Nearly six months after parting ways with its auditor, Tether has produced a third-party report claiming that its cryptocurrency is fully backed by U.S. dollars – with some major caveats.
The state of Tether’s reserves has been the subject of controversy for months, with online critics claiming the company has been issuing more tokens than it had dollars – printing money, basically. Tether has consistently denied this, but has not produced conclusive evidence that it is reserved at an even 1-for-1.
The matter has broad implications for the cryptocurrency markets far beyond the holders of the so-called “stablecoin” known as USDT.
An academic paper released last week supported this view, and the Commodity Futures Trading Commission reportedly subpoenaed Bitfinex and Tether in December of last year.
Furthermore, USDT, which despite the doubts generally trades around one US dollar, has functioned as a substitute for U.S. dollars. Traders use it to swiftly move money between cryptocurrency exchanges rather than using bank wire transfers.
FSS, the Washington, D.C., law firm that Tether hired to analyze its reserves and write the report, has no shortage of solemnity. It was founded by three former federal judges.
Another one of the firm’s partners, retired Judge Eugene R. Sullivan, is on the advisory board of one of Tether’s banks, and was introduced to the co through that connection, according to the report. His ties to the bank also helped FSS perform the review “in a timely and comprehensive manner, ensuring that no pertinent information was overlooked,” the report stated.
It’s important to remember that before it engaged with FSS, Tether previously worked with an audit firm, Friedman LLP.
That firm produced an interim report in September of last year which found the company had $442.9 million of cash as of Sept. 15th to fully back the USDT tokens. However, like the new report from FSS, Friedman’s memo was extensively hedged. For instance, it said the account where the cash is held is in the name of a trustee, and that it could not vouch that Tether had any enforceable agreement with the trustee.
Friedman LLP was supposed to produce a full audit, but Tether said in January that its relationship with the firm had “dissolved,” without specifying which side broke it off.
Mr. Hoegner would not discuss the severing of ties with Friedman LLP. However, he said Tether hasn’t given up on the audit process. “We continue to be in discussions with a number of professionals and firms about what can be offered and when,” he said.
Indeed, a law firm’s report is unlikely to carry as much weight as an audit firm’s would, and not only because of the obvious difference in skill sets.
That’s because, at least under U.S.A law, audit firms also are generally accountable not only to their clients but to third parties whose decisions rely on their integrity.
Tom Selling, a CPA and former academic fellow in the chief accountant’s office at the Securities and Exchange Commission, said that auditors “have specific standards for independence they have to adhere to,” whereas when attorneys say they are conducting “independent” investigations for companies, “nobody knows what that means.”
Stated differently, “99 percent of the work a law firm does is advocacy for the client,” whereas “100 percent of the work of an accounting firm is to hold themselves out as independent,” Tom Selling said.