Former US Securities and Exchange Commission (SEC) official John Reed Stark has issued a warning about Tether, the world’s largest stablecoin emitter, USDT. In his opinion, Tether could be the next domino to fall, and its promise of transparency and audits may not be enough to prevent that from happening.
Is Tether’s Future In Jeopardy?
Stark, who has 35 years of experience studying markets and financial statements, including 18 years as an attorney in the SEC Enforcement Division, believes that Tether is a “mammoth house of cards” that could collapse at any moment. He argues that the company’s lack of transparency and its opaque relationship with its banking partners create significant risks for investors and the wider financial system.
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In addition, John Reed Stark has called attention to the lack of regulatory constraints on the company and its unaudited financial reserves, calling it a “red flag” for fraud investigators. Despite promises of transparency and audits, Tether only offers “attestations,” which are not the same as audits and only evaluate the accuracy of data at a specific moment in time.
However, contrary to the concerns raised by former SEC chief John Reed Stark, Tether has recently issued its Q1 2023 Assurance Report, which was attested by BDO Italia – one of the top five-ranked global independent public accounting firms. The report reaffirms the accuracy of the firm’s Consolidated Reserves Report (CRR), which provides a detailed breakdown of Tether’s assets as of March 31, 2023.
Furthermore, in a significant move towards transparency, Tether’s CRR now includes additional categories such as physical gold, overnight repo, corporate bonds, and Bitcoin ownership. These new categories are designed to increase transparency in its reserves reporting. The report also reveals an increase in Tether’s excess reserves, which have reached an all-time high of $2.44 billion, up from $1.48 billion in the previous quarter.
It is worth noting that Tether is reportedly headquartered in Road Town, Trinity Chambers, British Virgin Islands, and has been promising transparency and audits for the past seven years. However, Stark has expressed his doubt that the company has delivered on its promises and believes that its claims of transparency are nothing more than “smoke and mirrors”.
Former SEC Chief And CTO Clash In Heated ExchangeFormer SEC chief John Reed Stark has responded to Tether’s CTO, Paolo Ardoino after Ardoino shared a link to the company’s most recent Attestation Report in response to Stark’s concerns about the stablecoin. While Stark acknowledged Ardoino’s response and appreciated the availability of financial data, he remained skeptical about its stability and transparency.
— Paolo Ardoino
(@paoloardoino) May 10, 2023
Stark highlighted the fact that Tether has opted out of SEC statutes, rules, and regulations, unlike traditional SEC-registered financial firms. He expressed his confusion about how an $80 billion financial firm like Tether could do business with confidence without an official audit published with certified financial statements, as every US public company does.
Stark also questioned why a Chief Technology Officer (CTO) would be the company official tasked with making representations about a financial firm’s reliability, trustworthiness, and credibility.
He expressed his concern that Tether has repeatedly been sanctioned for “lying” about their reserves, been banned in Ontario, and is reportedly under criminal investigation by the US FBI and DOJ for bank fraud.
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Moreover, Stark emphasized that Tether is not regulated, despite the company’s implications to the contrary. He explained that regulatory frameworks come in all shapes and sizes and are not all equally robust, vigorous, and effective.
Despite these concerns, USDT remains one of the most widely used stablecoins in the cryptocurrency world, and its market capitalization has grown to over $80 billion.
However, if Stark’s warning is heeded, Tether’s days as a dominant player in the stablecoin market could be numbered.
Featured image from Unsplash, chart from TradingView.com