Tether denies manipulation allegations, claims to be a conspiracy victim
Very few things about Tether add up.
In an interview with Cryptonews.com, Leonardo Real, chief compliance officer at Tether, hit out at a recent Bloomberg piece which alleged that Tether was under investigation for supposed cryptocurrency market manipulation.
He said the study could not be correct because it depends on the assumption that Tether is not fully backed 1:1 by real US dollars.
"The story put forth by Bloomberg cites an unbacked, independent study which claims that, if USDT were to be unbacked it could indicate manipulation of the Bitcoin price. The entire study relies on the assumption that USDT is unbacked and therefore not sufficiently driven by trader demand. This is flawed, and claims which suggest that USDT transactions aren't driven by demand when it is consistently in the top 2 of traded cryptocurrencies in the space with regards to volume, are simply ridiculous by now."
It might not be the most reassuring refutation one could hope for, given that allegations of Tether not being fully backed have been circulating for just as long as the allegations of market manipulation.
"We have never said no to an audit or refused to engage in this process," Real said to Cryptonews.com. This might be at odds with a previous statement from Tether general counsel Stuart Hoegner, who said "the bottom line is that an audit cannot be obtained".
"We stand by the fact that all outstanding USDT are backed 1-to-1 by fiat USD. This has been confirmed on numerous occasions," Real maintained. "We have clearly demonstrated to all parties that we have the funds we say we have at various points. We released the consulting report from Friedman LLP [a New York City-based accounting, tax and business consulting] firm last year. We had Freeh Sporkin & Sullivan [a Washington-based law firm] investigate our balances in June 2018. We published a letter from Deltec bank this month."
The problem is that each of these proofs has been shrouded by suspicious circumstances.
- The Friedman LLP consulting report: The consulting report specifically did not constitute an audit, Friedman said, and also contained some glaring points of contention. For example, it redacted Tether's bank details, and specifically said that Friedman could not confirm that the accounts it observed were actually for the purpose of backing Tethers in circulation. The most hair-raising part might be that Tether abruptly terminated its relationship with Friedman before the audit could be completed – while Friedman was attempting to conduct a thorough audit. Tether's statement at the time was: "We confirm that the relationship with Friedman is dissolved. 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 time frame." That sounds a lot like Tether saying no to an audit, contrary to Real's new statement.
- Freeh, Sporkin & Sullivan (FSS) investigation: The report specifically says: "FSS has assumed, without further inquiry, that the bank personnel providing the confirmations were duly authorised to provide such confirmations, and that the confirmations were correct." Functionally it's just a letter from a lawyer confirming that Tether is saying all circulating Tethers are backed up. It doesn't necessarily prove anything. Also, FSS executives have long and deep ties to Tether going back many years, which might further raise suspicions.
- A letter from Deltec Bank: This letter simply says the portfolio of Tether's cash balance is enough to support all Tethers in circulation. It does not verify in any way that there are enough unencumbered assets to support circulating Tethers, or that Tether is not, as alleged, being used to prop up markets.
There is so far no evidence one way or another which confirms that Tether is or is not fully backed, or which confirms that Tether is or is not fully backed by US dollars. The main question might be why, if everything's above board, Tether keeps going through the brand damage associated with this kind of strangeness. And if it could do so, why Tether doesn't just put doubts to rest with full transparency and confirmations from an actual accounting firm.
Real explained this firstly by saying that accounting firms are having trouble understanding the cryptocurrency space.
"The accounting industry continues to grapple with and have difficulty providing assurance services in the cryptocurrency space. As and when they are ready to help, we hope to be able to engage with them," Real said.
It's a strange statement, given that the world's largest accounting firms are deeply involved with cryptocurrency. PwC Hong Kong actually started accepting bitcoin for payment in 2017 specifically because it was dealing with so many cryptocurrency clients. EY Switzerland might have gotten there even sooner, and in late 2016 said it would be installing a bitcoin vending machine in its local office and giving employees bitcoin wallets so they can more easily deal with the cryptocurrencies that had become second-nature to them.
It's not clear why Tether is apparently too good for every single accounting firm on the planet.
In response to a question about Deltec's alleged involvement with money laundering and it being named in two bribery cases, Real said the bank had unfortunately been caught up in an organised conspiracy against Tether.
"This is more misinformation that is now targeting our bankers as part of an organized campaign against us. We are proud to be working with Deltec. Their compliance and operational standards are second to none. Their compliance functions have not been compromised and they are not involved in any case that could cast doubt on their integrity," he said.
One of the two bribery cases involving Deltec has come down to a plea agreement from Abraham Edgardo Ortega, former executive director at Venezuela's state-owned oil company PDVSA.
In his plea agreement with the United States, Ortega specifically agreed to forfeit "all assets on deposit in account/portfolio number 1303311-00 at Deltec Bank & Trust Limited in Nassau, The Bahamas". Also, the indictment reportedly says Ortega was holding funds in Deltec as early as 24 February 2017.
In response, Deltec said: "Deltec wishes to make it abundantly clear that neither Mr Ortega nor any of the other indicted individuals is or was a client of the bank."
Firstly, it seems that businesses might, on occasion, issue statements that are probably counter-factual. This might be worth bearing in mind whenever Tether speaks out.
Secondly, the investigation of Ortega was underway for well over a year before Tether is known to have switched its banking to Deltec. That's also when most of the investigative work – from the US justice department – was going down. It just happened to come to light more recently.
This suggests two things.
Firstly, that it's almost impossible that the case against Ortega is, as Real claims, part of an organised campaign against Tether.
Secondly, that if it is part of an organised campaign against Tether, that the campaign is being spearheaded by the US justice department. And that's not a conspiracy – that's just law enforcement.
- What is Bitcoin’s Taproot upgrade and what does it mean for the network?
- Bitcoin is back above US$40,000 – here’s why
- Expert analysis: Ethereum price up 30% with further gains on the horizon
- 5 key tax time 2021 questions for investors
- Amazon set to accept Bitcoin and cryptocurrencies for payments, claims anonymous source