Short after cryptocurrencies inception, a company called Tether released a coin that would have a lasting impact on the daily volume of cryptocurrency trades.
Without a regulated exchange, banks are reluctant to engage in large wire transfers to online brokerages or exchanges like Poloniex, Binance, Kraken, and others. Tether has the solution: Traders use Tether’s coin, USDT, to move money between exchanges, avoiding a rather cumbersome wire transfer. It’s equal to $1.00 and trades within 3 cents of a dollar. The absence of volatility is due to the fact that Tether claims to back each USDT token with one dollar in its vault.
But, since 2015, there has been much speculation whether USDT is backed by dollars – or even anything at all. Many accuse the company of issuing more coins than dollars in reserve. According to Coindesk, other critics have said that Bitfinex and Tether collaborate to artificially drive up the price of Bitcoin; thus, collecting larger commissions. Because of this, the Commodity Futures Trading Commision, a U.S federal watchdog, subpoenaed the leaders of Tether and Bitfinex back in December.
Although the coin continues to trade around a dollar despite negative commentary, regulators and investors around the world are still awaiting confirmation that their money is safe.
A Failed, Real Audit
Tether hired Friedman LLP, an accounting advisory firm, to serve as an independent auditor. A memo received on September 28th, 2017, stated the firm reviewed the trial balance of Tether’s books and confirmed with its bank that the balances matched – exactly $442.9 million. However, the name of the account was in the name of ab unidentifiable trustee.
The audit seemed to be going well for Tether, but a full audit was never released. Back in January, tether had announced that its full audit was not released due to an eroded relationship with Friedman, LLP.
A Successful, Fake Audit
More recently, the law firm Freeh Sporkin & Sullivan (FSS) conducted an unofficial audit of the company’s cash balance. The firm received sworn statements from Tether, confirming it had ample dollars in its bank account to cover the number of coins.
FSS was able to confirm that the company had $2.55 billion to cover $2.54 billion in Tether by receiving notarized statements from those bankers.
Whether this finding is legitimate is anyone’s guess. An audit completed by a law firm does not carry as much weight as one conducted by the Big Four. Law firms in the United States do not have to adhere to strict laws and regulations.
Friedman LLP would have to follow United States auditing policies. This may or may not explain why Friedman LLP did not follow through with completing a full audit in January.
This is guest post made by Michael Genna. He works in business development at Benzinga, a financial media company located in Detroit. He attends Wayne State University and majors in finance with a minor in economics. He’s fascinated in what financial markets have to offer and loves learning about different ways to exploit market inefficiencies to generate alpha. In his spare time, he enjoys staying active, reading, playing chess, and scrolling through Twitter to find the most intriguing dog memes
Image: BitcoinExchangeGuide
