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.

Interview: Andreas Antonopoulos on Future Cryptocurrency Technology, Regulations, and More

Speaking to CryptoGlobe at the CryptoCompare Digital Asset Summit in London, the author of “The Internet of Money” and a well-known cryptocurrency expert, Andreas Antonopoulos, revealed his thoughts on future cryptocurrency technology and impact of regulations on the market.

Antonopoulos revealed he believes that a lot of the things we’re currently dealing with in cryptocurrency wallets will eventually fade into the background in the name of a better user experience, and that regulations may only be harmful for the space’s goal of financial inclusion.

CryptoGlobe: During your talk [at the CryptoCompare Digital Asset Summit] you kind of approached our question, which is on atomic swaps. Essentially you said that one day, we will have a kind of ‘smart wallets’ that will do everything for us, we'll just send the transaction. I assume you think they're positive, and they'll allow individuals to exchange peer-to-peer without the need for anything else?

Andreas Antonopoulos: Yes, I think that a lot of the details that we have to put in the forefront of the user interface today will actually fade into the background. The reason I say that is because I've seen that happen in a number of technologies in my, in my career, and my experience in the Information Sciences.

We've seen that with the internet, for example. When I first started with the internet, a lot of the nitty gritty things, like IP addresses and configurations of network drivers, and DNS, and things like that were right up front and had to be managed by the users themselves, just like today, you know, you have to choose Bitcoin addresses and send them to each other and they’re these very difficult to read things.

There's no reason why we can't gradually make those details disappear into the backgrounds. When you operate the internet today, you don't consider how your packets are being routed or whether you're using a VPN or not, or how many layers there are between you and a website or where the information is cached on the way there. All of that happens magically, in the background.

Some of that's a good thing. Some of that's a bad thing. Sophisticated users want a bit more control, but mainstream adoption also depends on hiding some of that complexity.

I think, in the end wallets are going to become much more simple to the user, but much more complex behind the scenes - more sophisticated, they're going to be doing intelligent routing, they're going to be swapping currencies, one for the other, in order to achieve the best results, given a set of circumstances. I think a lot of those things going to be auto-negotiated, just like when you use SSL on your browser, you have no idea which encryption algorithm it's using. You only know if it's using a good one or bad one. If you look at the color of the padlock.

There's no reason why you would need to know or choose a currency: why not have your wallets negotiate the best cryptocurrency to use with the vendor you're exchanging or the other peer you're exchanging value with? ‘I take the following 20 cryptocurrencies. Great. I have three of those. But I'd actually like to change to another one. Let me do a quick atomic swap and pay you in your preferred currency.’ Just like we do with routing.

CryptoGlobe: Recently the Financial Action Task Force put out guidelines on transactions that require VASPs  to have an identity attached to them. What do you think about that? Is it bullish for Bitcoin?

Antonopoulos: I think what it's going to do again, and again, is prove that, especially in countries where the government is taking a fairly authoritarian approach towards finance, they're willing to sacrifice billions of people into poverty in order to create this illusion of safety. The truth is, we cannot address crime, or poverty, or crime arising out of poverty, by doing totalitarian surveillance of transactions.

For thousands of years, we had anonymous transactions over cash and civilization didn't end. In fact, it thrived and billions were raised out of poverty. I think in the long run, the historical idea that we can track every transaction, every time will be a historical aberration. I think it's a very dangerous idea, because ultimately, criminals will be able to have financial privacy, because they will use the systems that give them financial privacy because they're willing to pay the price.

What this does is it robs the innocent of their right to financial privacy, in order to pretend to chase criminals. It also puts power in the hands of people who are likely to become corrupted by this. If there is a lever of power that gives you ultimate surveillance and control over the financial lives of millions of people, the kind of people who are attracted to take control of that lever of power are the worst sociopathic criminals in society. One of the days you're going to elect one of them as President, Prime Minister, or they're going to become the new king, and then your freedoms are gone.

I think it's very dangerous to continue to follow this wrong path. The good news is that these crazy ideas that everybody has to participate in surveillance in order to have safety and freedom. This fascist idea that for the good of society, we have to submit to total surveillance by government is going to fail. And the reason it's going to fail is because many people will have the choice to use something else. These people are already excluded from the financial and banking system anyway, and there's billions of them.

So I'm more focused on building technology. The regulators can only regulate what happens within their borders - if they creates circumstances that make it impossible for crypto companies to operate legitimately within their borders, the crypto companies will then leave, [but] the crypto is going to stay.

Then it's going to be used primarily by criminals, who are still going to use it. The only difference is the middle class won't be able to use it. And the startup companies that are creating innovation will move to other places and create jobs somewhere else. You can take your country out of crypto, but you can't take crypto out of your country.

CryptoGlobe: So ideally, do you think governments should just stay away from the cryptocurrency space and let the free market do its thing? What do you think the governmental approach to the cryptocurrency space should be?

Antonopoulos: They should regulate custodians. They should regulate custodians because custodians are dangerous, in any market. And maybe they should start by regulating the banks and multinational corporations that are selling our private data to the highest bidder, maybe they should regulate surveillance capitalism, maybe they should regulate custodian banks that are taking our money into their deposits, and using it to gamble on these corrupt markets and making the economy more and more fragile.

Unfortunately, those same people pay for every one of these politicians’ campaigns, so they are unlikely to do any of that regulatory work that they should be doing. I don't have much hope the politicians are going to deal with the real problems in our economies, it's much easier to chase these phantoms and create this illusion of safety and of strange threats, and feed off the fear of people than it is to do things that are courageous and honest.

So we're just going to do our thing. We're going to build technology, and they can't regulate ideas, and they can't regulate mathematics, and they can't regulate the open internet and they can't regulate human communication, because those things are not under their control.

CryptoGlobe: Your talk earlier today at the CryptoCompare Digital Asset Summit focused a lot on the global access to finance through cryptocurrencies, what are your thoughts on the divergence between this goal and traditional finance building projects around cryptocurrencies? So, for example, JPM coin. What are your thoughts on that? Are these incompatible? Or can they achieve similar goals?

Antonopoulos: No, they can't achieve similar goals for the same reason that we just talked about ‘Facebook coin.’ These are not cryptocurrencies, they're taking the words and they're emptying them of all meaning and they're building systems to pretend to be, but they're not cryptocurrencies. They're not opening up portals. They're not neutral.

They're not censorship resistant. They're not public. They're not transparent. They're not immutable. What they are, are tokens to the very same business as usual, the very same regular system that excludes billions of people from access to the world economy today.

We're never going to achieve greater degrees of financial inclusion, as long as we insist on imposing these enormous requirements on participation in the economy by turning basic access to financial services into a privilege that is only available to those who have the identity, the literacy, the resources and means to fulfill these crazy requirements.

CryptoGlobe: Thank you so much for spending some time answering our questions.