No, all circulating Tethers ($USDT) are not backed by $USD reserves.
Tether ($USDT) engaged Freeh, Sporkin & Sullivan LLP (FSS) earlier this year to review bank documentation and to perform a randomized inspection of the Tethers in circulation and the corresponding currency reserves.
Released today FFS states:
FSS is confident that Tether’s unencumbered assets exceed the balance of fully-backed USD Tethers in circulation as of June 1st, 2018.
While the headlines are bold and there may be a feeling of relief for the unsure, Tethers well documented troubles are not over yet.
In the official document a section covering FSS’s “Engagement Scope” they outline that they are NOT an accounting firm, the review and confirmations generally accepted by accounting principles were NOT used, this was NOT an audit, the report is NOT for the purpose of providing assurance, and they have NOT reviewed whether Tether is operating lawfully.
Well what did they actually do then!?
When FSS started their review earlier this year they asked for some very specific documentaion:
• Tether’s anti-money laundering (“AML”), Bank Secrecy Act, and Office of Foreign Assets Control Program
•Tether’s AML/Anti-Terrorist Financing Risk Advisory Report from 2018
• Extensive documentation on Tether’s account registration process and procedures and its AML system and compliance policies
•An unredacted consulting report issued by a professional services firm retained by Tether
•Attorney-Client Communication / Work Product Privileged & Confidential 2
• Complete account opening paperwork and materials concerning Tether’s accounts with its banks
• Tether’s banking policy, banking access policy, and internal controls, including as they relate to the issuance of new Tethers
• Financial information related to Tether
• Tether’s registration as a money services business with and under the Financial Crimes Enforcement Network
• Documentation and materials with respect to Tether’s personnel and its corporate structure
• Materials concerning the number of issued and outstanding Tethers, both historically and currently.
Additionally they conducted in-person examinations and telephone interviews of key people from Tether and with the authorized representatives of the relevant banking institutions.
While all these details appear comprehensive and reassuing, did they need it to simply “review” bank documentation and produce a randomized inspection of the amount of USDT vs USD in reserve? In short, no.
Something stinks and it’s not being talked about. Tether and FSS had a very specific agreement. The proposition was simply can you confirm that we have $XXX USDT and that we have the matching $XXX USD in our accounts to back it.
June 1st, 2018
BANK 1: $1,968,538,584.82 USD (unencumbered)
BANK 2: $576,528,652.00 USD (unencumbered)
TOTAL: $2,545,067,236.82 USD
$2,538,090,823.52 USD TethersFSS is confident that Tether’s unencumbered assets exceed the balance of fully-backed USD Tethers in circulation as of June 1st, 2018.
This entire parade was produced to match the USDT and USD accounts in a single snapshot of June 1st, 2018. It was not done to resolve the questions of whether they are operating legally, the funds were legally obtained, that the accounts are maintained adequately and the books are clean, or even that the equivalent funds have always been maintained. Was there equal USD backing when Tether added $400million in January 2018 or the additional $300million USDT in March 2018? Tether and it’s associates can scrape together enough to cover the $2.5 billion but there is no answer as to whether it’s always there, or always has been there.
Tether employed Friedman LLP to conduct an audit (pre U.S CFTC subpoena), but as they printed that additional $300million USDT in March 2018 they called it off. This was not expected and Friedman LLP reported to Bloomberg:
“Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable timeframe.”
“The reason given by Tether was certainly not clear and precise, neither acceptable. An audit is to be allowed as much time as required, albeit the audit needs to be concluded before the due date. It is not a reasonable ground and I’ve personally not heard of such a reason in my auditing career.”
U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to virtual-currency venue Bitfinex and Tether. This is perhaps where the truth will be found but it is “not an audit”, so what activities will they be digging into? When was the last time a complete and prompt examination was conducted by the CFTC?
As a cryptocurrency grows there will be fewer and fewer of these situations to consider. Regulations, more responsible companies and a maturing of the blockchain industry are going to lead us out of the wild-west and into a more established cryptocurrency settlement. These headlines describing absolute resolution of the Tether issues are concerning.
The ecosystem and community in this crazy place we chose to trade and invest is emotional and lacking responsibility. Be diligent and look past the headlines and the hype. If you are still reading this it is unlikely that these qualities and situations describe you personally, but be sure to discuss and share a more rational and realistic approach with the people around you.
We are responsible to each other, but not for each other.
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