1) FSS is not an accounting firm and did not perform the above review and confirmations using Generally Accepted Accounting Principles.
2) The above confirmation of bank and tether balances should not be construed as the results of an audit and were not conducted in accordance with Generally Accepted Auditing Standards.
3) FSS makes no representation regarding the sufficiency of the information provided to FSS and all inquiries made by FSS have been directed to the Client and/or third party personnel responsible for maintaining such information, and the data has been obtained from the Client and/or third party personnel responsible for maintaining such information.
4) FSS procedures performed are not for the purpose of providing assurance and are limited to the findings listed above as of June 1st, 2018, Close of Business. FSS has not performed any procedures or made any conclusions for activity prior to or subsequent to June 1st, 2018, Close of Business.
5) FSS did not, as part of the Engagement, arrive at any conclusions as to Tether’s compliance with applicable laws and regulations in any jurisdiction.
6) FSS has assumed, without further inquiry, that the bank personnel providing the confirmations were duly authorized to provide such confirmations, and that the confirmations were correct.
> In conjunction with receiving the above balance information, FSS requested the Chief Financial Officer and the General Counsel of Tether to certify, by sworn statement, the amount of fully-backed USD Tethers that were in circulation as of the close of business on June 1st, 2018.
Based on the numerous downvotes, it seems many people didn't actually read the PDF in question. The quote is directly from the report and at no point does FSS claim they verified the USDT half of the claims, only that bank accounts on a particular day held a specified dollar amount.
What this document is not, however, is a statement from an auditor. Given (a) Tether's previous auditors resigned and (b) Tether continues to claim, on its website, that it is audited, that remains a red flag.
(In the history of funny money being issued by banks or exchanges, the traditional switcheroo involved presenting customers' deposits as the bank's own funds. Given the totality of this situation, that is what I assume is going on.)
Looking at what's posted I don't see anyone of these 3 former judges or FBI director putting their signature on this.
That's pretty telling in of itself.
Well all is good, nothing to see, go about your business as usual. Don’t mind the man behind the curtain.
Hey, look, another memo misleadingly posted as if it were an actual audit. Completed audit count: still ZERO, despite fraudulent claims on the website claiming "frequent professional audits".
One of the issues the previous Friedman LLP memo (also misleadingly posted as if it were an audit, which many fell for) raised was that Tether might not actually control the funds in their bank accounts - i.e. that Bitfinex might be parking customer deposits in Tether's account to make it look legit. Looks like that is still unresolved here.
So maybe that's why FSS was hired as opposed to an accounting firm?
Not really. The six numbered statements in "Furthered Details" are pretty much disavowing the entire report. This is one bunch of auditors signalling to other auditors, "We don't stand by this at all, we were just collecting the fees." The other auditors, and actually competent potential clients, will pick up that signal when they read these statements, and know that FSS was just collecting a check to be part of Bitfinex's dog-and-pony show, so it "won't count" as a black mark once Bitfinex implodes.
If they were a country, they'd be #140, with just one account. #133 for their total according to the report.
I find it very hard to believe that a company that has that amount, would be anywhere close to US borders, since... there has been no audit of any sort, by anyone; including governments.
That seems rather plausible unless FSS completely messed up verifying bank sources(ie someone impersonated a respectable bank, or a micro bank official lied).
So that is all that this statement says: on June1st,2018, Tether accounts had 2.5Billion USD in bank.
That's all it does though, given that there's absolutely no effort made to determine liabilities. For all we know those accounts could have been funded with a $2bn loan, or better yet customer deposits (ie via Bitfinex) which this analysis is completely silent on.
With that said, it's interesting.
Ignoring anything else, that seems astoundingly stupid.
They are not a bank.
The whole premise of Tether was that it was backed by USD one-to-one.
Tomorrow if there is a crises, Tether goes from a 2 billion dollar company to a 500k company.
No company would do that. They would either spread across as many banks as possible to stretch out FDIC as much as they can, or they would keep their cash invested in some kind of relatively stable asset.
Heh.
Anyway, follow https://twitter.com/Bitfinexed for some more happiness arount them.
Tether has shown proof of reserves, by former director of FBI. Examinations took place in Washington, D.C.
I think it's worse. Before, Bitfinex could at least implicitly claim ignorance and that they didn't know people wanted an audit. But now they're showing they're aware of the noise, and their response is a totally bogus statement that proves nothing: FSS practically disavows all its own conclusions, and there is no mention whatsoever of liabilities. If this company actually was on the level, a genuine audit would be no problem, but this report is a clear signal that they are actively (rather than just passively) refusing to do it.
This report actually increases my confidence that Bitfinex is a house of cards and USDT is totally unbacked. For all we know, that "proof of reserves" was borrowed from customer accounts just long enough for FSS to see it, then went straight back.
SWIFT is a member-owned co-operative headquartered in Belgium [1]. It "does not facilitate funds transfer: rather, it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other."
For example, suppose you bank with Bank H and I bank with Bank J. You send me $100. Bank H will deduct $100 from your account (thereby increasing Bank H's reserves by $100) and send a message, via SWIFT, to Bank J. Bank J will then deduct $100 from Bank H's account with Bank J while simultaneously adding $100 into my account with Bank J.
