New York added to its reputation for strict regulation of cryptocurrency platforms with an $18.5 million fine against the companies behind the stablecoin known as Tether and its related digital asset exchange.
The state’s reputation on financial technology, which experts say may be inaccurately based on such enforcement actions, stands in contrast with other states, such as Wyoming and Colorado, that are enacting pro-crypto legislation and conducting outreach to attract investment.
Lawyers who work with cryptocurrency companies say a patchwork of complex and divergent approaches to regulation is emerging. Some say the federal government’s lack of action on setting clear rules for fintech presents a major risk for innovators in the burgeoning industry.
“It’s still pretty messy,” said Karen Ubell, an attorney at Goodwin Procter LLP in San Francisco. Ubell advises clients on cryptocurrency issues and noted that federal and state enforcement has been robust, but neither have offered as much guidance to foster fintech.
New York sued Tether Ltd.; Bitfinex, the parent company iFinex Inc.; and related entities in 2019, alleging that Tether wasn’t truly backed 1-to-1 by U.S. dollars as the companies claimed. In February, the companies settled without admitting any misconduct. In addition to the millions of dollars in fines, the companies promised to cease all business within the state.
Dan Roeser, a litigator in Goodwin Procter’s New York office, said the Tether case wasn’t a broad indictment of fintech, but some clients don’t understand that. They tend instead to be more focused on the overall activity level of regulators rather than the outcome of any particular case, he said.
Kayvan Sadeghi, an attorney at Schiff Hardin LLP in New York, said much the same. Even though he’s been alerting clients to activity by the New York attorney general’s office for years, he said, the Tether settlement isn’t as significant as it sounds considering Tether’s market value of $40 billion.
New York unveiled a separate lawsuit against Coinseed Inc. last month over allegations that its initial coin offering should have been registered as securities and subject to broker-dealer registration requirements.
“Unregulated and fraudulent virtual currency entities, no matter how big or small, will no longer be tolerated in New York,” state Attorney General Letitia James said in a Feb. 17 statement regarding Coinseed. The case is pending, but James made clear that she intends to use state anti-fraud laws to prosecute cryptocurrency businesses over misconduct.
Looking to other states