Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 1 of 46

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
MATTHEW ANDERSON, and SHAWNDOLIFKA, individually and on behalf of allother persons similarly situated,

Case No.
CLASS ACTION COMPLAINT

Plaintiff,

JURY TRIAL DEMANDEDv.
TETHER HOLDINGS LIMITED, TETHER
LIMITED, TETHER INTERNATIONAL
LIMITED, TETHER OPERATIONS LIMITED,IFINEX INC., BFXNA INC., and BFXWW
INC.,
Defendants.

Plaintiffs Matthew Anderson, and Shawn Dolifka (together, “Plaintiffs”), individuallyand on behalf of all others similarly situated, complain upon knowledge as to their own acts andupon information and belief as to all other matters against Tether Holdings Limited, Tether
Limited, Tether International Limited, Tether Operations Limited,1 iFinex Inc., BFXNA Inc., and
BFXWW Inc.2 (collectively “Defendants”) as follows:
INTRODUCTION
1.

This case arises from Defendants’ scheme to induce consumers to purchase its

cryptocurrency, Tether (“Tether tokens”).
2.

Since its creation, Defendants have marketed Tether tokens as a “stablecoin” i.e.,a cryptocurrency that is tied to a real-world currency. Defendants represent that Tether tokens are

1“Tether” as used in this Complaint refers to Tether Holdings Limited, Tether Limited, Tether International
Limited, and Tether Operations Limited.
2“Bitfinex” as used in this Complaint refers to iFinex, Inc, BFXNA Inc., and BFXWW Inc.

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purportedly “pegged” to the U.S. dollar.
3.

Defendants have consistently maintained on their website, blog posts, court

filings, social media accounts, and elsewhere that Tether tokens are backed one-to-one bysufficient reserves in U.S. dollars. Defendants have also promised, in the interest of transparency,
to undergo routine audits of Tether’s reserves.
4.

Given these representations, consumers, including Plaintiffs, reasonably believedthat each Tether token was equal to one U.S. dollar and backed by one U.S. dollar in Defendants’reserves.
5.

But these representations were false. Two regulatory agencies, the New YorkState Attorney General (“NYOAG”) and the Commodities Futures Trading Commission(“CFTC”), found that Defendants had misrepresented the backing of Tether tokens and in fact,
Defendants did not maintain the same amount of reserves as Tether tokens in circulation. At
times, Defendants had no reserves whatsoever. Further, these reserves did not contain U.S.
dollars, as Tether suggested, but were a mix of other assets, such as overcollateralized loans andother undisclosed commercial paper.
6.

To date, Tether maintains less than 4% in cash reserves and has yet to undergo asingle professional audit.
7.

Thus, while Defendants claim to be “transparent,” they have uniformly misledconsumers regarding the attributes of Tether tokens, the sufficiency of Tether’s reserves, andwhat those reserves contain.
8.

Had consumers, including Plaintiffs and Class members, known that these

representations were false they would not have purchased Tether tokens.

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PARTIESA.

Plaintiffs

9.

Plaintiff Matt Anderson is a resident of Suffolk County, New York.

10.

Plaintiff Anderson first purchased Tether tokens in 2017 on the Bittrex

cryptocurrency exchange. Since then, he has made several other purchases of Tether tokens onother cryptocurrency exchanges, including KuCoin and Cryptopia.
11.

For example, Plaintiff Anderson purchased Tether tokens on KuCoin on October

14, 2021, October 18, 2021, and October 24, 2021.
12.

As a result of Defendants’ misrepresentations and omissions, Plaintiff Anderson

believed that Tether tokens were a stablecoin backed one-to-one with the U.S. dollar.
13.

Had Plaintiff Anderson known that Tether tokens were not truly a stablecoin nor

backed one-to-one with the U.S. dollar, he would not have purchased, or would have paid
substantially less, for Tether tokens.
14.

Plaintiff Shawn Dolifka is a resident of Bexar County, Texas.

15.

Plaintiff Dolifka first purchased Tether tokens in August of 2021 on the Coinbase

Pro cryptocurrency exchange. Since then, he has made several other purchases of Tether tokens
on other cryptocurrency exchanges, including MEXC.
16.

For example, Plaintiff Dolifka purchased Tether tokens on September 23, 2021,

September 24, 2021, and October 1, 2021.
17.

As a result of Defendants misrepresentations and omissions, Plaintiff Dolifka

believed that Tether tokens were a stablecoin backed one-to-one with the U.S. dollar.
18.

Had Plaintiff Dolifka known that Tether tokens were not truly a stablecoin nor

backed one-to-one with the U.S. dollar, he would not have purchased, or would have paid
substantially less, for Tether tokens.
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B.

Defendantsa. Tether19.

Tether Holdings Limited is an entity organized under the laws of the British

Virgin Islands. Tether Holdings Limited is the holding company for Tether Limited, Tether
Operations Limited, and Tether International Limited.
20.

Tether Operations Limited is an entity organized under the laws of the British

Virgin Islands. Tether Operations Limited operates Tether’s website and token platform,
tether.to, to store, send, and make purchases of Tether tokens.
21.

Tether International Limited is a corporation organized under the laws of the

British Virgin Islands.
22.

Tether Limited is an entity organized under the laws of Hong Kong. Tether

Limited is responsible for creating and redeeming tokens as well as maintaining the one-to-one
deposit backing for Tether tokens. Tether Limited also operated Tether’s website and token
platform, tether.to, to store, send, and make purchases of Tether tokens between September 8,2017 and March 15, 2017.
23.

Tether began selling Tether tokens, including to customers in New York and theUnited States, since at least January 1, 2015.
24.

While Tether claims to have banned New York and United States customers frompurchasing Tether tokens in November 2017, this is false.
25.

Only in November 2018 did Tether update its Terms of Service to prohibit New

York and United States customers. But even after that time, Tether continued to sell Tether
tokens to individuals located in New York and the United States. Indeed, Plaintiffs were able topurchase Tether tokens after this time.

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26.

According to an investigation by the New York Attorney General, Tether

continued to sell significant amounts of Tether tokens to New York individuals through at least
late 2019. In fact, in 2019, Tether entered into a written agreement to loan Tether tokens to a
New York-based firm.
27.

Further, Tether continues to facilitate the purchase of Tether tokens in New Yorkto New York-based individuals by allowing Tether tokens to be purchased on cryptocurrency
exchanges other than Bitfinex.
28.

For example, Tether is available for purchase on the Poloniex cryptocurrency

platform, which is owned and operated by Circle Internet Financial, an entity licensed by the
New York Department of Financial Services.
29.

Until April 2019, Tether tokens were available for purchase on Bittrex

cryptocurrency platform, including by individuals in New York.
30.

Further, as alleged above, Plaintiff Anderson, a New York individual, purchased

Tether tokens on KuCoin on October 14, 2021, October 18, 2021, and October 24, 2021.
31.

As these examples demonstrate, Tether purposefully and routinely operated in

New York and permitted individuals in New York to purchase Tether tokens.
b. Bitfinex
32.

iFinex, Inc. is a corporation organized under the laws of the British Virgin

Islands. iFinex owns, operates, and controls the Bitfinex cryptocurrency platform.3
33.

BFXNA Inc. is a corporation organized under the laws of the British Virgin

3
There is substantial overlap in leadership, operation, and control between Bitfinex and Tether. Bitfinex’s top
executives, Giancarlo Devasini and Philip Potter, are beneficial owners of Tether. Ludovicus Jan Van Der Velde is
the CEO of both Tether and Bitfinex. Samuel Haig, Paradise Papers Reveal Bitfinex’s Devasini and Potter
Established Tether Already Back in 2014, BITCOIN.COM, (Nov. 23, 2017) https://news.bitcoin.com/paradise-papersreveal-bitfinexs-devasini-and-potter-established-tether-already-back-in-2014/.

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Islands. BFXNA Inc. maintains its principal place of business in Hong Kong, China. BFNXA
Inc. is a wholly-owned subsidiary of iFinex, Inc.
34.

BFXWW Inc. is a corporation organized under the laws of the British Virgin

Islands. BFXWW Inc. is a wholly-owned subsidiary of iFinex, Inc.
35.

Since at least January 1, 2015, Bitfinex operated in, and permitted customers

from, New York to use its cryptocurrency platform.
36.

While Bitfinex claims to have banned New York customers from transacting on

the platform through a provision in its Terms of Service in January of 2017, based on documents
obtained by the New York Attorney General, Bitfinex continued to permit New York customers
to access its website and use the Bitfinex platform.
37.

