A US judge has ordered the company behind a popular stablecoin Tether to verify claims of having substantial cash reserves.
Tether USDT is the largest stablecoin by market capitalization, with more than $60 billion in circulation. Tether has initially alleged that the US dollar backs its stablecoin in 1-1 ratio.
It was reported on Tuesday that Judge Katharine Polk Failla issued a court order asking Tether to provide documents that verify its claims of having enough cash reserves in dollars.
It should be recalled that Wall Street Journal had alleged that Tether USDT stablecoin didn't have substantial or verifiable cash reserves.
Wall Street Journal further said that Tether has been promising to reveal its reserves and audit as far back as 2017.
However, Tether had come out to declare the Wall Street Journal report as "unsubstantiated conclusions." Speaking further on the WSJ allegations, Tether said that WSJ was trying to "discredit Tether's work on transparent and honest communications to the public."
The court has told Tether that the evidence of having a substantial reserve is necessary to back up Tether's claim of maintaining a treasury that fully backs its stablecoin.
In response to the court order, Tether labelled the court instructions as an order that does not meet the plaintiff's "meritless claims."
The plaintiffs involved in this case are Benjamin Leibowitz, David Leibowitz, Aaron Leibowitz, Jason Leibowitz, and Pinchas Goldstein. The plaintiffs, in this case, are represented by a blockchain law firm, Roche Freedman.
Experts and critics have reacted to this news, saying that the latest court order might mean bad news for Tether. According to critics, many people think that Tether doesn't actually have the documents that the court requires.
Further Allegations Against Tether Reserve
Wall Street Journal is not the only organization that has made allegations against Tether questioning their reserves.
In 2021, New York Attorney General (NYAG) ended an investigation into tether concerning its reserves and its parent company, Bitfinex. As part of the verdict during the 2021 findings on Tether, the stablecoin was fined $18.5 million along with its parent company.
Speaking on Tether having a verified reserve after the verdict, New York Attorney General said, "Bitfinex and Tether recklessly and unlawfully covered up massive financial losses to keep their scheme going and protect their bottom lines. Tether's claims that its virtual currency was fully backed by US dollars at all times was a lie".
The major occurrence that kicked off the case between NYAG and Tether was after NYAG alleged that Tether had loaned its parent company about $850 million to cover up losses. This led NYAG to question Tether's cash reserves and its authentication.
But after the case ended, Tether clarified to the public that the fine was a measure to stop NYAG from taking further actions.
"The settlement amount we have agreed to pay to the Attorney General's Office should be viewed as a measure of our desire to put this matter behind us and focus on our business," Tether's spokesperson said.