> In February, Bitfinex and several Tether affiliates agreed to pay $18.5 million to settle claims from New York Attorney General Letitia James that the firms hid losses and lied that each token was supported by one U.S. dollar.
Can anyone explain this because I'm not familiar with the legal framework here - they paid to settle with NYAG? So you pay and then having potentially broken a law isn't a problem anymore? How does this work?
The reason this happens is that the bar for proving criminal intent on the part of a corporation- which would lead to jail for executives and could lead to dissolution of the corp- is very very high. Getting the evidence related to "mindset" and linking it to action and doing so in a way that sufficiently resists various defense strategies is almost impossible, and extremely expensive and
time consuming to litigate.
The result is a Nash equilibrium where companies, in a world where prosecutors had infinite time and resources, could be convicted of criminal acts, instead make a deal with prosecutors- whose investigations cost companies money to support and whose work is often public which can damage reputation. The size of the deal and other aspects of behavior/policy change will all be negotiated.
A company can never "admit wrongdoing" as doing so would have so many downsteam impacts as to make it impossible to stay in business. For instance, a company that "admitted wrongdoing" would be in violation of any terms of financing and of many employment contracts.
Want to offer a clarification to what you said here.
Government doesn't have to prove that the corporation acted with criminal intent - that's impossible since corporations don't have minds.
To hold a corporation criminally liable, government must prove that an employee/agent of the company violated the law while acting within the scope of the employment.
So, if you can prove that a Tether executive committed bank fraud, it's rather trivial to hold Tether the corporation responsible as well.
The difficulty is proving that the individual acted with criminal intent. This is indeed a laborious, expensive process that involves trawling through millions of documents and IM messages. The targets of the investigation will often be able to afford the best defense lawyers. Which is why government will often settle a case rather than take it to trial.
There is corruption everywhere, of course. The sort of transaction you talk about is common but also inefficient. Many jurisdiction governments just take direct equity stakes in successful or well positioned "commercial" endeavors, often after they become successful, in addition to collecting supra-level "taxes" of various kinds.
That's not what's happening here, referring to Tish James' work against Tether as NY AG. My personal view, having both engaged with her office asking for help on one project and responding to queries from her office on another (neither related to crypto)- she's probably the best case/ideal state attorney general. Her heart and motivations are in the right place- working for the public interest- she's very politically savvy, and she's a very good chess player.
She has some resources- probably has 1000 lawyers working for her, which in law firm terms would be huge. But these are public servants with public servant salaries and budgets without much room for all of the support team and expertise infrastructure that back law firms themselves. The number of matters they are dealing with is probably in the 5-6 figures- dozens to hundreds per lawyer- and the breadth of expertise required spans the entirely of the legal system. Housing, education, finance, commerce, local to global- you name it.
In every case they have to understand the leverage they have, and use it carefully and deftly. This is what was done with tether. A relatively small settlement, but arrived at relatively quickly- has sent an extremely powerful signal. It is like striking a very precise blow with an extremely sharp axe, carving off a key part of the defensive bark on what was likely a wholly corrupt- but until then impenetrable- tree.
Watch as over time more of the bark falls, more documents leak, more complaints arise.
I appreciate your informed perspective, indeed I’m just bitter that banks got away with laundering drug money among other crimes. Sometimes it can seem like governments and financial institutions are on the same team ;)
I think it's more just that the government doesn't want to blow 100 mil trying to litigate a case they have almost no chance of winning in some reasonable amount of time. Government lawyers are almost always out-gunned in cases like this.
Define criminal enterprises? Because smoking can be considered one of them (it's harmful, addictive and heavily taxed). Only recently western governments started to crack on smoking (probably because they foot the bill for healthcare now?) but booze and tobacco where the way to tax people before.
This is very common in the US, especially for banks and financial institutions.
They settle without admitting any wrongdoing, and agree to pay a fine and promise to change their procedures to avoid doing this in the future.
It is exceedingly rare for financial executives to go to jail for crimes committed by a corporation.
There’s a weird game-theoretic angle to it too. US regulators tend to mostly hammer down when they are confident they can win, they don’t like fighting and losing. So in a way, being told to pay a fine is seen as “pay the fine or else we’re going to court and winning”. It saves the regulators the hassle of actually proving they are right.
But of course there is then a second-order effect. If you are defending yourself against the regulators, right or wrong it is assumed the case is very strong, by all parties.
Ultimately it’s an agency problem too: regulators want (are incentivised to maintain) “clean” markets, not to send people to jail. In the short term, if their civil fine achieves it, their job is done and there is no need to drag themselves through the courts.
From a societal perspective if the threat of investigation and fines is enough to scare most people into following the law most of the time then it's a fairly cheap return on investment. It sucks that some people "get away with it" but over-zealous prosecution can have its own negative side-effects.
FWIW I do wish we'd see more prosecutions of the big cases like the financial crash or the many instances of criminal fraud in the crypto space. Like Madoff you need to catch some big fish to remind everyone that your threats are not entirely empty.
Financial regulations carry three types of penalties:
- Criminal: go straight to jail
- Civil Fines: pay money
- Civil Injunctions: never work in finance again
In the United States there are several entities charged with enforcing financial regulations. You can roughly divide them up by jurisdiction:
- Federal agencies: Securities and Enforcement Commission (SEC) which can only enforce civil penalties, Department of Justice (DOJ) which can send you to jail, and other three-letter agencies.
- States and local governments: New York Attorney General, Manhattan District Attorney, etc.
- Self-Regulatory Agencies: New York Stock Exchange, Chicago Board Options Exchange, etc. can investigate on their own.
If this sounds complicated, well, it is! A company under investigation has to consider the ramifications that resolving one investigation will have on others.
Traditionally, companies settled with NYAG and the SEC on civil grounds without admitting or denying liability. This is because admitting fault will almost certainly screw up your defense against the federal criminal investigation, which is what you're really afraid of anyway. (Not to mention hundreds of private lawsuits that will be filed if you assume fault).
New York Attorney General's office can pursue criminal charges as well but the penalties aren't as feared as federal criminal charges. Defendants assume correctly that if they're going to be convicted in state courts, they're going to be convicted in federal cases as well. So there's not much incentive to resolve a state criminal case when federal prosecutors are circling the water.
From the NYAG's perspective, they know that any criminal charges they bring will be second fiddle to the federal criminal charges. It could make more sense to 'strike the first blood' and get a financial settlement from a company before the federal hammer falls.
And from the company's perspective, settling early with the AG might be a way to show the federal prosecutors that it is capable of reforming its ways. Federal criminal charges will kill a company. If federal prosecutors can be convinced that the company is capable of being reformed, they might agree to a Non-Prosecution Agreement (or Deferred Prosecution Agreement) which says, company admits X, Y, Z, and will pay $$$, and will agree to outside monitoring to make sure it doesn't break laws again, in exchange for not being charged with a crime. It's kinda like a plea agreement except the company isn't formally convicted.
Executives and individuals responsible for the wrongdoing often get thrown to the wolves. I wouldn't want to be Tether execs right now.
Can anyone explain this because I'm not familiar with the legal framework here - they paid to settle with NYAG? So you pay and then having potentially broken a law isn't a problem anymore? How does this work?