were shown to the new york attorney
| generals office who then reached a conclusion and
| settlement which you can read. What they did wrong was
| issue an IOU to bitfinex which was hacked. Not run up a
| 10:1 reserve market pumping scheme like tin foil hat
| wearers claim. Theres lots to say about tether thats bad,
| but thats not it.
| user-the-name wrote:
| ...and lied about it. That part is pretty important.
|
| (And you are severely understating what they did, as
| well.)
| jcranmer wrote:
| It is worth pointing out that the conclusion and the
| settlement covers a time _before_ Tether did a massive
| 10x growth in total circulating currency, and the
| reserves accounting of the latter phases are not well-
| established. By Tether 's own (very sparse, compared to
| standards in the financial industry) reporting, ~75% of
| its reserves are "commercial paper," without any further
| identification of what commercial paper its holding. And
| if true, this would make it one of the largest holders of
| commercial paper, and yet no one has come forward to
| corroborate transacting commercial paper with Tether.
|
| Since there's no information on what it's holding, it has
| fueled suspicion that a lot of the holdings are in things
| like cryptocurrency scam-like companies, or as another
| theory holds, invested in Evergrande property notes.
| Tether hasn't released any information that would favor
| or disfavor these hypotheses.
| [deleted]
| bohadi wrote:
| You're absolutely right. Gensler has cited the Howey test
| inconsistently. Well, under that definition, stablecoins are
| not securities. There's no expectation of profits.
|
| I expect future battlelines being drawn around decentralized
| stablecoins. Tether is private and carries SPOF risk.
|
| [1] https://www.investopedia.com/terms/h/howey-test.asp
| qeternity wrote:
| > You're absolutely right. Gensler has cited the Howey test
| inconsistently. Well, under that definition, stablecoins are
| not securities. There's no expectation of profits.
|
| Uhh, the Howey test is not a magical test to determine what a
| security is. For many things, Tether included, we have very
| simple rules based tests.
|
| The Howey test is to determine things that might not qualify
| under letter-of-the-law but absolutely are investment
| contracts in substance.
|
| Crypto (stable coins included) runs afoul of both types of
| definitions pretty much universally.
| blitzar wrote:
| Reminder: #Tether is registered and regulated under FinCEN as
| all the centralised competitors. Strict KYC/AML is applied to
| all Tether direct users, as the other main issuers are doing.
| Less regulated is just FUD. Ask yourself who benefits from
| spreading such misinformation?
|
| -- Paolo Ardoino (@paoloardoino) December 30, 2020
|
| Paolo Ardoino, Tether's chief technology officer.
|
| It doesnt matter who is/isnt regulating you, once you are
| claiming to be a regulated instrument publicly to people in the
| US then the SEC have all the jursidiction they need.
| FDSGSG wrote:
| >It doesnt matter who is/isnt regulating you, once you are
| claiming to be a regulated instrument publicly to people in
| the US then the SEC have all the jursidiction they need.
|
| The SEC does not have unlimited jurisdiction over things
| which are publicly claiming to be regulated instruments to
| people in the US.
|
| The SEC regulates securities. According to the "Howey test"
| provided to us by the US supreme court it appears that Tether
| is not a security, therefore it does not fall under the
| jurisdiction of the SEC.
| ARandumGuy wrote:
| My understanding is that, in the US at least, "securities" is a
| broad category that applies to any financial asset or product
| that isn't regulated under other rules. However, this is pretty
| uncharted territory, and until there's some judicial precedent,
| it's impossible to be completely sure.
| ryanlol wrote:
| > My understanding is that, in the US at least, "securities"
| is a broad category that applies to any financial asset or
| product that isn't regulated under other rules
|
| This is incorrect. Many financial assets are not securities,
| tether being a particularly good example.
| mywittyname wrote:
| Well, the other half of Securities & Exchange is exchange.
| Tether is owned and controlled by Bitfinex, who does claim to
| be a cryptocurrency exchange.
| Havoc wrote:
| Honestly I'd be more surprised if they weren't.
|
| Wouldn't mind if the SEC takes tether down a notch...they're a
| risk to the entire crypto ecosystem
| trident5000 wrote:
| If tether went belly up what would happen is everyone would sell
| their tether for BTC and other cryptos (whatever they can get
| into) and you would have the largest squeeze of all time. We
| actually witnessed this during the tether freak out saga a couple
| years ago where BTC on the bitfinex exchange was priced like 10
| or 15% higher than the rest of the market. I wouldnt mind just
| getting it over with. Then we could get that over with an just
| have USD trading. But what most likely will happen is they will
| just be forced to comply with certain rules.
| postalrat wrote:
| "If tether went belly up what would happen is everyone would
| sell their tether for BTC"
|
| What do you mean by "tether went belly up"? Even when it's
| "belly up" it still has value to trade for BTC?
| quickthrowman wrote:
| Who would be buying the tether? Every trade on an exchange
| has two sides, who is going to buy USDT that isn't worth
| anything?
