DOJ reportedly investigates crypto firm Tether for possible bank fraud

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A smartphone displays the market value of Tether through The Crypto App.

Guillaume Payen | SOPA Pictures | LightRocket | Getty Images

The Justice Department is investigating possible bank fraud by executives of Tether Ltd. resulting from actions that occurred in the early days of its stable cryptocurrency, according to Bloomberg News.

The probe has implications for the cryptomarket. Tether’s stablecoin is the third-largest digital asset by market cap, at $ 62.3 billion, according to CoinGecko, and traders often use it in place of dollars or other fiat currencies to buy bitcoin and coins. ‘other cryptocurrencies. Tether offers users a way to quickly transfer funds between exchanges and offers some level of protection against the price volatility of other cryptocurrencies.

The DOJ’s investigation focuses on activities in Tether’s early days, investigating whether the company misled banks by hiding the fact that the transactions were linked to the cryptocurrency, Bloomberg reported on Monday, citing three people with direct knowledge of the matter who asked not to be named because the probe is confidential. Federal prosecutors have sent letters in recent months to individuals alerting them that they are the target of the investigation and that a decision on the investigation could be made soon, according to the news agency.

Tether was created in 2014 in response to one of the biggest challenges for crypto start-ups at the time: reducing banking risks. Most companies handling cryptocurrency have struggled to secure banking relationships as highly regulated financial institutions feared doing business with companies potentially linked to illicit activities.

Tether has long been controversial over concerns that it may not always have enough reserves to justify pegging to the US dollar.

Stablecoins, digital currencies designed to be more stable than cryptocurrencies because they peg their market value to an outside asset like the US dollar, are on the regulatory hot spot as they gain popularity. Last week, Treasury Secretary Janet Yellen and the President’s Financial Markets Task Force discussed the potential role of stablecoins in the financial system.

The Justice Department did not respond to a request for comment from CNBC. Neither did Tether, but in a statement to Bloomberg he said: “Tether regularly maintains an open dialogue with law enforcement, including the DOJ, as part of our commitment to cooperation and transparency. . “

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