For example, in October 2018, Bitfinex “onboarded” a virtual currency firm

located in New York, as well as its associated entities, to use the Bitfinex platform.
38.

Likewise, documents uncovered by the New York Attorney General demonstratethat Bitfinex knew and permitted New York-based individuals to use its platform to trade Tether
tokens through at least early 2019.
39.

In April 2019, Bitfinex “verified” another individual to use its platform that it

knew resided in, and used the platform from, New York. For Bitfinex to “verify” an individual,
the individual must submit personally identifying personal information, which is reviewed by
Bitfinex. According to the New York Attorney General, Bitfinex verified a “significant number”
of New York residents between 2015 and at least 2019.
40.

Further, on March 12, 2018, a Bitfinex manager reminded the entire customer

team that customers did not need to be verified to “deposit/withdraw cryptocurrencies and trade
fully (including USD pairs” and that “there are no limits to this.” Further, the manager explained{2956 / CMP / 00164116.DOCX v5}

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that customers could “buy/sell . . . whatever from another site and transfer it here.” This
demonstrates that customers, including those in New York, could entirely bypass the purported
limitation contained in the Terms of Service.4 If an employee did encounter a U.S. person, they
were instructed not to include them on a “worksheet” used to track customer verification
requests.
41.

Bitfinex customer service representatives also encouraged U.S. customers tocircumvent its Terms of Service by using a VPN connection to mask the customer’s IP addressand hide their true location so as to make it appear as though they were in a location wheretrading was authorized.
42.

As these examples demonstrate, Bitfinex purposefully and routinely operated in

New York and allowed New York-based individuals to access its website and use its platform
throughout the Class Period.5
43.

Defendants have other substantial contacts with New York as well. For instance,

according to NYOAG investigation from 2014 through at least 2018, one of Defendants’ mostsenior executive, and largest shareholders, resided in and conducted business on their behalf
within New York, including with customers who appeared to be New-York based.
44.

Defendants also purposefully established relationships with New York financial

institutions to facilitate the operation of the Bitfinex platform and the sale of Tether tokens.
45.

According to the New York Attorney General, in December 2017, Defendants

opened bank accounts at the New York-based financial institution Metropolitan Commercial
Bank. Transactions at Metropolitan Commercial Bank were facilitated by a senior executive of

4

Indeed, the CFTC made this exact finding in its order against Bitfinex finding “Bitfinex customers, including thosein the U.S., could click through and simply ignore the TOS and continue to access the Bitfinex platform.”
5
Bitfinex also continues to offer at least two tokens other than Tether on its Bitfinex platform that are issued by
New York virtual currency companies.

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Defendants located in New York.
46.

In February 2018, Defendants opened bank accounts at the New York-based

financial institution Signature Bank. Transactions at Signature Bank were facilitated by a senior
executive of Defendants located in New York.
47.

Between June 2017 and October 2018, Defendants’ senior executive located in

New York facilitated Defendants’ transactions with Noble Markets LLC (“Noble”), based in
New York. Bitfinex opened a bank account at Noble Bank International, a Puerto Rican-based
entity and a subsidiary of New York-based Noble Markets LLC, in June 2017. Bitfinex’s Noble
Bank account received U.S. dollar deposits from two institutional trading firms, one of which
was located in New York. In September of 2017, Tether opened a bank account with Noble
Bank, at which time Bitfinex transferred $385,446,847.71 into Tether’s account.
48.

In 2017, Defendants entered into multiple “sponsored pool agreements” withNoble and virtual currency firms to settle virtual currency transactions in U.S. dollars. These
agreements contained a New York choice of venue provision.
49.

Defendants also engaged with several New York entities for the express purposeof continuing their misrepresentations that Tether tokens were a stablecoin backed one-to-one
with the U.S. dollar.
50.

Specifically, in 2017, Defendants engaged Friedman LLP, with offices in New

York, to review Tether cash reserves held at Noble Bank. According to the New York Attorney
General, part of this engagement took place in New York. Defendants published the results ofFriedman LLP’s review, which were available to New York residents and New York Tether
token purchasers.
51.

In 2018, Defendants engaged Freeh Sporkin & Sullivan LLP, a law firm with

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offices in New York, to review its Tether cash reserves. Defendants published the results ofFreeh Sporkin & Sullivan LLP’s review, which were available to New York residents and New
York Tether token purchasers.
52.

In 2017, Defendants engaged 5W Public Relations, a New York-based firm

located at 230 Park Avenue, New York, NY 10169, to be its “PR Agency of Record.” Thepurpose of this engagement was to, among other things, make public statements on Defendants’behalf regarding the Bitfinex platform and, specifically, Defendants’ cash-backing of Tether
tokens. For example, in response to a tweet about Defendants’ lack of transparency, 5W Public
Relations CEO tweeted, “We plan to release regular financial statements and are working withjournalists who can review our finances as wel [sic].” In furtherance of this engagement,
Defendants’ general counsel proposed an in-person meeting in New York City in November
2017.
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JURISDICTION AND VENUE
53.

This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §1332(a) because the amount in controversy in this case exceeds $75,000 as the Plaintiffs
collectively purchased more than $75,000 in Tether tokens and this action is between citizens ofdifferent states.
54.

This Court also has jurisdiction over this action pursuant to the Class Action

Fairness Act (“CAFA”), 28 U.S.C. § 1332(d), because at least one Class member is of diverse
citizenship from one Defendant, there are more than 100 Class members, and the aggregate
amount in controversy exceeds $5 million, exclusive of interest and costs. Given the estimatedsize of the class (i.e., approximately millions of individuals), statutory damages available toPlaintiffs and Class members under New York Gen. Bus. Law § 350 far exceed the $5 million
threshold as there are more than $76,502,325,882.13 of Tether tokens in circulation that were
fraudulently marketed. As does the likely value of any injunctive relief.
55.

This Court has personal jurisdiction over each Defendant because, as describedabove (see ¶¶ 23, 26-52) each Defendant transacted business in and maintained substantial
contacts in this District. Defendants’ conduct was intentionally directed at, and had the effect of,causing injury to persons residing in this District.
56.

Venue is proper in this District under 28 U.S.C. § 1391(b) because a substantial

part of the events, acts, and omissions giving rise to Plaintiffs’ claims occurred in this District.
FACTUAL ALLEGATIONSA.

The Rise of Cryptocurrency

57.

Cryptocurrencies are widely considered to be the future of finance.

Cryptocurrency is digital money based on blockchain technology. The first cryptocurrency,
Bitcoin, was created in 2009 and has continued to steadily rise in both popularity and value.
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Since Bitcoin’s creation, there have been more than 5,000 different cryptocurrencies incirculation. As of February 2021, more than 100 million people around the world are purchasing
cryptocurrency. Cryptocurrency is largely unregulated and is subject to governance and oversight
only by their respective creators and users.
58.

Cryptocurrency is decentralized, meaning there is no central authority, such as abank or government who manages and maintains its value. Unlike traditional paper money,
cryptocurrency has no physical form. Rather, it is a set of data secured by cryptography that is
encoded and later decoded back to its original form by the end-user. The cryptography comes in
the form of transactions that are verified and recorded in a blockchain program.
59.

A blockchain is an open online ledger and transaction log used to create digitalrecords of cryptocurrency transactions, certificates, or contracts. Each user of a cryptocurrency
has their own copy of the blockchain, creating a unified transaction record. The blockchain
records each new transaction in real time and updates every copy of the blockchain
simultaneously with the new information. The transactions are recorded in “blocks” that arelinked together on a “chain” of previous cryptocurrency transactions.
60.

All cryptocurrency transactions are validated for authenticity prior to being

added to the blockchain. The transactions are verified by individual users and each verified
transaction must be checked and approved by the majority of ledger holders.
61.

Because cryptocurrency has no physical form, purchasers of cryptocurrency

store their cryptocurrency in a digital “wallet,” which acts similar to a traditional bank account.
These wallets are digital addresses with private and public keys that enable users to send andreceive cryptocurrency. The private keys allow cryptocurrency to be unlocked and sent, and the
public keys enable the holder to receive cryptocurrency from any sender. If the user does not{2956 / CMP / 00164116.DOCX v5}

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have the proper keys, the network will reject the transaction.
62.

