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.

Venezuela to Use Petro Cryptocurrency to Settle Trades With Russia: Report

The government of Venezuela is reportedly planning to settle trades with Russia by using the controversial Petro (PTR) cryptocurrency. This, according to a report from Russian government-backed media outlet RT (published on May 17, 2019), which mentioned that mutual trade agreements between Venezuela and Russia may also be conducted using the ruble.

Local news sources further noted that both Russia and Venezuela are looking to settle trades without using the USD.

$100 Billion Owed To External Creditors

According to Jorge Valero Briceño, Venezuela’s Representative to the UN Office in Geneva, Switzerland, Caracas is expecting the Kremlin’s support in helping the South American nation to restructure its foreign debt. Recent estimates indicate that Venezuela is indebted to foreign creditors by approximately $100 billion.

US-led political and economic sanctions against Venezuela, particularly those which apply to the country’s oil industry, along with freezing USD accounts, put tremendous pressure on the Venezuelan economy. This, according to Briceño, who also noted that Venezuela, which notably has the world’s largest oil reserves, has been deprived of access to international financial aid and foreign direct investments (FDI) in its oil industry - due to crippling sanctions.

As confirmed in RT’s report, the citizens of Venezuela are suffering from one of the worst economic crises in the nation’s history. Extreme levels of hyperinflation, which have now exceeded 10,000,000% this year, have forced many Venezuelans to resort to desperate measures.

Cryptocurrencies Are Too Technical For Most Venezuelan Residents

As CryptoGlobe reported on May 10, 2019, Alejandro Machado, the co-founder of the Open Money Initiative (OMI), a project dedicated to researching how money is used in “collapsing monetary systems,” had revealed that the majority of Venezuelans had not completely abandoned the Bolivar, the nation’s national currency.

While the Bolivar may have become worthless due to hyperinflation, Machado said that most people in Venezuela were still using the Bolivar because they had to, in order “to survive.”

While Machado acknowledged that bitcoin's trading volumes in Venezuela had surged to all-time highs, mainly on LocalBitcoins, he pointed out that most of the nation’s residents are not able to use cryptocurrencies due to their highly technical nature.

No Evidence Of Petro Being Used

An extensive report from Reuters revealed last year that there was “no evidence” of the Petro being used, domestically or internationally, to settle transactions.

Cabinet Minister Hugbel Roa claimed in late August 2018: “Nobody has been able to make use of the petro ... nor have any resources been received.” This, as the Petro cryptocurrency was still in its development stages, Roa said.

However, a local crypto trader had explained that it was not practical to use the Petro for daily transactions because “there is no way to link prices or exchange rates to a token that doesn’t trade."