Tether Releases Ex-FBI Director’s Law Firm Report on Its Reserves, Stops Short of an Audit

  • Tether has revealed a law firm looked into its financial situation, and claims it has money in the bank to back its USDT tokens.
  • The firm, however, just looked at the company's funds, and stopped short of an official audit.

Tether Ltd, the company behind controversial cryptocurrency Tether (USDT), that’s supposed to be pegged to the US dollar 1:1, has recently revealed it hired a law firm co-founded by former FBI director Louis Freeh to analyze its financial situation. While the firm reported Tether has enough funds to back its USDT tokens, it didn’t conduct an official audit.

According to the report, Freeh Sporkin & Sullivan LLP (FSS), the hired law firm, was given full online access to Tether’s bank accounts and financial statements, as well as to employees at the two banks in which the company allegedly has its funds.

The report reads:

Earlier this year Tether engaged Freeh, Sporkin & Sullivan LLP (FSS) to review bank account documentation and to perform a randomized inspection of the numbers of Tethers in circulation and the corresponding currency reserves

FSS report

Per the document, FSS chose June 1 to look into Tether’s financial situation. It found that in one of the banks the company has over $1.9 billion, and $576 million on the other one. In total, it reveals the company has $2.545 billion in the banks, an amount that surpassed Tether’s then circulating supply of $2.538 billion. At press time, Tether’s market cap is of $2.61 billion, according to CryptoCompare data.

Various concerned users and speculators have in the past claimed USDT tokens were backed by dollars that weren’t actually there, and that they were being created out of thin air so cryptocurrency exchange Bitfinex – a company associated with Tether – could use them to pump bitcoin’s price.

Notably this isn’t Tether’s first unofficial audit, as last year accounting firm Friedman LLP analyzed its financial situation – but didn’t calm critics down. These concerns escalated, to the point the US Commodity Futures Trading Commission (CFTC) subpoenaed both companies in December, when bitcoin hit its all-time high, to investigate the situation.

Stuart Hoegner, Tether’s general counsel, told Bloomberg News:

The bottom line is an audit cannot be obtained… The big four firms are anathema to that level of risk… We’ve gone for what we think is the next best thing.

Stuart Hoegner

While FSS claims it is “confident that Tether’s unencumbered assets exceed the balance of fully-backed USD Tether in circulations as of June 1st, 2018,” it refused to name the banks the company is banking with due to privacy concerns as “banking relationships are private.”

The report follows a study conducted by University of Texas professor John Griffin, which suggests the stablecurrency has been used to manipulate bitcoin’s price last year. The study’s authors claim to have found a pattern between USDT issuance and the flagship cryptocurrency’s price performance.

Bitfinex’s chief executive officer, JL van der Velde, commented on the study stating:

Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex.

JL van der Velde

FSS’s report includes several caveats to its findings. It notes that it isn’t an accounting firm and that it didn’t “perform the above review and confirmation using Generally Accepted Accounting Principles.” Moreover, it adds that it assumed “without further inquiry” that the bank personnel who supplied it confirmation was authorized to do so, and that said confirmation was correct.

There are other stablecoins out there, although their supplies are significantly smaller than that of Tether’s. True USD’s (TUSD) supply, for example, is only of $62.8 million. Notably, the coin is traded on top exchanges like Bittrex and Binance.

BitMEX: Outflows Have Been Exceeding Inflows Since News of CFTC Investigation Broke

Through various tweets, TokenAnalyst has been publishing its estimations for the 24-hour on-chain BTC flows for five major exchanges - Binance, Bitstamp, Poloniex, Bittrex and BitMEX.

While the majority of the exchanges documented have been seeing relative parity between BTC inflows and outflows, with Binance hosting inflows of $58 million and outflows of $54 million, Bitstamp seeing inflows of $52 million and outflows of $50 million, Poloniex receiving inflows of $6 million and outflows of $4 million, and Bittrex amassing inflows of $4 million and outflows of $5 million, BitMEX hosted an inflow of $12 million and an outflow of $85 million on July 20.

Today, BitMEX saw $4 million enter the exchange, and $14 million leave. While most other exchanges had relative parity, Binance saw an additional $15 million in outflows.

While the dramatic disparity between BitMEX’s BTC inflows and outflows appears anomalous, the exchange has seen outflows significantly outweigh inflows on several occasions during recent months.

Bitmex Outflows Exceed Inflows by 7x Following News of CFTC Investigation

In a tweet, prominent Twitter personality, WhalePanda, attributed the imbalance in capital flows to the complacency of many cryptocurrency traders concerning holding large sums of BTC on exchanges, posting:

The 24-hour trade volume for BitMEX’s BTC contracts sits at $2.4 billion as of this writing.

Significant Outflow Disparity Follows News of CFTC Investigations

The imbalance between BitMEX’s inflows and outflows was highlighted followed reports asserting that the cryptocurrency derivatives exchange had come under investigation from the United States Commodity Futures Trading Commission (CFTC) on July 19.

The “months-long” probe is reportedly exploring whether or not BitMEX violated U.S. law by allowing U.S. citizens to trade on the platform, despite the exchange not being registered with the CFTC.

A BitMEX spokesperson stated: “HDR Global Trading Limited, owner of BitMEX, as a matter of company policy, does not comment on any media reports about inquiries or investigations by government agencies or regulators and we have no comment on this report.”