|
| For example, the $449 strike SPY call expiring in 27 minutes
| has a bid of 0.00 and an ask of 0.02, meaning nobody will buy
| if you try to sell the call, but a market maker will sell you
| one for 0.02. If tether was worthless, the same situation
| would happen, people would be willing to buy for 0.00 and
| sell for a bit more than 0.00
| chollida1 wrote:
| > If tether went belly up what would happen is everyone would
| sell their tether for BTC and other cryptos (whatever they can
| get into) and you would have the largest squeeze of all time
|
| What squeeze could there possibly be? No one is forced to
| deliver anything here so there is absolutely nothing to be
| squeezed.
|
| now you may get some people willing to buy tether at 10 cents
| on the dollar but that would only continue to force down the
| price of tether as you exhaust the very small amount of tether
| buyers.
|
| Who do you see being squeezed here?
| quickthrowman wrote:
| > If tether went belly up what would happen is everyone would
| sell their tether for BTC and other cryptos (whatever they can
| get into) and you would have the largest squeeze of all time.
|
| I'd like to know who you think would be buying Tether if it was
| collapsing, you can't sell if there's no bid!
| rcohngru wrote:
| The thought process here is that if you're stuck holding tether
| if/when it collapses, you can just sell for a crypto that
| hasn't collapsed. But who in their right minds would want to
| trade something of value for something that has just been shown
| to be worth $0?
| trident5000 wrote:
| For exchanges that use USDT, exchanging for crypto is your
| only immediate option.
| rcohngru wrote:
| Right, but who would want to be on the other side of that
| trade? You're telling me that if I have something worth $0
| and you have something of value, you'd want to make that
| trade with me?
| trident5000 wrote:
| Exactly, thats what causes a squeeze/absurd drive up in
| price. Its why I dont hold tether.
| kangnkodos wrote:
| If Tether's USDT went belly up, there would be a loss of
| confidence in the Coinbase exchange, a run on the market, and a
| collapse in the price of Bitcoin.
|
| Right now, everyone who has an account at Coinbase believes
| that if they liquidated their Bitcoin tomorrow, they would
| eventually get genuine US Dollars equal to the amount of money
| in their account. Under normal operating conditions, this is
| true. But if Tether's USDT goes down in price significantly,
| all bets are off.
|
| Under normal operating conditions, when a client sells Bitcoin
| in their Coinbase account, Coinbase trades Bitcoin for Tether's
| USDT, the USDT sits in the user's account for a while, and
| eventually the user get US Dollars.
|
| Where do the US Dollars come from?
|
| Tether has a reserve of some US Dollars, and other non-crypto
| assets that can be quickly traded for US Dollars. Let's just
| consider this whole bucket as US Dollar reserves in order to
| simplify this discussion. The important thing to remember is
| that Tether's US Dollar reserves are only a small fraction of
| all outstanding Tethers.
|
| Also, Tether is constantly gathering more US Dollars. On an
| average day, Tether receives more US Dollars than go out.
|
| If for some reason, everyone decided at the same time that a
| USDT was worth less that one US Dollar and the price continued
| to drop over time, everything would change. In this dropping
| USDT price scenario, anyone who held USDT would go to Tether at
| the same time and ask for their US Dollars back.
|
| Tether would have a few options at this point, but one option
| they would not have is giving everyone their US Dollars back.
| Remember that Tether has limited US Dollar reserves. Assuming
| they kept trying to refund every request with a full US Dollar,
| they would blow through their reserve and hang up a closed sign
| on their window. Tether doesn't have any bankruptcy insurance,
| and there isn't a government that is likely to bail Tether out.
| They're not too big to fail.
|
| Oh, Tether would try some tricks to slow down the process. But
| they may not be able to stop the run on the bank/exchange.
|
| So now, let's assume Tether is worth zero. What happens to
| Coinbase and it's clients?
|
| Buying Bitcoin would not be a huge problem. Coinbase might have
| to change their procedures, but they could still find people
| willing to accept US Dollars in return for Bitcoin.
|
| The trouble would be selling Bitcoin. On a normal day, they
| just trade Bitcoin for USDT, and if necessary, go to Tether and
| trade the USDT for US Dollars. But if the normal system doesn't
| work because a USDT is worth zero, Coinbase would have trouble
| selling Bitcoin in a timely manner.
|
| People would flood Twitter complaining that they can't get
| their money out of Bitcoin through Coinbase, and this might
| trigger a second run. All Coinbase customers might lose
| confidence at the same time, and try to sell their Bitcoin in
| their Coinbase accounts at the same time. The price of Bitcoin
| would crash. Perhaps people would not trust exchanges such as
| Coinbase for a long time after, and prices might stay low for a
| long time.
|
| This is all just a wild guess. What do I know?
| randomopining wrote:
| Wouldn't it cause holders to instantly have part of their
| portfolio be worthless, which would cause them to have to sell
| liquid BTC etc to cover their positions. Which would depress
| the price of btc/eth a lot?
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