That Tether, its sister company Bitfinex and their parent firm iFinex, are shady enterprises that are playing games with billions of dollars’ worth of investors’ money has been plain for all to see in the past few years. However, the extent of the lies, the games, the bullying and the illegal dealings has been mostly speculative, until now.
Bloomberg BusinessWeek recently published an exposé on the company, detailing how it rose to become so powerful, the people pulling the strings, where the money is hidden and how a few individuals are holding an entire industry to ransom.
The ‘by-any-means’ rise to $68 billion
Just a few years ago, Tether (USDT) was just another upcoming digital currency that was offering traders a better way to speculate on the major coins. It first hit $100 million in market cap in mid-2017, but by the end of the year, it was at $1.4 billion.
Tether has been printing like a machine and as of today, it boasts of a $68.4 billion market cap, the fifth highest in the digital currency market. Of note is that out of the $68 billion, $48 billion has been printed this year as USDT tokens by the company.
But the figures don’t tell the whole story.
It all started with former child actor, Block.one co-founder and 2020 U.S. presidential candidate Brock Pierce. After coming up with the idea for a stablecoin that would allow traders to bypass the formal banking system, he teamed up with two others in 2013 to develop it. One of them was reportedly an executive at Bitfinex exchange, and therein was established the relationship between Tether and the exchange.
Pierce said he left the project by transferring 100 percent of his shares “to our minority partners in exchange for zero consideration” in 2015. Industry insiders, however, suggested that Pierce and his partner did not leave, but were still involved via nominees and complex offshore structures, which are likely in violation of the U.S. tax law, among other regulations.
According to Bloomberg, the Bitfinex leaders were less worried about USDT’s legality compared to Pierce and his partner. In fact, in 2019, one of them openly claimed in a podcast that they had decided to take on Tether because, already, Bitfinex was operating in a legal gray area.
At the time, the leader of the exchange was Van der Velde, a Dutchman living in Hong Kong with virtually no media presence, who curiously deleted his Twitter account once Bloomberg published the exposé. The CFO was Giancarlo Devasini, a former Italian plastic surgeon with a history in consumer electronics. It was the latter that those with knowledge of the exchange claim he really runs Bitfinex despite not being the CEO on paper.
It was when Devasini took over the project that Tether started seeing the most rapid growth. And as Bloomberg revealed, the former plastic surgeon is willing to stop at nothing, from luring partners with promises of grandeur to bullying those opposed to him, enough to have them cave and let him have his way.
Bitfinex and Tether – the reckless sister companies
Bitfinex and Tether are sister companies, both under the parent firm iFinex. However, their relationship extends much further than this. For one, they share executives including Paolo Ardoino, the CTO at both firms.
But the links extend further. The world first got to see just how intertwined the two companies were through the Crypto Capital Corp saga. The firm was a money processing firm that acted like a shadow bank for digital currency firms, with its biggest client being Bitfinex.
Crypto Capital would at one time refuse to release $850 million it owed Bitfinex, putting Devasini in a tight spot. If clients noticed withdrawal challenges at the exchange, a bank run would ensue as every other user would try to cash out, leading to an inevitable collapse of the exchange.
According to communication made public by New York Attorney General Letitia James, who sued and later settled with the two, Devasini was desperate to access the money, even pleading with Crypto Capital, to no avail.
“Please understand all this could be extremely dangerous for everybody, the entire crypto community,” he told the Panamanian company in one chat.
When Crypto Capital didn’t budge, he turned to the vast resources at Tether’s disposal, money which belonged to USDT holders. Bitfinex took $1 billion from Tether’s reserves to fill the hole—all this done without disclosing to investors.
However, Tether tried to sneak it past investors by quietly changing a disclosure on its website. Previously, it claimed that “every Tether is always backed 1-to-1, by traditional currency held in our reserves.”
Following the $1 billion Bitfinex ‘loan’, it changed this to, “Every Tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.”
For this egregious action, Tether and Bitfinex only paid $18.5 million in a settlement with the NYAG. Tether proponents even went ahead to point to the settlement as an endorsement of USDT by the NYAG. “Would the state attorney general settle if Tether were a massive fraud,” some of them asked.
Where’s the money? Inside the lies and half-truths
While it’s clear that games are being played—games that could bring down an entire industry—what remains a mystery is where are Tether’s billions?
According to a document obtained by Bloomberg, the reserves include billions of dollars of short-term loans to Chinese companies—which market experts describe as inherently risky. Tether has, however, denied that the collapsing Evergrande was one of its clients.
Then there are loans to other digital currency companies. One of the clients is Celsius Network, a lending company that’s facing a litany of charges by state regulators in the U.S. Tether reportedly lent $1 billion to Celsius, for which founder Alex Mashinsky claims his firm pays 5-6% in interest.
The undisclosed investments that Devasini is undertaking with Tether’s billions are geared towards making a profit for him and his cronies. Even if his investments bring in 1% annually, he’s comfortably earning over $600 million a year. However, as with any other investment, there’s a risk of losing money. And while the profits are his to keep, such losses would be incurred by USDT holders.
Then there’s Tether—and Bitfinex’s—troubled relationship with banking partners. Initially, banks had refused to work with the companies. Noble Bank International, a financial startup in Puerto Rico was the only one that they found to work with.
The founder of Noble Bank, John Betts, told Bloomberg that at the time, Tether was a legitimate business.
“During the time Tether banked with Noble, we held in excess of 98% of their cash reserves and received and validated monthly statements from their other account,” he told the outlet.
Betts would later have a falling out with Devasini when he insisted that Bitfinex must get audited as the public was raising questions about Tether’s reserves, and consequently putting his bank at risk. This falling out proved costly for Betts as he was forced to step down from his post shortly after.
The other bank Tether worked with was Deltec Bank & Trust. Jean Chalopin, the Bahamian bank’s chair, is a close friend of Devasini, with the two owning neighboring mansions in the Bahamas.
Chalopin was the only banker ready to stand up for Tether, telling Bloomberg, “There’s no agenda or plot. They are not Enron or Madoff. When there’s a problem, they fix it honorably.”
‘A tired attempt to undermine us’
Tether dismissed the exposé as yet another attempt to take a swing at a thriving digital currency company. In its statement, it described the Bloomberg report as “taking snippets of old news from various places and dubious sources, and making it fit a pre-packaged and pre-determined narrative.”
“It’s another tired attempt to undermine a market leader whose track record of innovation, liquidity, and success speaks for itself,” Tether claimed.
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