Cryptocurrency is purchased on peer-to-peer networks and cryptocurrency

exchanges, such as Bitfinex. These exchanges are platforms where buyers and sellers meet to
exchange cryptocurrencies. Some platforms allow users to purchase cryptocurrency with fiat
currency, while others only allow users to purchase cryptocurrency using anothercryptocurrency. Most cryptocurrency exchanges are not backed by the same protections asbanks, like the Federal Deposit Insurance Corp. (“FDIC”).
63.

Some cryptocurrencies are also sold at popular retailers, such as at Walmart,

Safeway, Albertsons, 7-Eleven, Rite Aid, and CVS. More than 20,000 retail locations sell
cryptocurrency, including 200 Walmart stores.
64.

There are various categories of cryptocurrencies. Tether tokens are a“stablecoin/ digital fiat,” a cryptocurrency that attaches its value to a government-backed
currency on the blockchain which has a fixed worth on cryptocurrency exchanges. Stablecoins
are intended to track the value of the fiat currency that backs it.
65.

Stablecoins like Tether tokens are attractive to consumers because, unlike mostcryptocurrencies, they do not suffer from extreme volatility. Since they track currencies like theU.S. dollar, the prices of stablecoins like Tether tokens are intended to remain mostly stable.
While extreme price fluctuations can result in high returns, they are also high risk. Thus,
consumers of stablecoin enjoy the benefits of cryptocurrency without risking extreme volatility.
Consumers can also earn money on stablecoins by holding them for the long term or lending
their tokens to borrowers and collecting interest.
B.

Bitfinex & Tether

66.

Bitfinex is a cryptocurrency exchange founded in 2012. Bitfinex offers a variety{2956 / CMP / 00164116.DOCX v5}

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of services for the purchase of cryptocurrency, including the Tether token. Bitfinex also serves asa digital wallet, allowing users to store their cryptocurrency and facilitating transfers to different
exchange platforms. Bitfinex permits users to deposit cryptocurrency and fiat currency, such as
U.S. dollars, into their accounts in order to purchase cryptocurrencies. Bitfinex also facilitates
the conversion of cryptocurrency back into fiat currency for the user to withdraw their funds.
67.

Tether tokens were originally dubbed “Realcoins” and were created by Brock

Pierce at a Santa Monica-based startup in 2014. Realcoin was set to be a digital currency thatwas backed one-to-one by fully auditable reserve of dollars. Realcoin’s Chief Executive Officer,
Reeve Collins, stated at the time that the company would maintain a real-time record of its
dollar-based reserves.
68.

As a stablecoin designed to maintain constant value and avoid the pricevolatility of other cryptocurrencies, and thereby enabling users to “transact with fiat currencies
across exchanges[,]” Tether tokens are not a security or investment. Rather, Tether tokens sit in a
consumer’s digital wallet or virtual account at Bitfinex or another exchange waiting to be
consumed or used.
69.

Shortly after this announcement, Realcoin rebranded as Tether tokens to avoid

confusion with “altcoins.” Mr. Collins explained the rebranding “We’re not an altcoin, we’re not
our own blockchain. We’re a service, a token that represents dollars. Our [specialty] at Tether iscurrencies on the blockchain, so Tether means a digital tie to a real-world asset and the digitalassets that we're focused on is currencies.”{2956 / CMP / 00164116.DOCX v5}

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FIGURE 270.

Mr. Collins explained that Tether tokens were “purely digital dollars” that are“just representing dollars, in our bank account.” There was no complex formula to Tether tokens,
and, according to Mr. Collins, the number of Tether tokens in circulation would always equate to
the dollars Defendants’ bank.
71.

Tether’s website confirmed the same, stating that Tether tokens were “100%Backed” and that “[e]very tether is always backed 1-to-1, by traditional currency held in our
reserves. So 1 USD[T] is always equivalent to 1USD.”FIGURE 3

72.

In January of 2015, Bitfinex announced that Tether tokens would be integrated

with its platform to enable verified Bitfinex users to fund their accounts and withdraw U.S.
dollar balances directly and securely without using traditional financial institutions. By May of2015, there were more than 450,000 Tether tokens in circulation.

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73.

Since then, Tether tokens have since grown into the third largest cryptocurrency

in the world based on market value and currently has more than $60 billion worth of Tether
tokens in circulation. Tether tokens are the most popular stablecoin and is the most traded
cryptocurrency by volume, often doubling that of Bitcoin. Tether tokens are listed on several
dozen cryptocurrency exchange platforms around the world, including Bitfinex.
C.

Tether Consistently Represented Tether Tokens Were Backed 1:1 by U.S.
Dollars74.

Tether has a history of failing to disclose its relationships. In 2017, documents

were leaked that revealed Bitfinex’s chief executive officer, Ludovicus Jan Van Der Velde, wasalso the chief executive officer and director of Tether, and Bitfinex’s chief financial officer,
Giancarlo Devasini was a director and shareholder of Tether. Similarly, Tether only announced
its banking partners in 2018, after rumors began to circulate about its solvency.
75.

But the biggest controversy is Tether’s claim that it always held one-to-one

reserves in U.S. dollars for all its authorized, issued, and sold Tether tokens and that each Tether
token is backed by its corresponding currency.
76.

As stated above, since its inception Tether has claimed that Tether tokens were“purely digital dollars” that are “just representing dollars, in our bank account.” In addition toclaiming that Tether tokens are backed 1-to-1 by U.S. dollars, Tether has also consistently
promised to undergo routine, professional audits to confirm its representations.
77.

Tether confirmed the same on its website, stating that Tether tokens were“digital money” and that “Every tether is always backed 1-to-1, by traditional currency held in
our reserves. So 1 USD[T] is always equivalent to 1 USD.” Tether also claimed its “reserve
holdings” were published daily and “subject to frequent professional audits,” confirming “Alltethers in circulation always match [its] reserves.”{2956 / CMP / 00164116.DOCX v5}

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FIGURE 478.

Tether’s Twitter account made the same representations, claiming that each

Tether token “represents dollars.”
79.

Tether repeated these sentiments in a whitepaper titled “Tether: Fiat Currencies

on the Bitcoin blockchain” Tether represented:
Tether’s Proof of Reserves configuration is novel because it simplifies the processof proving that the total number of tethers in circulation (liabilities) are always fully
backed by an equal amount of fiat currency held in reserve (assets). In ourconfiguration, each tetherUSD in circulation represents one US dollar held in our
reserves (i.e. a one to one ratio) which means the system is fully reserved when thesum of all tethers in existence (at any point in time) is exactly equal to the balanceof USD held in our reserve. Since tethers live on the Bitcoin blockchain, theprovability and accounting of tethers at any given point in time is trivial.
Conversely, the corresponding total amount of USD held in our reserves is provedby publishing the bank balance and undergoing periodic audits by professionals
80.

Tether would make these same representations in blog posts, interviews, andpublic court filings. For instance, in April 2017, in a federal lawsuit filed by Tether Limited,
iFinex and Bitfinex, they represented that “Tether is a digital token and each Tether unit issued
into circulation is backed one-to-one by the U.S. Dollar, i.e., customer dollars held by Tether.”
See iFinex v. Wells Fargo, Case No. 3:17-cv-01882 (N.D. Cal. Apr. 5, 2017). Given these
constituent representations, it became public knowledge that Tether tokens were purportedly{2956 / CMP / 00164116.DOCX v5}

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backed 1-to-1 by U.S. dollars in reserves.
A. Defendants knowingly Mislead Consumers
81.

Each of these representations were false. According to the New York Office of

the Attorney General, (“NYOAG”), prior to 2017, Defendants utilized several Taiwan-based
banks to send and receive wire transfers to fulfill customer orders for U.S. dollars. Defendants
used Wells Fargo to execute these wire transfers, but Wells Fargo discontinued this arrangementin March 2017.
82.

At the time Wells Fargo discontinued this arrangement, 50 million Tether

tokens were issued and in circulation. By May 31, 2017, this number had doubled to more than
108 million Tether tokens. Between June 1, 2017 and September 15, 2017, this number rose to
442 million Tether tokens.
83.

Tether did not have any significant banking relationships between March 2017

and September 15, 2017. The only relevant entity that did was Bitfinex, who opened an accountwith Noble Bank International, a subsidiary of New York-based Noble Markets LLC, in June of2017. Significantly, between June 1, 2017 and September 15, 2017, Bitfinex’s Noble accountreceived USD deposits from only two institutional trading firms, one located in New York,neither of which purchased Tether tokens directly from Defendants.
84.

