Tether’s latest fake audit has only made things worse
Tether is quickly going from shady to suspicious to toxic.
Tether has been under frequent accusations of being party to the price manipulation endemic to cryptocurrency, and not actually having the funds to back up its Tether issuances.
It took a stab at addressing these concerns with an independent audit at the start of the year, before abruptly dissolving its relationship with the Friedman LLC accounting firm, saying that it was too slow and expensive.
Its exact words were: "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."
Now it's changed tack by releasing a non-audit it described to Bloomberg as "the next best thing" and saying that it will not be getting an actual audit in the foreseeable future because it can't.
This non-audit was accompanied by some very bizarre statements from a Tether spokesperson, and the emergence of troubling connections between Tether and the law firm it contracted for its fake audit.
This is getting weird
The reason a Tether spokesperson gave is that the cryptocurrency market is too immature for established accounting firms to get into crypto clients.
"The big four firms are anathema to that level of risk," said Tether general counsel Stuart Hoegner.
This is an unusual statement, which some people might even construe as a bare-faced lie, considering that big four accounting firm PwC Hong Kong (Tether's home city) started accepting bitcoin payments last year specifically because it was so closely involved with so many cryptocurrency companies.
Or that Ernst & Young, another big four accounting firm, started accepting bitcoin in 2016. It even developed and provided its own bitcoin wallet app for employees, and installed a bitcoin vending machine in its public office in Switzerland, all to better facilitate transactions with its cryptocurrency clients.
It looks much more like reputable accounting firms are allergic to Tether specifically, rather than cryptocurrency in general.
It's even weirder when you consider that Tether was founded in 2014 and is now well established, and that auditing US dollar holdings – which is what Tether claims to have – is one of the easiest and most straightforward things any accounting firm will typically do.
There's undeniably something very fishy going on, and it smells like Tether.
It gets weirder
Tether contracted the Freeh, Sporkin & Sullivan law firm to perform a brief study of Tethers in circulation, and essentially write a letter saying that Tether has enough funds to back its circulating supply, but not offer any proof.
It's more of a suspicious-looking doctor's note than an independent audit, and by itself, doesn't prove anything, least of all why Tether couldn't find an actual accounting firm to perform what should be a routine procedure.
But in an effort to lend its efforts some legitimacy, Tether made sure to tout the credentials of Freeh, Sporkin & Sullivan (FSS), a firm "established by three former federal judges – including a former Director of the FBI – with decades of experience adjudicating at the highest levels of the U.S. government".
"Judge Eugene R. Sullivan (Ret.), one of the partners, is a member of the advisory board of one of Tether’s banks. It was through this connection that Tether was introduced to FSS."
Eugene Sullivan, who connected Tether and FSS, is a director of a company called Imperial Pacific Holdings. And that former FBI director would be Louis Freeh, who is also an advisor to Imperial Pacific Holdings.
And Imperial Pacific Holdings is known to be running a mathematically improbable casino on the US territory island of Saipan while being battered by reports of human trafficking. It sprung up in 2014 (the same year Tether was founded), and by 2017 had become the most successful casino operation in history, turning over $2 billion a month in supposed VIP bets on US soil. For perspective, that makes it about six times more successful than Macau's finest casinos, which are widely known to be hotbeds of money laundering.
Nothing explicitly ties Tether to Imperial Pacific Holdings. But FSS' business ties and Tether's bizarre decision to get a non-audit from this particular law firm raises some clear red flags.
What happens next?
Probably very little.
Tether has said that it won't be releasing an audit, and barring any criminal proceedings down the line, that's probably that. In the meantime, any questions can be referred to Tether's
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, NANO
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