If by any chance you are reading "
Tether Transparency Update which Confirms 1:1 USD Backing", issued by
Freeh, Sporkin & Sullivan LLP (FSS).
Please don't fall for it... there is much more hidden than revealed in this report; just read these top comments on the
reddit and you will understand how deceiving this report is.
Comment#1CPA here. Former Big 4 Auditor. Have done said cash confirm procedures many times. Wanted to a share a few thoughts, FWIW.
These simply confirm a cash balance. The "unencumbered" written in the report after each balance is awkward, with no clarification as to the definition in the context of the report. I personally interpret that to mean unrestricted, non-escrow account, which I would expect this entity to hold their cash in--doesn't give me any additional confidence whether it was stated or not.
It's important to note that without a full audit, you're only seeing a third of the balance sheet categories right now. We have no information as to the entity's liabilities, and let's ignore equity for this discussion.
Without a full audit, we have no evidence that the entity has net assets. They could have $1 or $2.5B in liabilities, for all we know, thus rendering the true cash backing USDT (net of liabilities) unknowable
In my professional opinion, I do gain some confidence from the cash balances reported, but seeing only a portion of the balance sheet, the cash balances do little for me overall.
Additional note: the sentence in the report: "FSS did not provide the Tether personnel with any advance notice, nor did FSS provide Tether the account balance information gathered from the two banks prior to receiving the Tether balance information."
This also means nothing to me... The "advanced notice" portion is useless--Tether contracted FSS thus they know the procedures will occur. Also, Tether not providing FSS the bank balances and vice versa also means nothing--in fact, in a normal financial statement audit, you often are provided the balance by the client which you are confirming with the bank, which is totally legitimate. The fact that they didn't share balances doesn't give me any additional confidence, but seems written as if it's supposed to provide an uneducated reader such confidence.
Strange to me that a legal firm is performing an accounting firm's role. An entity this large can easily afford a Big 4 accounting firm to perform these procedures. Or even a mid-sized firm, which would provide investors greater confidence over the report. While cash confirm procedures aren't very difficult, would you rather have a plumber or an electrician wire your house?
Also, note that the report reads:
"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. As well, the firm's relationship with the bank allowed for the following review to commence in a timely and comprehensive manner, ensuring that no pertinent information was overlooked in the process."
While AICPA independence codes don't explicitly restrict an auditor from being on the board of a bank for which confirmation procedures will be performed with for a client, this falls into the gray area where the auditor would want to maintain independence "in form AND appearance."
Again, we aren't dealing with an accounting firm here, we're dealing with a legal firm. As I'm a CPA, not a lawyer, I am unaware of the independence rules that lawyers must abide by, and openly stating something like that, I'd imagine they are in the clear. Not ground shattering. However, contextually, Tether has struggled with accusations, and I find it strange that they wouldn't seek out a completely independent, third party accounting firm. Furthermore, the comments regarding the review occurring "timely/comprehensive/ensuring no pertinent information was overlooked" is very, very unprofessional. You wouldn't say something like this in an actual opinion and/or procedures letter, at least coming from an accounting firm, as it opens you up significantly to liability in the advent of a lawsuit. I'm rather surprised a legal firm would issue that in their report.
Final/Overall Thoughts: This report gives me no additional or decreased confidence in Tether. The questions it raises as to their lack of an entire audit, along with choice of firm, leave me with little evidence and don't do much for me.
Disclaimer: This isn't FUD, rather me hoping that my former boring job experiences and professional opinions might be worth something to someone. This also cannot be constituted as financial advice, and anything said within this comment is merely personal opinion based on professional experiences.
Comment#2I agree with /u/sniper24usa , except for he / she is quite generously dismissing the 'they could of hired professionals, why didn't they?' - I would argue that is a classic, very direct indication of fraud and intent to mislead the public. They incurred, what, $200,000 in costs for this ultimately meaningless statement? When they could of hired qualified, licensed professionals for the same fee?
