The thirty-second version

The Office of the New York Attorney General (under Letitia James) investigated Bitfinex and Tether between November 2018 and February 2021. The investigation centred on whether Bitfinex had used Tether's reserves to cover an $850 million shortfall caused by the loss of funds at a payment processor called Crypto Capital, and whether Tether had misrepresented those reserves to the public.

The settlement, signed on February 23, 2021, did not include an admission or denial of the underlying conduct. It required Bitfinex and Tether to pay $18.5 million to the State of New York, to cease serving New York persons or entities, and to provide quarterly breakdowns of Tether's reserves for two years. The OAG agreed to release any claims it had under New York's Martin Act in exchange. No criminal charges followed.

The headline numbers
$18.5 million paid to New York · two-year reporting period (Feb 2021 → Feb 2023) · ban on offering Bitfinex or Tether services to New York persons or entities · no admission of guilt · no individual sanctions.

How the investigation started

In 2018, Bitfinex (the exchange) and Tether (the stablecoin issuer) shared overlapping ownership and management. Both were operated by entities controlled by iFinex Inc. Bitfinex routed customer fiat through a payment processor called Crypto Capital Corp., based in Panama. In October 2018, Crypto Capital's accounts were seized by authorities in Poland, Portugal and the United States in connection with money-laundering investigations involving other clients. Roughly $850 million of Bitfinex customer funds were trapped or lost.

Rather than disclose the shortfall publicly, Bitfinex executed a credit line from Tether's reserves to cover the gap. The line was eventually documented as a $625 million loan plus a $900 million credit facility, secured by Bitfinex shares. The arrangement was disclosed in April 2019 only after the NYAG had filed a court motion seeking an injunction — at which point the public learned, for the first time, that Tether's reserves had been partially used to backstop a sister company.

What the OAG found

The settlement document, available through the OAG's press archive, lays out specific findings. The three that matter for stablecoin holders today:

Finding 1. Tether's representations that USDT was "fully backed at all times by US dollars" were not accurate during the relevant period. The OAG found that from at least mid-2017 through early 2018, a portion of Tether's reserves was held in entities and instruments other than US dollar cash, including loans to affiliates. The "fully backed" language was on Tether's website at the time and was found to be a material misstatement under New York's Martin Act.

Finding 2. The Bitfinex / Crypto Capital loss was concealed from customers and from the public for approximately seven months. The credit line drawn against Tether's reserves to cover the loss was not disclosed until forced disclosure during the OAG's court action.

Finding 3. No specific finding of theft or misappropriation. The OAG did not allege that Tether tokens were unbacked in a fraudulent sense; it alleged that the backing composition was misrepresented, and that intercompany loans were used in a way that contradicted public statements. This is an important distinction and one that crypto-Twitter regularly drops.

From the OAG's February 2021 press release: "Tether's claims that its virtual currency was fully backed by US dollars at all times was a lie." The legal claim is misrepresentation, not a missing-reserves claim.

The two-year disclosure regime

Article 4 of the settlement required Bitfinex and Tether to report on their reserves to the OAG quarterly for two years. The reports had to include the categories of assets backing USDT (cash, treasuries, secured loans, other) and the rough proportions. They also had to disclose intercompany transfers between Bitfinex and Tether above a certain threshold.

The reports were not public by default — they went to the OAG. Tether began publishing quarterly "reserve breakdowns" on its own website starting May 2021, partly to satisfy the spirit of the disclosure regime and partly because the market demanded it after the earlier "fully backed" claim was discredited. Those breakdowns were the earliest version of what later became Tether's quarterly attestations from BDO Italia.

What the reserve breakdowns showed (2021 to 2023)

The first Tether reserve breakdown, published in May 2021 covering March 31 of that year, was unflattering. Approximately 76% of reserves were in "cash and cash equivalents" — but only 3.87% of total reserves was in actual cash. The bulk of the "cash equivalents" line was commercial paper (49.6% of total reserves), much of it shorter-dated. Holders who had been told for years that USDT was "fully backed by US dollars" learned that the backing included a multi-billion-dollar commercial paper book, the largest non-bank commercial paper portfolio in the world at the time.

Over the next eighteen months, Tether ran down the commercial paper position. By the end of 2022, commercial paper was at zero. The reserves had been restructured toward US Treasury bills, money-market funds, and overnight reverse repurchase agreements. By the time the OAG's two-year reporting period ended in February 2023, the reserve composition looked substantially more conservative than at the start.

What the settlement did not do

This is the section that matters most for current holders because it is where the public conversation usually goes wrong.

Misread 1 · "The settlement proved USDT was unbacked"
The settlement did not find that USDT was unbacked. It found that the backing was misrepresented. There is a difference, and the difference matters. Tether's books showed assets matching liabilities throughout the relevant period; the question was whether those assets were what Tether had told the public they were. The OAG found that they were not.
Misread 2 · "The fine was a slap on the wrist"
$18.5 million is not a large number relative to Tether's annual operating cash flow today (estimated 4 to 5 billion in 2024). It was a much larger fraction of operating cash flow at the time the settlement closed. More importantly, the settlement carried a ban on New York business that has held since 2021, a two-year reporting regime that produced the disclosure framework Tether still uses today, and — perhaps most importantly — public, signed findings of fact that the OAG can cite in any future enforcement action. The fine was not the deterrent; the documented findings were.
Misread 3 · "The settlement closed everything"
The OAG settlement closed only the New York investigation. The CFTC ran a parallel investigation focused on similar conduct and announced its own $41 million settlement with Tether in October 2021 (for the reserve misrepresentation) and a $1.5 million settlement with Bitfinex (for unlawful retail commodity transactions). The Department of Justice opened a criminal investigation that has been reported on but never closed publicly with charges. The Italian authorities have a separate stream of inquiry. The 2021 NYAG settlement was the first and most visible of a multi-jurisdictional process.

