20 October 2021
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On Friday, October 15, 2021, the Commodity Futures Trading Commission (CFTC) issued a Tether Order against the issuers of the Tether Token (USDT), a leading stablecoin, and sentenced these issuers to a fine of $ 41 million for making false or misleading statements about maintaining sufficient fiat currency reserves to support each USDT “one to one”. In doing so, the CFTC asserted that USDT is a “commodity” within the meaning of the Commodity Exchange Act (CEA).
The Tether order is important for a few reasons. First, this is the United States’ first coercive action against a major stablecoin. Second, the CFTC has now asserted that it has some enforcement power over stablecoins, just as the Biden administration prepares its regulatory approach to digital currencies in general and stablecoins in particular. Securities and Exchange Commission (SEC) Chairman Gary Gensler said earlier this year that he believed certain stable coins, such as those backed by securities, to be securities, and the president’s financial markets task force will soon release a report on stablecoins. Third, the CFTC’s assertion that USDT is a commodity indicates that stablecoins backed by fiat currency are not securities and therefore are not directly subject to the jurisdiction of the SEC.
CFTC legal authority
Although the CFTC is primarily a regulator of the markets for commodity futures and derivatives such as swaps, it has some executive power over commodities in the spot markets (that is to say, cash products). Section 6 (c) (1) of the Commodity Exchange Act states that it is “unlawful for any person, directly or indirectly, to use or employ, or attempt to use or employ, in as part of an exchange or contract for the sale of any merchandise in interstate commerce,. . . any device or device of manipulation or deception, in violation of the rules and regulations that the Commission will promulgate. “ The CFTC has promulgated regulations in accordance with section 6 (c) (1), which make it illegal to make intentional or reckless statements or omissions “in connection with.” . . any contract for the sale of any goods in interstate commerce. When enacting this regulation, the CFTC stated that “[it] wait[ed] exercise authority under paragraph 6 (c) (1) to cover transactions related to futures or swaps, or commodity prices in interstate commerce, or where fraud or manipulation has the potential to ” affect the commodity, futures or spot swap markets or participants in these markets.
Prior to the Tether order, the CFTC had claimed that certain digital assets were commodities. The Tether order definitely declares that USDT is a commodity (and, in dicta, asserts that bitcoin, ether, and litecoin are commodities as well). He then alleges that the issuers of the USDT made material inaccuracies under Article 6 (c) (1) of the CEA and its implementing regulations as to whether the USDT was backed by reserves of currency exchange and whether that reserve would undergo regular professional audits, and issuers made significant omissions regarding the timing of one of the reserve reviews that USDT issuers performed. Without admitting or denying the findings and conclusions of the CFTC, the issuers of the USDT consented to the entry of a cease and desist order and a civil fine of $ 41 million.
The recent past has seen explosive growth in digital asset markets, as regulators around the world seek to catch up. In the United States, the challenge has been, in the absence of new legislation, to ensure that digital asset transactions fit into existing regulatory regimes. Much of the initial regulation was at the state level; most federal financial regulators first attempted to regulate through law enforcement. Now, however, there is the possibility of overlapping federal regulations, especially when it comes to stablecoins. The Tether Order comes at a time when the media has reported that the U.S. Department of the Treasury will be working with U.S. financial regulators to release a general report on stablecoins, including how stablecoins should be regulated. And while the CFTC has taken its position on USDT, it is still unclear how other US regulators will view stablecoins and other digital assets.
 In Tether Holdings Limited, Tether Operations Limited, Tether Limited and Tether International Limited, CFTC Docket No. 22-04 (15 Oct 2021), available at https://www.cftc.gov/media/6646/enftetherholdingsorder101521/download.
 Gary Gensler, SEC Chairman, “Remarks Before the Aspen Security Forum” (August 3, 2021).
 Also on October 15, the CFTC entered into a consent order with Bitfinex, a leading digital currency exchange that has numerous management and operational lockdowns with USD Tether issuers, for allegedly allowing US customers who don’t were not eligible contract participants to engage in leveraged, margin or funded commodity transactions that were not carried out in a designated contract market (that is to say, a futures exchange registered with the CFTC) in violation of CEA requirements, and acting as a futures dealer (FCM) without being registered as such with the CFTC. The CFTC further claimed that Bitfinex violated a 2016 CFTC order that ordered it to cease and desist from such activity. Without admitting or denying the CFTC’s findings and conclusions, Bitfinex consented to the entry of the new cease-and-desist order and a fine of $ 1 million. See In the iFinex Inc. case, BFXNA Inc. and BFXWW Inc., CFTC Docket No. 22-05 (Oct 15, 2021), available at https://www.cftc.gov/media/6651/enfbfxnaincorder101521/download.
The following Gibson Dunn attorneys helped prepare this client update: Arthur Long and Jeffrey Steiner.
Gibson Dunn attorneys are available to answer any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer you normally work with, the author, or any of the following members of the firm’s Financial Institutions practice group:
Matthew L. Biben – New York (+1 212-351-6300, [email protected])
Michael D. Bopp – Washington, DC (+1 202-955-8256, [email protected])
Stéphanie Brooker – Washington, DC (+1 202-887-3502, [email protected])
Mr. Kendall Day – Washington, DC (+1 202-955-8220, [email protected])
Mylan L. Denerstein – New York (+1 212-351-3850, [email protected])
William R. Hallatt – Hong Kong (+852 2214 3836, [email protected])
Michelle M. Kirschner – London (+44 (0) 20 7071 4212, [email protected])
Arthur S. Long – New York (+1 212-351-2426, [email protected])
Matthew Nunan – London (+44 (0) 20 7071 4201, [email protected])
Jeffrey L. Steiner – Washington, DC (+1 202-887-3632, [email protected])
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