## Facts

- Several affiliated entities doing business as “Tether” issued the U.S. dollar tether token (USDt), marketed as a “stablecoin.”
- Tether publicly represented that each USDt was backed “one-to-one” by fiat currency held in reserve, that it maintained “100% reserves at all times,” and that reserves would be subject to routine professional audits.
- The CFTC identified June 1, 2016 through February 25, 2019 as the relevant period for the challenged statements.
- For a substantial portion of that period, USDt in circulation was not fully backed by fiat currency held in Tether reserve bank accounts; full fiat backing occurred only on a fraction of days.
- Tether held portions of reserves in non-cash assets and in accounts not consistently maintained in Tether’s name, including accounts connected to related entities and third parties, and instruments such as commercial paper.
- Reserve funds were at times commingled with related-entity funds and used for expenses inconsistent with an always-available, fully cash-backed representation.
- Tether’s “audit” assurances were not fulfilled as represented; verifications included a single-date review after a large transfer increased balances and a legal review that expressly disclaimed being an audit under generally accepted standards.
- The matter was resolved through an administrative settlement: Tether consented to entry of the order without admitting or denying the findings.

## Issues

1. Whether statements that USDt was fully backed one-to-one by fiat currency and supported by “100% reserves at all times” were untrue or misleading statements of material fact in connection with transactions involving a commodity in interstate commerce.
2. Whether USDt is a “commodity” under the Commodity Exchange Act, permitting application of CEA § 6(c)(1) and CFTC Regulation 180.1 to the alleged misconduct.
3. Whether Tether acted intentionally or recklessly with respect to the truth or falsity of its reserve and audit representations.

## Decision

- The CFTC found USDt to be a commodity within the Commodity Exchange Act’s scope.
- The CFTC found that Tether made material misrepresentations and omissions about USDt’s fiat backing and reserve practices during the relevant period.
- The CFTC found violations of CEA § 6(c)(1), 7 U.S.C. § 9(1), and CFTC Regulation 180.1(a)(2), 17 C.F.R. § 180.1(a)(2).
- The CFTC imposed a $41 million civil monetary penalty.
- The CFTC ordered cease-and-desist relief and compliance undertakings concerning reserve-related statements, audit-related representations, and reporting obligations.

## Legal Principles

- Digital assets, including certain stablecoins, can constitute “commodities” under the CEA, subjecting related spot-market conduct to the CFTC’s anti-fraud authority when the conduct is “in connection with” commodity transactions in interstate commerce.
- CEA § 6(c)(1) and CFTC Regulation 180.1 prohibit untrue or misleading statements or omissions of material fact in connection with commodity-related transactions.
- Statements about reserves, backing, and third-party assurances are material when they are central to a product’s claimed stability and risk profile.
- Liability under Regulation 180.1(a)(2) requires intentional or reckless conduct regarding the truth or falsity of the representation or omission.
- In administrative settlements, respondents may consent to findings, sanctions, and undertakings without admitting or denying the agency’s allegations.

## Conclusion

The CFTC concluded that Tether’s public claims of one-to-one fiat backing, continuous 100% reserves, and routine audits were materially misleading during the relevant period, treated USDt as a commodity for CEA purposes, and resolved the matter through a settlement imposing a $41 million penalty plus cease-and-desist and compliance obligations.


In re Tether Holdings Ltd., CFTC Docket No. 22-04 (C.F.T.C. Oct. 15, 2021)