What changed about Tether after the settlement

The disclosure cadence is the most visible change. The quarterly attestations have been published continuously since 2021, alongside a daily reserve dashboard added in later years. The auditor — BDO Italia — is a member of the BDO global network and is mid-tier in size; Tether has stated repeatedly that no Big Four firm will accept the engagement, a claim that is plausible given the audit scope and the legal exposure involved. The attestations are not full audits; they are reviews against management's representations at a single point in time.

The reserve composition shift is the second change. Cash deposits and commercial paper were replaced by US Treasury bills, overnight repos with primary dealers and the Federal Reserve, and a small Bitcoin allocation. As of 2026, Tether holds approximately 100 billion in US Treasury bills, making it one of the larger non-sovereign holders of US short-term debt. The same composition that the OAG flagged in 2021 (commercial paper, secured loans, gold, Bitcoin, other) has not disappeared entirely but is now a much smaller share of the total.

The governance changes are the third. Tether moved its headquarters operations to El Salvador in 2024 after the country's bitcoin-friendly legal framework was extended to cover stablecoin issuance. The El Salvador move replaced an effective Hong Kong / British Virgin Islands base with a single legal-jurisdiction structure, which the company has framed as a transparency improvement and which critics have framed as regulatory arbitrage. Both readings are partially correct.

How the 2021 settlement fits the 2026 picture

USDT remains the largest stablecoin (approximately 150 billion at the time of writing), with the deepest cross-chain footprint, the highest exchange-listed volume, and a reserve composition that — on the published attestations — looks substantially more conservative than it did in 2021. The token also operates without consolidated prudential supervision in any single jurisdiction, which remains the single biggest divergence from the USDC / EURC / FDUSD model.

For an ordinary holder, the question is not "is USDT safe" — there is no honest binary answer to that. The question is "what specific risk does holding USDT carry, and how does that risk compare to holding USDC, FDUSD or staying in fiat?" The 2021 settlement is one of the inputs into that calculation, not the entire calculation. We covered the comparison in USDC vs USDT: which is actually safer, and the full reserve transparency picture for the current major issuers in stablecoin reserve transparency.

Three things still worth knowing about the 2021 order

The OAG's standard of proof was civil, not criminal

The Martin Act allows the New York Attorney General to investigate and bring civil actions against securities and investment fraud with a lower burden of proof than a criminal prosecution. The settlement did not require the OAG to prove fraud beyond reasonable doubt; it required a showing that misrepresentations were made. That standard is sufficient for an injunction and for a fine but it is not the same as a criminal finding of guilt. For the legal record, no individual at Bitfinex or Tether has been criminally charged in connection with the 2018-2019 events.

The credit line was repaid

The $625 million loan from Tether to Bitfinex, plus the $900 million credit facility, were drawn down and then repaid in tranches between 2019 and 2021. Tether has stated publicly that the line was repaid in full before the settlement closed. The settlement order acknowledges the repayment without contesting it. The episode is not therefore a case of stolen reserves; it is a case of intercompany lending used to cover a counterparty failure, repaid over time, and not disclosed when it should have been.

The 2021 settlement is the foundation of every subsequent argument about Tether

When a current commentary refers to "Tether's history" — usually accompanied by a reference to "fully backed" — the reference is almost always to the 2017-2018 conduct described in the 2021 settlement. There is no other publicly documented event of comparable specificity in Tether's record. The DOJ inquiry has produced no charges. The CFTC settlement covered the same underlying period. The 2021 NYAG order is, for better or worse, the canonical document. Read it once, and most secondary commentary becomes easier to evaluate.

If you want to act on this

Two practical takeaways. First, the question of how much USDT to hold should be informed by the attested reserve composition, your sense of the residual disclosure gap, and your view on counterparty risk — not by the fact that a 2021 settlement existed. The settlement is a historical input, not a present-tense verdict. Second, the most direct way to reduce single-token exposure is to split working balances across USDT and USDC, which is what the desk does. Our working venue for spot stablecoin operations is Binance; the referral link opens a Binance registration page pre-filled with code BN16188 and does not change your fees.

The NYAG complaint we cite

  • New York State OAG press release, "Attorney General James Ends Virtual Currency Trading Platform Bitfinex's Illegal Activities in New York", February 23, 2021.
  • Settlement Agreement, In the Matter of iFinex Inc., Tether Holdings Limited, et al., filed February 17, 2021.
  • CFTC press release, "CFTC Orders Tether and Bitfinex to Pay Fines Totaling $42.5 Million", October 15, 2021.
  • Tether reserve breakdowns May 2021 through current quarterly attestations (BDO Italia, archived on tether.to).
  • Bloomberg, "Mystery Shrouds Tether and Its Links to Biggest Bitcoin Exchange", October 5, 2017 — background on the original Crypto Capital arrangement.

Anything you can verify yourself, you should. If you spot an error or a misreading in the above, the corrections log is on the corrections page; write to [email protected] with the line.