Between June 1, 2017 and September 15, 2017, Bitfinex held approximately$382 million of Tether’s funds in a comingled account. These funds should have been held byTether to back the Tether tokens in circulation but were not. Tether accounted for this money asa “receivable” from Bitfinex.
85.

The only account tangentially related to Tether was a trust account at the Bankof Montreal in the name of Tether’s General Counsel. This account never had more than $61.5{2956 / CMP / 00164116.DOCX v5}

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million in deposits, equivalent to nearly half of Tether tokens in circulation on May 31, 2017 andless than a quarter of the approximate 442 million in circulation as of September 15, 2017.
86.

In May 2017, Defendants promised to conduct a “comprehensive balance sheet

audit” by June 30, 2017. Defendants noted that “[a] third-party audit is important to all Bitfinex
stakeholders” and that this process would “cement[] customer and shareholder confidence.”
Defendants retained U.S.-based firm Friedman LLP, an accounting and advisory services firm, tocomplete audits of both Tether and Bitfinex. These audits were never completed.
87.

Shortly thereafter, reports began to circulate that Defendants did not havesufficient cash backing to support the increasing number of Tether tokens in circulation.
Defendants stated that the “outlandish conspiracy theories suggesting that Tether is not backed
1:1 by currency on deposit with bank institutions” were “unequivocally false, and the audits willbear that out.”88.

In an attempt to address these concerns, Defendants requested that Friedman

LLP conduct a verification of its cash backings, despite the fact that Tether did not have a bankaccount at the time. The parties agreed that Friedman LLP would conduct its verification on
September 15, 2017.
89.

On the morning of September 15, 2017, Tether opened a bank account at Noble

Bank and Bitfinex transferred approximately $382 million from its bank account to Tether’s.
90.

Friedman LLP compared Defendants’ own documentation that it provided toFriedman LLP to the “Omni Layer Protocol,” which is a software that allows for the issuanceand redemption of tokens like Tether tokens. Friedman LLP utilized the Omniexplorer.info
website, which is a block explorer that displays Tether token balances and transaction data to
trace the balances on the website to Defendants’ own documentation. However, Friedman LLP{2956 / CMP / 00164116.DOCX v5}

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disclaimed that it did not perform any “procedures around the parameters orcompleteness/accuracy of the Omni Layer Protocol or the Omniexplorer.info website during [its]examination.”
91.

Using this website, Friedman LLP analyzed what it refers to as a “creation

address.” Defendants represented to Friedman LLP that this address was “controlled by”
Defendants and was “inclusive of all Tether tokens issued.” Based on its review of this account,
Friedman LLP reported that the total number of Tether tokens in circulation was 444,951,600.
92.

With respect to cash balances, Friedman LLP indicated that Defendants held

$442,984,592 as of September 15, 2017, in various bank accounts—at least one of which wasmaintained “for the benefit of Tether Limited” i.e., the trust account of its General Counsel. A
majority of these funds, i.e., $382 million, were the funds deposited from Bitfinex that same day.
FIGURE 5

93.

Friedman LLP expressly stated that it could not make any representations about“the Client’s ability to access funds from the accounts or whether the funds are committed for{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 20 of 46

purposes other than Tether token redemptions.”
94.

Defendants then published Friedman LLP’s findings on its website and Twitter

account on September 30, 2017, claiming that it has “[a]lways full reserves.”
FIGURE 6

95.

Defendants further stated on their websites that the report was a “good faitheffort on [its] behalf to provide an interim analysis of [its] cash position and [its] issued andoutstanding tokens, as part of [its] ongoing efforts to further professionalize the transparency
mechanisms of Tether Limited.”96.

The NYOAG found that these representations were misleading, as Tether tokens

were not backed 1-to-1 by U.S. dollars between at last June 1, 2017 and September 15, 2017. It
explained “[n]o one reviewing Tether’s representations would have reasonably understood thatthe $382,064,782 listed as cash reserves for tethers had only been placed in Tether’s account asof the very morning that Friedman verified the bank balance.”
97.

In October 2017, according to the CFTC, Defendants held at least twelve

accounts with unlicensed money transmitting business in Panama called Crypto Capital Corp.
These accounts were commingled to hold funds relating to Bitfinex customer transactions andTether token issuances. In August 2018, these accounts also commingled Tether token reserves.
There were no agreements governing the handling of these accounts, and, according to the{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 21 of 46

CFTC, Defendants “did not receive or have access to all period account statements issued” and,instead “maintained an internal ledger of the funds they believed were held in those accounts.”
98.

Between October 2017 and November 2018, Defendants instructed customers towire payment to these accounts. In the beginning of 2018, $480 million were deposited in theseaccounts. Around the same time, Defendants encountered serious issues with withdrawing thesefunds, but continued to use these accounts. At one point Defendants stated “over 80% of ourmoney is now with you,” and “we have too much money with you and almost nothingelsewhere.”99.

During the summer of 2018, Bitfinex borrowed $400 million from Tether toaddress what Bitfinex characterized as a “temporary liquidity crisis.” Between August 21, 2018
and September 2018, Tether made four cash transfers to Bitfinex. In October 2018, Bitfinex
redeemed 400 million Tether tokens to repay its debt. These transactions were never disclosed toconsumers.
100.

In June 2018, Defendants retained the law firm of Freeh, Sporkin & Sullivan

LLP (“FSS”) to review bank accounts purportedly “owned or controlled by Tether” and otherdocumentation. FSS received from these respective banks notarized statements stating that as ofJune 1, 2018 these accounts held $2.5 billion in USD. It then had Defendants’ Chief Financial
Officer and General Counsel certify that on the same date, there were 2.5 billion Tether tokens incirculation. Notably, FSS is not an accounting firm, FSS “did not perform the above review andconfirmation using Generally Accepted Accounting Principles,” did not conduct “an audit,” andmade no “conclusions as to Tether’s compliance with applicable laws and regulations in any
jurisdiction.”
101.

Defendants published FSS’ findings on its website and Twitter account on June

{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 22 of 46

20, 2018, claiming that it was a “transparency update.”
FIGURE 7

102.

Defendants further stated on their website that they released this report tocounter the “speculation and negative reporting” regarding Tether which it claims arose from a“misunderstanding of how Tether functions.” Defendants, yet again, “stood by the fact that all
circulating USD Tethers are backed by [its] reserves” and that FSS’s report was “independent
verification of this.”103.

Defendants stated unequivocally that “[a]ll Tethers in circulation are fully

backed by USD reserves. Full stop. Memoranda, consulting reports, industry leaders,
cryptocurrency pioneers, and competitors have all confirmed this.”104.

In 2018, more rumors emerged that Tether tokes were not backed by U.S.

dollars on a one-to-one basis. Charles Hayter, the chief executive of CryptoCompare, told CNBC
{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 23 of 46

that “[t]here is concern about tether and whether it is truly backed by dollars and rumors about
USDT (tether) being delisted from various exchanges.” Around the same time, the value ofTether tokens dropped below one dollar.
105.

On November 1, 2018, Tether publicly announced that it had established arelationship with Deltec Bank & Trust Limited (“Deltec”) in the Bahamas. Tether again
represented that “USDT in the market are fully backed by US dollars that are safely deposited inour bank accounts.”
106.

The announcement was accompanied by a letter from Deltec stating that “theportfolio” held approximately $1.8 billion in “cash value.”
FIGURE 8107.

Tether posted the announcement to its Twitter account, stating “Balance

confirmation at 2018-10-31 attached.”
FIGURE 9{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 24 of 46

108.

The very next day, Tether made the first of five transfers totaling $475 million

to a Bitfinex account. Bitfinex also purported to “purchase” 150 million Tether tokens bytransferring $150 million in funds to a Tether account. Neither of these transactions weredisclosed. To date, only a quarter of Tether’s funds are held with Deltec.
109.

When asked why money moved between Bitfinex and Tether accounts byreporters at The Verge, a Tether spokesperson declined to comment and stated that “Tether andBitfinex are two different business and groups with two different objectives.”
110.

In late February 2019, Tether updated its website to change its representations

regarding its reserves. This change was not announced.
FIGURE 10{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 25 of 46

111.

Only in March 2019 did Tether update its disclosure statement to state that its

tokens are no longer backed 100% by U.S. dollar deposits. Tether instead claimed its tokens arebacked by their reserves and that those reserves included fiat currency and cash equivalents, aswell as “other assets and receivables from loans made by Tether to third parties, which may
include affiliated entities.”112.