As he states, if someone pays $200,000 to a plumber to certify the electrical wiring of a high rise apartment complex for sale, I would suggest becoming triply skeptical as opposed to simply saying "hum", though it's not factual, direct evidence of fraud.
My statement :
I am an auditor, licensed CPA, etc.
I know lawyers, and how they act. Remember a lawyer's BONUS only comes in AFTER a client gets sued. Up until then, they just earn retainer, basic fee. During a lawsuit, they get millions.
Granted there are kind lawyers out there, but corporate lawyers are paid to lie. And I don't mean 'whoops' but out-right lie. This is their responsibility. They HOPE for a lawsuit, and management simply hopes they don't get caught.
Auditors are quite different. Auditors are NOT allowed to play stupid (lawyers are). Auditors LOSE money in a lawsuit, lawyers gain money. While Auditors ultimately serve management (see Auditors Tether Fired), their obligation is to walk away from bad relationships, AND to warn others. Lawyers have no such obligation, and typically are actually forbidden from disclosing information, even to governments, where as Auditors are required to divulged all information that contacts them. And not "if sued" but every 3 years, or so - so regularly Auditors get 'Audited', by competent professionals.
So... pretend there is a medical clinic that does fake surgery, profiting Billions of dollars in 'untraceable' currency. Let's pretend a medical hospital with a reputation 'audited' this fake clinic, and was fired half way through. Now rumors fly. Now say there is a LAWYER who says "I've confirmed this surgeries to be legit".
Is he telling the truth? Well... one, he's NOT A FUCKING DOCTOR, or an Accountant - so he has provided NO EXPECTATION OF EXPERTISE. Just as a hobo can tell you he can cure you with a magic crystal and not get into trouble, so can a lawyer. Doctors can not. Likewise, Auditors can not, regarding financial matters.
Two, they FIRED THE FUCKING AUDITORS, the QUALIFIED, AND EDUCATED PEOPLE. Sure, maybe it was because they were fat, too black, or some other weird dumbass shit you believe, but it's MUCH more likely it was because their conclusion would have been unfavorable. I mean, they probably paid them $100,000 up to that point, why fire them for having a bad attitude? It's more likely it was because $100,000 is less than the cost of preventing them from issuing a statement.
THREE, the person telling you the 'surgeries' (or tether) are legit IS THE FUCKING PERSON WHO GETS PAID MOST WHEN PEOPLE LIE AND ARE HURT from said lies. You might want to ask yourself, ARE LAWYERS CHEAP HOBOS WHO DO WORK FOR FREE? Why then hire dumbasses who cost ass tons of money to do work they are WAY unqualified for, unless their primary qualification (being able to lie, and profit from it), is the exact and only skill you need.
Lastly, as someone else mentioned (I haven't read the report), the lawyers statement is that AT ONE TIME, Tether had equal dollars as Tethers. You might notice how absolutely moronic that statement is. I can represent on paper to have 100x more money than I ordinarily do, if the only question is 'what's the most money you are capable of possessing' instead of how much money do you normally possess. Creating an artificially high 'spot' price for an instant in time is relatively easy. Thus the lawyers could technically be correct (best kind), but highly misleading to the public.
...
WHY FIRE THE AUDITORS, AND WHY HAVE A lawyer ISSUE THE AUDITORS REPORT INSTEAD? Because they get paid to lie, dip.
But all that said, I suspect Tether has ~80% liquidity. I am 100% confident they have not had 100% liquidity, at all times. Just observing their business practices, I also feel confident they are planning for a lawsuit, and to flee jurisdiction. Maybe it takes years before their bubble gets popped, maybe never. Really all you need is around 40% liquidity to keep something like Tether working. But perpetual fraud is costly, and as time goes on they are more likely to eventually pop. Sure use Tether all you want, but calling it 'backed' by dollars is pretty stupid. It's just a centralized banking system put on to crypto with a false pretense. Is that a problem? Well, maybe, and maybe not.
Tether could also have 100% of their amounts backed up all the time now, who knows. But they fired their auditors, and hired a lawyer to issue an auditors report lookalike. Surely most are smart enough to know what that means.