Tether has been under intense scrutiny recently after a study alleged that Tether was responsible for manipulating Bitcoin’s price during the rally to USD 20,000, and that Tether was possibly adding new coins into circulation with the purpose of pumping up Bitcoin’s price without backing them with USD, which would effectively be money printing. The Commodities Futures Trading Commission subpoenaed both Tether and Bitfinex who have the same CEO, Jan Judovicus van der Velde, possibly in relation to this matter.
Tether Limited retained the law firm Freeh, Sporkin & Sullivan (FSS) to verify that Tether really had USD in the bank to back all of its coins, and FSS found that Tether has USD 2.545 billion in banks that it controls, more than enough to cover the 2.538 billion Tethers in circulation during the verification on 1 June 2018.
While this is not an official audit since it was not done by an accounting firm, FSS is a reputable law firm that was founded by three former federal judges including former FBI Director Louis Freeh, and has decades of experience working with the United States government to ensure compliance and business integrity. FSS received permission to review Tether’s bank balances at any time it chose, and queried the banks on a random date so that Tether would not be able to put money in the bank just to pass the verification. That being said, this verification is only relevant for 1 June 2018, and is no indication of how much money Tether had in the bank before or after that date.
Tether’s General Counsel, Stu Hoegner, says it are not able to obtain an audit due to the nature of the cryptocurrency industry. Cryptocurrency is uncharted territory for auditors, there is uncertainty about how standard auditing rules apply to cryptocurrency and auditors don’t tend to make their own decisions on how the rules apply. Indeed, Tether used to have an auditing firm, Friedman LLP, but the business relationship fell apart. The last report from Friedman LLP in September 2017 indicated that Tether had USD 442.9 million in bank reserves, enough to back all of its coins at the time.
Tether is in discussions with accounting firms to conduct a full audit, but for the time being, the verification done by FSS was the most timely option to prove that Tether wasn’t committing fraud, in order to quiet down the media storm that started with the Bitcoin price manipulation study.
It is good news for the cryptocurrency markets that Tether is truly backed by USD bank reserves as promised since it is the 11th largest cryptocurrency by market cap, and is an essential mechanism for quickly transferring money between cryptocurrency and USD, with billions of USD of trading volume per day. Since the allegations against Tether helped drive cryptocurrency prices downwards, perhaps the market will be driven upwards now that these allegations have been found to be untrue.
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