To date, Tether has not undergone a professional audit, despite its

representations that it would do so.
D.

Government Investigations Confirm Defendants Misled Consumers

113.

In November 2018, the NYOAG launched an investigation into Bitfinex andTether relating to a series of conflicted corporate transactions, which were not disclosed toinvestors, whereby Bitfinex took at least $700 million of Tether’s cash reserves in an attempt tohide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals.
114.

In April 2019, the NYOAG obtained an injunction against further transfers ofassets between and among Bitfinex and Tether. Defendants released a statement claiming that the
NYOAG’s court filings in obtaining the order were “written in bad faith” and were “riddled withfalse assertions.” Defendants stated that “[b]oth Bitfinex and Tether are financially strong—fullstop.”
115.

Based on its investigation, the NYOAG ultimately found that Bitfinex andTether “recklessly and unlawfully covered-up massive financial losses to keep their scheme
going and protect their bottom lines” through its movement of hundreds of millions of dollars
between the two companies.
116.

The NYOAG also found that Tether’s numerous claims that Tether tokens were

fully backed by U.S. dollars at all times was a lie. According to Attorney General Letitia James{2956 / CMP / 00164116.DOCX v5}

25

Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 26 of 46“[t]hese companies obscured the true risk investors faced and were operated by unlicensed andunregulated individuals and entities dealing with the darkest corners of the financial system.”
117.

Bitfinex and Tether entered into a settlement with the NYOAG over its illegal

activity in New York on February 18, 2021, with the NYOAG finding that Defendants violated
New York General Business Law § 352.
118.

The settlement requires Bitfinex and Tether to discontinue any trading activity

with New Yorkers and to submit regular reports to the NYOAG to ensure compliance with thisprohibition. In addition, Bitfinex and Tether are required to submit to mandatory reporting on aquarterly basis, that they are properly segregating corporate and client accounts, including
segregation of government-issued and virtual currency trading accounts by company executives;
as well as submit to mandatory reporting regarding transfers of assets between and among
Bitfinex and Tether entities. It also requires Tether to offer categorized public disclosuresof theassets backing Tether tokens, including disclosures of any loans or receivables to or fromaffiliated entities.
119.

The settlement also requires Bitfinex and Tether to pay $18.5 million dollars inpenalties to the state of New York.
120.

On October 15, 2021, the Commodity Futures Trading Commission (“CFTC”)

announced the simultaneous filing and settlement of charges against Tether related to its
misrepresentations that Tether maintained sufficient fiat reserves to back every Tether token incirculation one-to-one with the equivalent amount of corresponding currency held in Tether
reserves and that Tether would undergo routine, professional audits to demonstrate that it
maintained 100% reserves at all times.
121.

The CFTC investigation revealed that from at least June 1, 2016, to February{2956 / CMP / 00164116.DOCX v5}

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25, 2019, Tether failed to maintain fiat currency reserves in accounts in Tether’s own name or inan account titled and held in trust for Tether to back every Tether token in circulation. Despite
Tether’s representations that it maintained adequate reserves, the CFTC found that Tether did not
at all times hold sufficient fiat reserved in Tether bank accounts to back the Tether tokens incirculation for a substantial majority of the time period. In fact, the CFTC found that between
September 2, 2016 and November 1, 2018, “the aggregate among of fiat currency held by Tether
in the Tether Bank Accounts was less than the corresponding USD[T] tokens in circulation on
573 of 791 days.” The CFTC concluded that “contrary to [Defendants’] representations, theTether Reserves were ‘full-backed’ by fiat currency held in the Tether Bank Accounts only
27.6% of the time.”
122.

Furthermore, the CFTC found during June 1, 2016, to February 25, 2019, Tether

relied upon unregulated entities and third-parties to hold some of their Tether reserve funds andcommingled Tether reserves with funds belonging to Bitfinex and/or Bitfinex customers. During
this time period, Tether and Bitfinex’s assets included funds held by or received from thirdparties pursuant to at least 51 different arrangements, only 22 of which were documented
through formal agreements or contracts.
123.

Moreover, the investigation found that from at least 2018 through February 25,

2019, Tether failed to disclose that the Tether reserves were calculated including unsecured
receivables, commercial papers, funds held by third-parties, and other non-fiat assets. The CFTC
found that Tether reserves were “held in non-fiat financial products and other less-liquid assets
including commercial paper, and bank repurchase agreements. At various times . . . [Defendants]
also considered anticipated receivables and anticipated wire transfers as assets for purposes ofcalculating Tether Reserves.”{2956 / CMP / 00164116.DOCX v5}

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124.

The investigation also revealed that the Tether reserves were not routinely

audited despite Tether’s representations otherwise. Between at least June 1, 2016, and February
25, 2019, Tether retained independent third-parties to conduct reviews of the Tether reserves
only twice. The first time in 2017, Tether retained an accounting firm to review the Tether
reserves against fiat currency held in Tether’s name on a single date—September 15, 2017—adate selected by Tether and known ahead of the accounting firm’s review and the same date
Bitfinex transferred approximately $382 million to Tether’s account. The second audit occurredin 2018 when Tether retained a law firm to compare its holdings in two bank accounts to theTether tokens in circulation as of June 1, 2018, based on information provided by Tether or
publicly available on the blockchain.
125.

The CFTC also concluded that Tether’s method of tracking the Tether reserves

did not capture the real-time status of the Tether reserves. At least until 2018, rather thanemploying an automated method for tracking Tether reserves against Tether tokens in circulationin real time, Tether utilized an internal, proprietary database to store data regarding Tether token
issuances and redemptions and customer’s transaction information which required information
regarding the amount of fiat currency held as Tether reserves to be input manually. During thistime, Tether’s internal accounting system for tracking Tether reserves consisted of a spreadsheet,
which was not always kept up to date in real time.
126.

Based on its investigation, the CFTC found that Tether violated the Commodity

Exchange Act and Commission Regulations by intentionally or recklessly making untrue or
misleading statements of material facts and by omitting to state material facts necessary in orderto make the statements not untrue or misleading. The CFTC found Tether’s repeated
representations that it would fully back the Tether token with the US dollar in accounts held in{2956 / CMP / 00164116.DOCX v5}

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its own name, omissions regarding the actual backing of Tether tokens including non-fiat assets,
representations that it would undergo regular professional audits, and omissions regarding the
pre-disclosed timing of one of the two reviews it did undertake, to be untrue or misleadingstatements and omissions.
127.

Tether entered into a settlement with the CFTC over its untrue or misleadingstatements and omissions on October 15, 2021. The settlement requires Tether to cease anddesist from violating the Commodity Exchange Act and Commission Regulations and to pay acivil monetary penalty of $41 million dollars.
A. Defendants Continue to Deceive Consumers
128.

Consistent with the terms of its settlement with the NYOAG, Tether Holdings

Limited began making available a breakdown “of the categories of assets forming the basis of
Tether’s issued token reserves on March 31, 2021.” It explained that it would continue to releasea breakdown for the next two years.
129.

Tether’s Chief Technology Officer dubbed the report “unrivaled transparency”

even though it consisted of a single page.

{2956 / CMP / 00164116.DOCX v5}

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FIGURE 11130.

As represented in Figure 11, Tether considers 75.85% of its reserves to be“Cash & Cash Equivalents & Other Short-Term Deposits and Commercial Paper.” A shockingly
low 3.87% of these reserves are actually cash.
131.

On May 14, 2021, Frances Coppola, a financial commentor, explained theanalysis “confirms . . . that Tether has almost no cash dollars on its balance sheet . . . we now
know there are hardly any real dollars backing these tokens. We have come a long way since
Tether claimed on its website that all USDT in existence were 100% backed by real US
dollars.”132.

As shown in Figure 11, Tether list a whopping 65.39% of its reserves as“commercial paper.” On this, Ms. Coppola explained, “We do not know if this debt is secured or{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 31 of 46

unsecured, nor what the assets backing it are (if there are any). And we have no idea who theborrowers are . . . The reserves are thus exposed to unknown levels of credit and liquidity risk.”
She concluded, “The 1:1 peg to the USD is therefore not remotely credible.”133.