The U.S. government does have the power to audit banks for a variety of reasons, but beneficial ownership records are ultimately held at the bank level. All that said, I am surprised that a bank handling U.S. dollars is willing to hold these balances given it is difficult to determine who beneficially owns Tethers.
[1] https://en.wikipedia.org/wiki/Society_for_Worldwide_Interban...
[1] http://www.wired.co.uk/article/how-to-detect-fake-numbers
[2] http://journals.plos.org/plosone/article?id=10.1371/journal....
There was no audit.
We don't know how strong the relationship between these companies is. One possibility is that Bitfinex wants to allow customers to immediately withdraw any USD deposits to other exchanges that accept Tether-USD. If that is the case, then effectively all deposits into Bitfinex are immediately "sold" to Tether in exchange for Tether-USD. That would mean that Bitfinex does not have any USD at all. Therefore the balance of USD in Tether's bank accounts would include all Bitfinex deposits.
Except for the opacity involved, nothing here would actually be misleading or obviously unethical; whether it is illegal is another question.
> FSS makes no representation regarding the sufficiency of the information provided to FSS and all inquiries made by FSS have been directed to the Client and/or third party personnel responsible for maintaining such information, and the data has been obtained from the Client and/or third party personnel responsible for maintaining such information.
In other words, "unencumbered" here means "Tether told us they're unencumbered".
That is one thing I find so crazy about the entire thing — the fact that they are backed 1:1 is the simplest possible explanation and yet the conspiracy that they were created out of thin air to artificially prop up the price of bitcoin is more believable to many/most people here.
Just so you know money is created out of thin air by the federal reserve every day and much of it is used to prop up the stock market. I’m not saying that to defend it or imply it is happening here. I just think it’s ironic cause no one is claiming that the stock market is overly inflated or that the federal reserve should go to prison even though there is proof there that it happens.
FWIW the stock market has a market cap around $30 trillion. Bitcoin alone is around $115 billion. Big price fluctuations are much more likely with a small supply and small market cap.
Tether concealed its relationship to Bitfinex, which is generally not a good sign. Their auditor also released a statement which, I am told, is auditor-speak for "they failed the audit."
If they are backed 1:1, it requires them to have received large dollops of USD at a time when many financial institutions were wary of giving cash to cryptocurrencies. Without more details on how that USD came about, there is reason to be skeptical of that claim.
Is it possible you see objections to Tether as "so crazy" because of this sort of fraud on Tether's part?
On Bitfinex tethers are not used for actually purchasing bitcoins. US dollars are. Tethers are only issued when you want to withdraw funds from the exchange to, for example, take advantage of arbitrage opportunities with other exchanges that offer Tether trading pairs.
Why is that idea so unlikely? Crypto was in a bull market last year and lots of people were trying to buy. If I saw the price was cheaper on an exchange that offered Tether pairs but not USD pairs I would probably convert some USD to Tether to buy there as well.
Why do you have it in for Tether so much in the first place?
It's evidence of credulity where Tether is concerned.
> You have yet to provide any evidence that they are not backed by USD.
The onus is on Tether.
"We have taken in two billion dollars, but can't find an auditor to say so, so here's a non-audit while we keep the 'frequent professional audits' statement up on our site" is outright fraud.
Your threshold for claims made by proven fraudsters is remarkably low.
> Why do you have it in for Tether so much in the first place?
I don't like being lied to, especially when billions of dollars are at stake.
That’s totally understandable and fair. I also agree it is partially on them to prove that they can be trusted and I think this report today is a step in the right direction.
That said, there is still no hard proof that they have been lying and I like to believe they are innocent until proven guilty.
Also Tether can’t fully explain the run up in prices last year since Tether only accounts for some of the crypto trading volume, and many people still paid USD to buy Bitcoin and other cryptos last year.
There is. Their website claims "frequent professional audits". Zero audits since the founding of Tether Holdings Limited in 2014 is neither frequent, professional, nor an audit.
I agree with you the fact that they claim they are audited and never are is a sleazy business tactic.
Unreliable claims to $2B in assets should be treated as extremely suspect until a reputable audit is provided. "I've got a Canadian girlfriend you've never met" doesn't fly in middle school; it shouldn't fly in a financial system.
I'm no CFO, but I assume the standard practice is to either setup an investment office to manage cash reserves (ala Apple), and/or to invest cash in stable assets, hopefully with returns greater than inflation.
Actually, how do funds, investment vehicles, etc store these amounts of money?
While I can't speak about Tether, hypothetically speaking if you had a single legal entity with $2B in cash, I would expect it to be well diversified in very safe and managed pools, either bank accounts (up to FDIC limit), repos, CDs, or other safe short-term instruments.
Source: investment management industry knowledge and personal experience with the same.
Fundamentally, having $2.5bn in a bank account is almost always a silly idea due to opportunity cost: the alternative is that it could be invested in a mix of things that give a reliable and reasonable rate of return.
Just as we think of bank deposits as cash, most accounting procedures (reasonably) treat Treasuries as cash.