Tether CEO Paolo Ardoino took to social media to deny a report the company is facing a criminal investigation over allegations its cryptocurrency is popular with drug traffickers and terrorists.
“As we told to [Wall Street Journal] there is no indication that Tether is under investigation,” he wrote on X Friday afternoon. “WSJ is regurgitating old noise. Full stop.”
Federal prosecutors in Manhattan are investigating the use of Tether’s eponymous stablecoin in the financing of drug trafficking, terrorism, and hacking, The Wall Street Journal reported Friday.
At the same time, the US Treasury Department is considering sanctioning the company over sanctioned entities’ use of its cryptocurrency, according to the report.
Crypto prices plunged on the news. As of 3 pm New York time, Bitcoin, Ethereum, and Solana had fallen 2.7%, 3.5% and 4.5%, respectively, from their Friday highs.
Tether fluctuated wildly in the moment after the Journal published its report, first dropping as low at 99.3 cents before rebounding to $1.01, according to CoinGecko.
Tether is the world’s largest stablecoin, with almost $120 billion in circulation Friday, according to DefiLlama data.
That accounts for almost 70% of the supply of all stablecoins. Its next closest competitor, Circle’s USD Coin, had a market capitalisation of $34 billion Friday.
Stablecoins are cryptocurrencies pegged to other assets, most often US dollars. They are meant to offer crypto investors and traders refuge from the sector’s volatility while allowing them to keep their wealth on the blockchain.
Across every major cryptocurrency exchange, Tether is the most traded cryptocurrency against Bitcoin, Ethereum, and Solana.
Stablecoins have also been touted as a safe asset in economies experiencing severe inflation and a cheaper, faster way to move money between borders.
Tether has long faced intense scrutiny, given its dominant position in the stablecoin market.
In 2021, the company paid fines of almost $60 million after settling with the New York Attorney General’s Office and the Commodity Futures Trading Commission. Both alleged Tether’s stablecoin wasn’t fully backed by cash or cash equivalents. Tether did not admit wrongdoing in connection with the former and, regarding the latter case, said it always had adequate reserves — just not necessarily in cash.
Tether has also failed to produce audits that could reassure users who worry its stablecoin isn’t fully or safely collateralized. A lack of adequate collateral could leave some Tether holders empty-handed in the event too many rush to cash out at the same time — a fear that has yet to materialise.
In an interview with DL News in April, Ardoino said the Big Four accounting firms — Deloitte, PwC, EY, and KPMG — are afraid to work with Tether because they fear it will damage their reputations.
That fear stems in part from Tether’s controversial role in the world economy.
When the US hit Venezuela’s state-run oil producer with a new round of sanctions in April, the company turned to the Tether stablecoin.
Tether quickly said it would freeze wallets linked to any entity that tried to evade sanctions.
TRM Labs, a crypto-sleuthing company, called USDT the “currency of choice” for terrorism financing. And a Chainalysis report showed that stablecoins, including Tether, make up roughly 60% of illicit crypto transactions.
Tether, for its part, has been proactive in freezing wallets associated with criminal activity.
In September, it seized over $6 million tied to a Southeast Asian crypto-confidence scheme.
Aleks Gilbert is a DeFi correspondent based in New York. He can be reached at aleks@dlnews.com.