To date, Defendants now have 69 billion Tether tokens in circulation. Tether’s

own reporting, if it is accurate, would make it “one of the largest holders of commercial paper inthe world,” specifically seventh in the world, dwarfing investments from tech giants like Google
and Apple, and placing it with the likes of Charles Schwab and Vanguard Group. Its assets ingeneral would place it in one of the 50 largest banks in the U.S., if it were not an unregulatedcompany.
134.

In a recent interview with CNBC’s Deirdre Bosa, Tether’s General Counsel

Stuart Hoegner and Chief Technology Officer Paolo Ardoino refused to answer what Tether
considers “commercial paper” or where it comes from.
135.

Tellingly, however, “major trading desks stated to the press that they had neverworked with them or seen them in the market.” Deborah Cunningham, the Chief Investment
Officer of global money markets at Federated Hermes, explained “[i]f there were a new entrant,
it would be usually very obvious.”
136.

According to an investigative report by Bloomberg, one of Tether’s former

bankers stated that Tether tokens are “not a stablecoin” but a “high-risk offshore hedge fund”
explaining that “their own banking partners don’t know the extent of their holdings, or if they
exist.”
137.

Bloomberg reports that billions of dollars of Tether’s reserves are held in short-term loans to large Chinese companies, which money market funds typically avoid as one of thecountry’s largest property developers has started to collapse. Tether also hold billions of dollars{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 32 of 46

in loans to other crypto companies, with Bitcoin—a highly volatile cryptocurrency—as thecollateral. Tether’s attorneys declined to comment on whether they hold Chinese commercial
paper other than Evergrande debt. Tether’s representation that it is backed 1:1 would be incorrecteven if a small percentage of these loans failed.
138.

Recently, Hindenburg Research, a forensic financial research firm, announced areward of up to $1,000,000 for additional information regarding Tether token’s backing giventhese stark discrepancies in Tether’s representations.
139.

Regarding audits, Tether’s General Counsel continues to assert that Tether is“working toward getting financial audits,” which it has promised—but not delivered—since
2014.
TOLLING OF THE STATUTE OF LIMITATIONS
140.

The applicable statutes of limitation have been tolled because of Defendants’knowing and active concealment and denial of the facts alleged herein, namely their practice of
misrepresenting attributes of Tether tokens.
141.

As alleged in detail herein, Defendants expressly and impliedly assured

consumers that Tether tokens were backed one-to-one with the U.S. dollar. Defendants knew thiswas false and misrepresented and concealed the nature and extent of their actions and intentions.
142.

Plaintiffs and Class members could not, with due diligence, have discovered thefull scope of Defendants’ conduct, due in no small part to Defendants’ deliberate efforts toconceal such conduct. All applicable statutes of limitation also have been tolled, by operation of
the discovery rule and Defendants’ fraudulent concealment, at least until, the release of the
NYOAG settlement on February 17, 2021.
143.

Defendants were under a duty to disclose that its misrepresentations and{2956 / CMP / 00164116.DOCX v5}

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omissions were false but did not do so. Defendants are therefore estopped from relying on any
statute of limitations.
CLASS ACTION ALLEGATIONS
144.

Plaintiffs bring this action pursuant to Federal Rule of Civil Procedure 23 onbehalf of himself and all others similarly situated, as representative of the following Classes:
Nationwide Class: All persons who purchased Tether tokens
between 2014 and Present.
Nevada Subclass: All residents of the State of Nevada whopurchased Tether tokens between 2014 and Present.
145.

Excluded from the Classes are: (1) any Judge or Magistrate presiding over thisaction and any members of their families; (2) Defendants, Defendants’ subsidiaries, parents,
successors, predecessors, and any entity in which Defendants or their parents have a controllinginterest and their current or former employees, officers, and directors or defendants’ coconspirators; (3) persons who properly execute and file a timely request for exclusion from theClasses; (4) persons whose claims in this matter have been finally adjudicated on the merits orotherwise released; (5) Plaintiffs’ counsel and Defendants’ counsel; and (6) the legal
representatives, successors, and assigns of any such excluded persons.
146.

Certification of Plaintiffs’ claims for Class-wide treatment are appropriate

because all elements of Fed. R. Civ. P. 23(a) and (b)(2)-(3) are satisfied. Plaintiffs can prove theelements of their claims on a Class-wide basis using the same evidence as would be used toprove those elements in individual actions alleging the same claims.
147.

Numerosity: The members of the Classes are so numerous that individual joinderof all Class members in a single action is impracticable. For instance, according to Bloomberg,
Tether has sold more than 48 billion Tether tokens in 2021. While Plaintiffs are informed andbelieve that there are likely hundreds of thousands (if not millions) of members of the Classes,{2956 / CMP / 00164116.DOCX v5}

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the precise number of Class members is unknown to Plaintiffs. Class members may be identified
through objective means, including Defendants’ own records. Class members may be notified ofthe pendency of this action by recognized, court-approved notice dissemination methods
148.

Commonality and Predominance: There are common questions of law and fact

to the Class members, which predominate over any questions affecting only individual Class
members. These common questions of law and fact include, without limitation:a. Whether Defendants violated New York Gen. Bus. Law § 349 by misrepresenting
and omitting the attributes of Tether tokens;b. Whether Defendants violated Nev. Rev. Stat. § 41.600 by misrepresenting andomitting the attributes of Tether tokens;c. Whether Defendants’ misrepresentations and omissions regarding the attributes ofTether tokens constitute breach of express and implied contract between
Defendants and Plaintiffs and Class members;d. Whether Defendants have been unjustly enriched;e. Whether Plaintiffs and Class members are entitled to equitable relief, including but
not limited to, injunctive relief, restitution, and disgorgement; and,f. Whether Plaintiffs and Class members are entitled to actual, statutory, punitive, orother forms of damages, and other monetary relief.
149.

Typicality: Plaintiffs’ claims are typical of the claims of all Class members

because, like other Class members, Plaintiffs were harmed by Defendants’ unlawful anddeceptive misrepresentations and omissions concerning Tether tokens.
150.

Adequacy of Representation: Plaintiffs are adequate Class representatives

because they are members of the Class and their interests do not conflict with the interests ofother Class members that they seek to represent. Plaintiffs are committed to pursuing this matterfor the Class with the Class’s collective best interest in mind. Plaintiffs have retained counselcompetent and experienced in complex class action litigation of this type and Plaintiffs intend toprosecute this action vigorously. Plaintiffs and their counsel will fairly and adequately protect the{2956 / CMP / 00164116.DOCX v5}

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Class’s interests.
151.

Predominance and Superiority: As described above, common issues of law orfact predominate over individual issues. Resolution of those common issues in Plaintiffs’ casewill also resolve them for the Class’s claims. In addition, a class action is superior to any otheravailable means for the fair and efficient adjudication of this controversy and no unusual
difficulties are likely to be encountered in the management of this class action. The damages orother financial detriment suffered by Plaintiffs and other Class members are relatively small
compared to the burden and expense that would be required to individually litigate their claims
against Defendants, so it would be impracticable for members of the Class to individually seek
redress for Defendants’ wrongful conduct. Even if Class members could afford individual
litigation, the court system could not. Individualized litigation creates a potential for inconsistentor contradictory judgments and increases the delay and expense to all parties and the court
system. By contrast, the class action device presents far fewer management difficulties andprovides the benefits of single adjudication, economies of scale, and comprehensive supervision
by a single court.
152.

Plaintiffs reserve the right to revise the foregoing class allegations and definitions

based on facts learned and legal developments following additional investigation, discovery, orotherwise.
CLAIMS FOR RELIEF
FIRST CLAIM FOR RELIEF
Violation of New York’s Uniform Deceptive Trade Practices Act(Gen. Bus. Law § 349, et seq.)
153.

Plaintiffs re-allege and incorporate the preceding allegations of this Complaint withthe same force and effect as if fully restated herein.
154.

New York’s Uniform Deceptive Trade Practice Act (“GBL § 349”) prohibits{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 36 of 46“deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishingof any service in this state.” GBL § 349(a).
155.

Defendants conducted business, trade, or commerce in New York State.

156.

As consumers who purchased Tether tokens, Plaintiffs and Class members are“person[s]” within the meaning of GBL § 349.
157.

Plaintiffs are authorized to bring a private action under New York’s Uniform

Deceptive Trade Practices Act, Gen. Bus. Law § 349(h).
158.

Plaintiffs and Class purchased Tether tokens in connection with transactions in“business” “trade” or “commerce” within the meaning of GBL § 349.
159.

