Tether is facing a criminal investigation and U.S. sanctions, according to the Wall Street Journal, and the company’s CEO criticized the report on social media on Friday.
Tether CEO Paolo Ardoino took to social media to deny reports that the company is facing criminal investigation over allegations that its cryptocurrency is popular with drug traffickers and terrorists.
“As we told[The Wall Street Journal]there is no indication that Tether is under investigation,” he wrote on Friday afternoon. “WSJ is regurgitating old noise. Full stop.”
Federal prosecutors in Manhattan are investigating the use of a stablecoin bearing Tether’s name to finance drug trafficking, terrorism and hacking, The Wall Street Journal reported on Friday.
At the same time, the U.S. Treasury Department is reportedly considering imposing sanctions against the company over the use of its virtual currency by sanctioned companies.
Following this news, the price of virtual currency plummeted. As of 3pm New York time, Bitcoin, Ethereum, and Solana were down 2.7%, 3.5%, and 4.5%, respectively, from Friday’s highs.
According to CoinGecko, Tether fluctuated wildly immediately after the Journal published its report, initially dropping to as low as 99.3 cents and then rebounding to $1.01.
Tether is the world’s largest stablecoin with around $120 billion in circulation as of Friday, according to data from DefiLlama.
This accounts for almost 70% of the total stablecoin supply. The next closest competitor, Circle’s USD Coin, had a market cap of $34 billion on Friday.
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A stablecoin is a cryptocurrency that is pegged to another asset, most often the US dollar. They aim to allow cryptocurrency investors and traders to keep their wealth on the blockchain while providing a haven from the sector’s volatility.
Across major crypto exchanges, Tether is the most traded cryptocurrency against Bitcoin, Ethereum, and Solana.
Stablecoins have also been touted as safe assets in economies hit by severe inflation and a cheaper and faster way to move funds across borders.
Tether has been under intense scrutiny for years given its dominant position in the stablecoin market.
The company paid approximately $60 million in fines in 2021 following a settlement with the New York Attorney General’s Office and the Commodity Futures Trading Commission. They argued that Tether’s stablecoin was not fully backed by cash or cash equivalents. Tether has denied any wrongdoing related to the former and said it always has adequate reserves (though not necessarily cash) for the latter.
Tether has also failed to conduct audits that would reassure users who are concerned that their stablecoin is not fully or securely collateralized. A lack of suitable collateral could leave some Tether holders empty-handed if too many people rush to cash out at the same time, but that fear has yet to materialize.
In an interview with DL News in April, Ardoino said the big four accounting firms – Deloitte, PwC, EY and KPMG – were afraid to partner with Tether for fear of reputational damage.
Part of that concern stems from Tether’s controversial role in the global economy.
When the US imposed new sanctions on Venezuela’s state oil producer in April, the company turned to the Tether stablecoin.
Tether immediately announced that it would freeze wallets associated with any entity attempting to evade sanctions.
Cryptocurrency research firm TRM Labs called USDT the “currency of choice” for terrorist financing. Additionally, a report from Chaina Analysis showed that stablecoins, including Tether, accounted for approximately 60% of illegal cryptocurrency transactions.
Tether has been proactive in freezing wallets associated with criminal activity.
In September, it seized more than $6 million related to a cryptocurrency trust scheme in Southeast Asia.
Aleks Gilbert is a DeFi correspondent based in New York. Contact him at aleks@dlnews.com.
