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Tether Asks Court to Block NYAG From Releasing Documents to CoinDesk

Our Freedom of Information Law (FOIL) request asked for the release of any documents attesting to Tether’s reserve composition.

Aug 31, 2021 at 3:40 p.m. UTC
Updated Aug 31, 2021 at 5:51 p.m. UTC

The parent company of stablecoin issuer Tether and crypto exchange Bitfinex has petitioned the New York Supreme Court to block CoinDesk and other organizations from receiving documents detailing the composition of Tether’s reserves over the past few years.

The petition was filed on Tuesday by Tether and Bitfinex’s attorney, Charles Michael of Steptoe & Johnson, against the State of New York, Attorney General Letitia James and Freedom of Information Law Appeals Officer Kathryn Sheingold, in response to a Freedom of Information Law (FOIL) request filed by CoinDesk.

To help bolster its claim that releasing such information would hurt its business, attached to the petition were several dozen articles as exhibits, including a few from CoinDesk itself.

“Competition is fierce, with upstart exchanges constantly entering the market and challenging the incumbent,” the petition said. “Bitfinex and Tether differentiate themselves from their competitors using at least three secret and competitively sensitive types of data that are at issue in this proceeding: (1) financial strategies, (2) compliance measures and documentation and (3) customer data.”

Thus, letting the New York Attorney General release such information “would tilt the competing playing field against Tether. CoinDesk, the online publication seeking the records in this case, has itself summarized what competing stablecoins have disclosed, and none are at the level of detail in the requested documents.”

Also noted in the petition is the difficulty cryptocurrency businesses such as Tether and Bitfinex have had in finding banks that would work with them, and the ways Tether and Bitfinex have tried to overcome such roadblocks. “Bitfinex and Tether have spent years cultivating non-public relationships with financial institutions around the globe that are capable of processing a high volume of high value transactions efficiently,” according to the filing.

Tether settled an investigation by the NYAG into its finances for an $18.5 million fine earlier this year.

The full FOIL request by CoinDesk asked for the release of any documents attesting to Tether’s reserve composition, similar to what the company published earlier this year.

It said, in part, that CoinDesk was:

Filing a FOIL request for a copy of the asset reserve composition details backing the stablecoin tether ($USDT) for Tether Operations Limited. These details should have been provided to the OAG as part of the investigation into iFinex which was settled earlier this year. I’m specifically only looking for information about what is backing Tether’s reserves, including the document Tether claims to have sent OAG in May 2021. I do not currently need any other documents about the investigation or about the OAG’s ongoing monitoring of Tether’s reserves over the next two years.

Attorneys for Tether asked the NYAG’s FOIL officer not to release these documents, and the FOIL officer initially agreed to this request, denying the application. CoinDesk appealed the decision, and Sheingold, the appeals officer, reversed the FOIL officer’s decision. Tether had until Wednesday, Sept. 1, to petition the court to stop the release of the documents.

Tether General Counsel Stuart Hoegner has said in the past that the company would publish its reserves as well as submit documentation about the reserves to the NYAG’s office.

“Tether proposed ongoing publication of the reserve breakdown as part of our settlement agreement with the New York Attorney General’s Office, and we committed to make that information available to both the Attorney General’s office and the public,” Hoegner said in May.

Lance Koonce of Klaris Law, who represents CoinDesk in this matter, said of Tuesday’s filing, “We were disappointed, but not surprised, to see that Tether has filed a proceeding to block the release of documents sought pursuant to CoinDesk’s Freedom of Information Law request, after the Office of the Attorney General agreed with CoinDesk on release of those documents. We look forward to seeing the OAG’s decision vindicated in court.”

A Tether spokesperson said:

Today, we have filed an Article 78 proceeding to prevent the release of certain materials we provided to the New York Attorney General’s Office as part of our reporting commitments under the settlement agreement signed earlier this year. This information was provided at our suggestion and in good faith to demonstrate to the Attorney General’s Office that the information they relied on to agree to the resolution remains consistent.

As outlined in our filings, disclosure of this information beyond the Attorney General’s Office will harm Tether’s competitive position in the marketplace and unnecessarily and unduly invade the privacy of third parties. The original Records Access Officer in the Attorney General’s Office agreed with us.

We understand our evolving industry creates a desire for transparency and understanding of how stablecoins work. Tether continues to lead the industry in providing information about its reserves to give clarity and transparency into our operations. Tether is also in the process of obtaining audited financial statements and hopes to produce these within the coming months.

However, Tether is a private business. As all private companies do, we maintain certain proprietary details about our operations to continue our competitive advantage as a leader in the industry. In any other industry, this type of proprietary, competitively sensitive information would be clearly and strongly protected, and the same should be true for us and for any other company in the crypto ecosystem. Therefore, we vigorously oppose the notion that proprietary information of our company, or any company in our community, should be made public simply to satisfy Internet trolls or other detractors.

Our customers continue to place their trust and confidence in Tether, as exhibited through our growth. In doing so, they are telling us and the market that our disclosures are sufficient to make well-informed decisions.

Finally, contrary to the wild and false speculation of online trolls, Tether and Bitfinex have provided the New York Attorney General’s Office with complete and timely quarterly reports under the settlement agreement.

We look forward to a judicial determination of this matter by the New York Supreme Court.

As of Tuesday, Tether’s market capitalization based on the total amount of USDT in circulation amounted to $65.5 billion. USDT usually trades at $1, and is theoretically redeemable 1-for-1 from Tether.

DISCLOSURE

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Lawrence Lewitinn is CoinDesk's managing editor of global capital markets.

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

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