This Count is brought for Defendants’ deceptive conduct, including their unlawful

and deceptive acts concerning attributes of Tether tokens, as alleged herein.
160.

Defendants engaged in unlawful and deceptive acts and practices in the conduct oftrade or commerce and furnishing of services purchased by Plaintiffs and the Class in violation of
GBL § 349, including but not limited to the following:a.

Defendants misrepresented that Tether tokens were at all times backed one-to-one
by the U.S. dollar;b.

Defendants omitted, suppressed, and concealed Tether tokens were not at all times
backed one-to-one by the U.S. dollar;c.

Defendants engaged in deceptive, unfair, and unlawful acts by publicly denying
claims that Tether tokens were not backed one-to-one by the U.S. dollar;d.

Defendants misrepresented that they underwent routine, professional audits of theirreserves;e.

Defendants omitted, suppressed, and concealed that they did not undergo routine,
professional audits of their reserves;f.

Defendants misrepresented that Tether tokens were pegged or tied to the U.S.
dollar;{2956 / CMP / 00164116.DOCX v5}

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Defendants omitted, suppressed, and concealed that Tether tokens were not pegged
or tied to the U.S. dollar; andh.

Defendants held themselves out as having sufficient reserves while they knew thatthey did not.

161.

Defendants systematically engaged in these deceptive, misleading, and unlawfulacts and practices to the detriment of Plaintiffs and Class members.
162.

Defendants willfully engaged in such acts and practices and knew or acted inreckless disregard for whether they violated GBL § 349.
163.

Defendants’ representations and omissions were material because they were likely

to deceive reasonable consumers about the attributes of Tether tokens and whether they werebacked one-to-one by the U.S. dollar.
164.

Plaintiffs and Class members relied on Defendants’ deceptive representations andomissions when they paid money or other consideration in exchange for Tether tokens.
165.

Plaintiffs and Class members had no way of knowing Defendants’misrepresentations were false and that Tether tokens were not backed one-to-one by the U.S.
dollar, as only Defendants had exclusive knowledge of their internal business practices and cash
reserves.
166.

Plaintiffs and Class members have been injured as a direct and proximate result of

Defendants’ violations as they would not have purchased, or would have paid significantly lessfor, Tether tokens had they known these statements were false and of Defendants’ omissions.
167.

The above unfair and deceptive acts and practices by Defendants were immoral,

unethical, oppressive, and unscrupulous. These acts caused substantial injury to consumers thatthe consumers could not reasonably avoid. This substantial injury outweighed any benefits to
consumers or to competition.
168.

Plaintiffs and Class members seek all monetary and non-monetary relief allowed{2956 / CMP / 00164116.DOCX v5}

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by law, including actual damages or statutory damages of $50 per class member, whichever isgreater, treble damages, injunctive relief, and attorneys’ fees and costs.
SECOND CLAIM FOR RELIEF
Nevada Deceptive Trade Practices Act(Nev. Rev. Stat. § 41.600, et seq.)(on behalf of the Nevada Subclass)
169.

Plaintiffs re-allege and incorporate the preceding allegations of this Complaint withthe same force and effect as if fully restated herein.
170.

The Nevada Deceptive Trade Practices Act (“NDTPA”) authorizes a private rightof action on behalf of “any person who is the victim of consumer fraud. N.R.S. § 41.600(1).
171.

“Consumer fraud” is defined as any “deceptive practice” as defined in N.R.S. §598.0915. Defendants engaged in a “deceptive practice” in the course of their business in violationof § 598.0915(2), (5), (7), (9), and (15). Specifically, Defendants:
a. Defendants misrepresented that Tether tokens were at all times backed one-to-one
by the U.S. dollar;b. Defendants omitted, suppressed, and concealed Tether tokens were not at all times
backed one-to-one by the U.S. dollar;c. Defendants engaged in deceptive, unfair, and unlawful acts by publicly denying
claims that Tether tokens were not backed one-to-one by the U.S. dollar;
d. Defendants misrepresented that they underwent routine, professional audits of theirreserves;
e. Defendants omitted, suppressed, and concealed that they did not undergo routine,
professional audits of their reserves;f. Defendants misrepresented that Tether tokens were pegged or tied to the U.S.
dollar;g. Defendants omitted, suppressed, and concealed that Tether tokens were not pegged
or tied to the U.S. dollar; andh. Defendants held themselves out as having sufficient reserves while they knew thatthey did not.
{2956 / CMP / 00164116.DOCX v5}

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172.

Defendants had a duty to disclose these material facts but did not do so. Defendants

had a duty to disclose because: (a) they were aware of their own reserves and audit procedures; (b)they had exclusive knowledge of its reserves and audit procedures; (c) they actively concealed
material facts concerning Tether tokens, their reserves, and their audits (or lack thereof) from thegeneral public, Plaintiffs, and the Nevada Subclass members. As detailed above, the information
concerning Tether tokens was known to Defendants at all times, but they actively concealed thesefacts by representing otherwise and producing unreliable, misleading “reviews” of their reserves.
173.

Defendants intended for Plaintiffs and Subclass members to rely on it to provide

adequate information regarding Tether tokens and rely on these misrepresentations and omissions
in purchasing Tether tokens.
174.

Defendants intentionally and knowingly failed or refused to disclose accurate

information regarding Tether tokens, their reserves, and their audits.
175.

Plaintiffs and Class members relied on these misrepresentations and omissions inpurchasing Tether tokens. Plaintiffs and Class members were would not have purchased Tether
tokens, or would have paid substantially less, if not for these misrepresentations and omissions.
176.

Plaintiffs and Class members seek all monetary and non-monetary relief allowed

by law, including damages, equitable relief that the court deems appropriate, and reasonable
attorneys’ fees.
THIRD CLAIM FOR RELIEF(Breach of Contract)(Against All Defendants)
177.

Plaintiffs incorporate by reference and re-allege the preceding allegations, as

though fully set forth herein.
178.

As described herein, Defendants expressly promised time and time again that{2956 / CMP / 00164116.DOCX v5}

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Tether tokens were backed one-to-one by the U.S. dollar in sufficient reserves.
179.

Defendants expressly promised that Tether tokens are a “stablecoin” “100%backed by Tether’s reserves” “pegged to dollars” and that “[t]he conversion rate is 1 Tether
USDT token (USDT) equals 1 USD.”
180.

Defendants also expressly promised to undergo routine, professional audits of

their reserves.
181.

Defendants also marketed their reserves and purported transparency as one of thereasons why customers should purchase Tether tokens. For example, Tether’s website advertisesthat “Tether’s platform is built to be transparent at all times.”
182.

Plaintiffs and Class members fully performed their obligations under theircontracts with Defendants, including by purchasing or providing other consideration for Tether
tokens.
183.

Defendants did not hold up their end of the bargain. In entering into suchcontracts, Defendants agreed to maintain in reserves the same amount of U.S. dollars as issued
Tether tokens; that Tether tokens would be pegged or tied to the U.S. dollar; and that they would
undergo routine, professional audits of their reserves.
184.

Defendants failed on all accounts: (1) Defendants did not maintain in reserves thesame amount of U.S. dollars as issued Tether tokens; (2) Defendants did not maintain sufficient
reserves, regardless of in U.S. dollars, to “fully back” Tether tokens; (3) Tether tokens are notpegged or tied to U.S. dollars; and (4) Defendants did not undergo routine, professional audits.
185.

Each of these separate acts constitutes a breach of the contracts Defendants

entered with Plaintiffs and Class members.
186.

Plaintiffs and Class members have been damages as a direct and proximate result{2956 / CMP / 00164116.DOCX v5}

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of Defendants’ breach of contract. Plaintiffs and Class members would not have purchased, or
would have paid significantly less, for Tether tokens had they known these representations werefalse.
187.

Plaintiffs and Class members are entitled to compensatory and consequential

damages as a result of Defendants’ breach of contract. Plaintiffs and Class members seek
damages in an amount to be determined at trial, plus interest.
FOURTH CLAIM FOR RELIEF(Breach of Implied Contract)(Against All Defendants)
188.

Plaintiffs incorporate by reference and re-allege the preceding allegations, as

though fully set forth herein.
189.

Plaintiffs plead this claim in the alternative to the Second Claim for Relief ofBreach of Contract alleged above.
190.

Defendants solicited and invited prospective customers such as Plaintiffs andClass members to purchase Tether tokens based on their representations that: (1) they maintained
sufficient reserves in the same amount of U.S. dollars as issued Tether tokens; (2) that Tether
tokens were fully backed by sufficient reserves, regardless of form; (3) that Tether tokens were
pegged or tied to U.S. dollars; and (4) that Defendants would be transparent, undergoing routine,
professional audits of its reserves.
191.

Plaintiffs and Class members accepted Defendants’ offer and paid money or otherconsideration to purchase Tether tokens.
192.

When Plaintiffs and Class paid money or other consideration in exchange forTether tokens, they entered into implied contracts with Defendants pursuant to which Defendants
agreed to (1) maintain sufficient reserves to back Tether tokens one-to-one with the U.S. dollar;{2956 / CMP / 00164116.DOCX v5}

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Case 1:21-cv-10613-ALC Document 1 Filed 12/10/21 Page 42 of 46(2) fully back Tether tokens with sufficient reserves; (3) peg or tie Tether tokens to the U.S.
dollar; and (4) undergo routine, professional audits of its reserves and maintain transparency.
193.

In entering into such implied contracts, Plaintiffs and Class members reasonably

believed that Defendants would live up to these promises and would use the funds received from
Plaintiffs and Class members to do so.
194.

Plaintiffs and Class members would not have paid for or would have paid less forTether tokens in the absence of the implied contract between them and Defendants.
195.

Plaintiffs and Class members fully performed their obligations under the implied

contracts with Defendants, including paying money or other consideration.
196.

Defendants breached their implied contract with Plaintiffs and Class members by

failing to maintain sufficient reserves to back Tether tokens one-to-one with the U.S. dollar; notmaintaining sufficient reserves, regardless of in U.S. dollars, to fully back Tether tokens; nottying Tether tokens to U.S. dollars; and not undergoing routine, professional audits.
197.

Plaintiffs and Class members would not have purchased Tether tokens in theabsence of the implied contracts between them and Defendants, obligating Defendants tomaintain the same number of U.S. dollars in reserves as Tether tokens in circulation.
198.

Plaintiffs and Class members have been damaged as a direct and proximate resultof Defendants’ breach of implied contract. Plaintiffs and Class members would not havepurchased, or would have paid significantly less, for Tether tokens had they known these
representations were false.
199.

Plaintiffs and Class members are entitled to compensatory and consequential

damages as a result of Defendants’ breach of contract. Plaintiffs and Class members seek
damages in an amount to be determined at trial, plus interest.

{2956 / CMP / 00164116.DOCX v5}

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FIFTH CLAIM FOR RELIEF
Unjust Enrichment(Under New York Law)
200.

Plaintiffs re-allege and incorporate the preceding allegations of this Complaint withthe same force and effect as if fully restated herein.
201.

Plaintiffs plead this claim in the alternative to the Second Claim for Relief ofBreach of Contract and Third Claim for Relief of Breach of Implied Contract, alleged above.
202.

Absent Defendants’ misrepresentations and omissions concerning their reserves

and the attributes of Tether tokens, Defendants would have had to charge less for Tether tokens.
203.

As such, Plaintiffs and other members of the Class conferred an improper benefit

upon Defendants, which Defendants were aware of and have unjustly retained. This includes illgotten profits and revenues from purchases of Tether tokens, among other things, resulting from
Defendants’ misrepresentations and omissions.
204.

As a direct and proximate result of Defendants’ unjust enrichment, under principlesof equity and good conscience, Plaintiffs and the Class are entitled to full disgorgement andrestitution of all amounts by which Defendants were enriched through their unlawful or wrongfulconduct.
SIXTH CLAIM FOR RELIEF
Declaratory and Injunctive Relief(Under the Declaratory Judgment Act, 28 U.S.C. § 2201, et. seq.)
205.

Plaintiffs re-allege and incorporate the preceding allegations of this Complaint withthe same force and effect as if fully restated herein.
206.

Under the Declaratory Judgment Act, 28 U.S.C. § 2201, et seq., this Court isauthorized to enter a judgment declaring the rights and legal relations of the parties and grant{2956 / CMP / 00164116.DOCX v5}

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further necessary relief. Furthermore, the Court has broad authority to restrain acts, such as here,that are tortious and violate the terms of the statutes described in this Complaint.
207.

An actual controversy has arisen regarding the lawfulness of Defendants’misrepresentations and omissions, including that Tether tokens are backed one-to-one by the U.S.
dollar.
208.

Plaintiffs and Class members continue to suffer injury as a result of Defendants’misrepresentations and omissions, including that Class members will continue to be deceived bythese misrepresentations and omissions such that they will continue to purchase Tether tokens in
the future.
209.

Pursuant to its authority under the Declaratory Judgment Act, this Court should

enter a judgment declaring that Defendants must either cease and desist from misrepresenting its
reserves and the attributes of Tether tokens and correct its prior misstatements.
210.

The Court also should issue corresponding prospective injunctive relief requiring

Defendants to immediately disclose to all purchasers of Tether tokens that their reserves do notconsist of U.S. dollars and that Tether tokens are not backed one-to-one by the U.S. dollar.
211.

If an injunction is not issued, Plaintiffs and Class members will suffer irreparable

injury for which they lack an adequate legal remedy. If Defendants continue misrepresent theirreserves and the attributes of Tether tokens, Plaintiffs and Class members will not have an adequate
remedy at law, because many of the resulting injuries are not readily quantified and they will beforced to bring multiple lawsuits to rectify the same conduct.
212.

The hardship to Plaintiffs and Class members if an injunction does not issue greatly

exceeds the hardship to Defendants if an injunction is issued. Defendants’ failure to maintainsufficient reserves in U.S. dollars constitutes a breach of the contractual promises between{2956 / CMP / 00164116.DOCX v5}

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Plaintiffs and Class members. It also constitutes a deceptive trade practice under N.Y. law harming
consumers, such as Plaintiffs and Class members. On the other hand, the cost to Defendants incomplying with an injunction by disclosing the truth about its reserves and Tether tokens is
minimal.
213.

Issuance of the requested injunction will serve the public interest by preventing

further purchases of Tether tokens based on Defendants’ misrepresentations and omissions, thus
eliminating the additional injuries that would result to consumers who will continue to purchase
Tether tokens based on false pretenses.
214.

Accordingly, Plaintiffs and the Class are entitled to an order enjoining Defendants

from engaging in the unlawful conduct alleged in this complaint, requiring Defendants toimmediately disclose to all purchasers of Tether tokens that their reserves do not consist of U.S.
dollars and that Tether tokens are not backed one-to-one by the U.S. dollar, and other appropriate
equitable relief.
215.

Plaintiffs also seek such other relief as the Court may deem just and proper.
PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, individually and on behalf of the Class, respectfully requests
that the Court:
a. Certify the Class pursuant to the provisions of Rule 23 of the Federal Rules of Civil
Procedure and order that notice be provided to all Class members;
b. Designate Plaintiffs as representatives of the Class and the undersigned counsel,
LOWEY DANNENBERG, P.C. as Class Counsel;
c. Award Plaintiffs and the Class actual damages, compensatory damages, and statutory
damages in an amount to be determined by the Court and treble and punitive damages
to punish Defendants’ egregious conduct as described herein, and to deter Defendants
and others from engaging in similar conduct;d. Award Plaintiffs and the Class injunctive relief, as permitted by law or equity,{2956 / CMP / 00164116.DOCX v5}

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including enjoining Defendants from continuing the unlawful practices set forth
herein, ordering Defendants to fully disclose the extent and nature of the security
breach and theft, and ordering Defendants to pay for identity theft and credit
monitoring services for Plaintiffs and the Class;e. Award Plaintiffs and the Class statutory interest and penalties;
f. Award Plaintiffs and the Class their costs, prejudgment and post judgment interest,
and attorneys’ fees; andg. Grant such other relief that the Court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintiffs hereby demand a trial by jury as to all issues stated herein, and all issues so
triable.

Dated: December 10, 2021
White Plains, New York

Respectfully submitted,
LOWEY DANNENBERG P.C.
/s/ Christian Levis
Christian Levis
Noelle Feigenbaum
Amanda Fiorilla
44 South Broadway, Suite 1100
White Plains, NY 10601
Tel.: (914) 997-0500
Fax: (914) 997-0035
Email: clevis@lowey.com
nfeigenbaum@lowey.com
afiorilla@lowey.com
Attorneys for Plaintiffs and the Proposed
Class{2956 / CMP / 00164116.DOCX v5}46